Space Prizes: September 2006

Here is the school paper, warts and all, that produced the idea for this blog, sans word processor formatting.

Space Technology Prize Business Investigation

Abstract

Management and encouragement of technology innovation is a common problem in the space industry. The recent success of the Ansari X Prize contest, and the introduction of other prizes, such as America’s Space Prize offered by Bigelow Aerospace and NASA’s Centennial Challenges, have raised the profile of the space prize as a means to encourage space technology innovation. However, in spite of the success of Space Ship One’s flights, prizes are not guaranteed to produce technological or commercial success. It is important to understand the strengths and weaknesses of prizes before using them as a management tool to encourage technology innovation. This paper briefly examines some historical case studies of technology prizes to illustrate some of the strengths and weaknesses of prizes. It also compares prizes to other, more commonly used approaches to encourage technology advances, such as government development contracts, research grants, and patents. It is found that each of these mechanisms has advantages and disadvantages, and that it is possible to determine which of these approaches is most appropriate based on the organization’s goals and the situation at hand. A special emphasis is placed on the use of technology prizes as tools that can be used by management of commercial space enterprises to solve problems, and as a method other organizations can use to influence management of space businesses. However, because of the history and nature of both technology prizes and the space industry, the perspectives of government and non-profit organizations are also discussed. Finally, given the decision to use a space prize to achieve a goal, it is important to manage the space prize effectively. This paper reviews many factors that need to be managed when implementing a prize, such as prize rules, business communication, prize judgements, public relations, legal issues, marketing, and many common sense issues that may easily be overlooked. It applies ideas from the distinct literatures of history, current events, patent economics, management of innovation, government reports and testimony, practical business how-to checklists, and technology innovation prize proposals from areas as diverse as climate change research, African agriculture, and new energy technologies to the special situation of space technology prizes. It is intended to be a resource to help space business management determine when and how to offer or seek to win a space prize.

I. Introduction

Space has helped humanity in many contexts, including economics, science, exploration, education, technology, entertainment, and adventure. However, in many respects space has only yielded a small fraction of its potential benefit because of a lack of capability in specific technical or operational areas. For example, many space missions that could have a positive business result fail, or are never attempted in the first place, because of the high cost to deliver a payload to space, or the high cost to develop the payload. The cost of a part of a proposed space mission may preclude the mission from succeeding. In other cases, the limiting factor may be risk. For example, a mission may require a highly reliable launch vehicle to succeed. In still other cases, the missing capability may be responsiveness. A space mission may need to be launched shortly after it is requested in order for the business to succeed. The common theme is that a specific, well-defined capability needed by a commercial or other space mission may not be available, in which case the business will not happen. Although space launch is used as an example, similar limitations exist in almost any aspect of space business, from satellite components to ground stations to simulation tools.

There are a number of ways that governments and businesses typically address the situation where it is recognized that a capability that is needed for a business or operation to succeed is not present, but the business has enough potential benefit to make the attempt to create the capability worthwhile. One obvious approach is to attempt to develop the capability directly. In many cases, such an approach is impractical because the required expertise is not available within the organization that needs the capability, or the organization is busy managing other tasks more central to their business. Another approach often used is to select and fund an external group with a research or development plan that may create the desired capability. This is the grant approach often used by government with universities or research labs, but the approach is used in other contexts as well. Another approach is to create a contract with an external organization that specifies a solution that the external organization will deliver. Yet another approach used by government to broadly encourage innovators to develop new technologies that will result in benefits to society is the patent system. All of these approaches to encourage innovation are used widely, and all have their advantages and disadvantages. In spite of their wide use, there is a sense in many fields, such as space, pharmaceuticals, climate research, energy, and agriculture, that these traditional innovation incentives have, because of the peculiar organization of the relevant market and the difficulties in developing the particular technologies, failed to provide the most efficient type of incentives to innovators to solve key problems in these areas, and as a result, these areas have in some ways stagnated. One common suggestion has been raised in all of these fields to address this problem. This suggestion, however, is not a new one. It is one that, although not now commonly used to inspire specific new technical capabilities, has been used successfully many times over the centuries for this purpose. It is at its core a simple mechanism that is already familiar and well understood in many other aspects of society: the prize.

II. History of Technology Innovation Prizes

It should be no surprise that many prizes have been offered and won over the years. That is important because the result is that there is a great deal of experience and understanding of how prizes work in theory and actual business practice. However, only a small subset of prizes are for improvements in science, technology, and improved business capabilities. Most prizes in the areas of science and technology are in a class of prizes called recognition prizes1. These prizes reward past achievements. Examples of this type of prize are the Nobel Prize and the Heinlein Prize. Some prizes like the Malcolm Baldridge National Quality Award reward future achievements, but are awarded for process improvement and not specific improved technical capabilities. However, there have been numerous prizes offered over the years designed to encourage future improvements in particular scientific or technical capabilities. It is useful to review some highlights of this history. The history of technology innovation prizes is long and rich; only certain aspects of particular prizes that show clear lessons that can be used by potential business sponsors or contestants of modern space technology innovation prizes are presented.

One of the more well-known historical technology innovation prizes is the Longitude Prize2. It is useful to keep in mind the current entrepreneurial space access businesses and the X Prize when considering this historical prize. The Longitude problem, or the problem of finding the Longitude of a ship one is on, greatly limited the business and government use of the oceans, just as today's space access problem limits the business and government use of space. There were earlier prizes to solve the Longitude problem, but they weren’t won. Offering a prize does not guarantee that the problem will be solved, but persistence helps improve the chances that the problem will one day be solved. The English government set up a "Board of Longitude" to judge any solution to the Longitude problem, and to reward the innovator. Over the years many diverse solutions were attempted. Many of the contestants were intelligent and dedicated, but most proposals were far-fetched. The eventual winner, John Harrison, wasn't a well-known scientist or rich businessman. He was a simple but creative and dedicated carpenter and clock-maker. Clocks of the day were unable to solve the Longitude problem because they were inaccurate and would become even more so with the swaying of a ship on the ocean, the changing heat, humidity, and air pressure on the ocean that would cause clock components to expand and contract, and the salty air. With a few promising ideas and a clock prototype that didn't use a pendulum, Harrison convinced a prominent clock maker to fund his ideas to make an accurate ocean-going clock. Eventually he was able to produce a clock that would win the prize, but political changes caused the Board of Longitude to prefer a solution based on large-scale astronomical efforts. It took Harrison additional decades to finally collect the prize. There are lessons here for entrepreneur space businesses seeking to win a prize, as well as businesses organizing a space technology prize. The entrepreneurs should take heart that it is possible for small but dedicated and creative businesses to overcome many obstacles and finally achieve their goals. However, they must be prepared for the possibility of years of frustration, adversity, and hard work. For the prize sponsor, it is important to accept, and actually to encourage, solutions to the problem that perhaps do not fit the organization's preconceived idea how the goal should be achieved.

Other important early prizes that resulted in significant technology improvements include a prize offered by the French Academy for an early chemical process, and a prize offered by Napoleon for the ability to preserve food for soldiers3. It is significant to note that for these prizes, patents were complimentary incentives for the innovations. From a business point of view the patent may have been the more important incentive, but the prize advertised the need for the innovation.

More recently, many prizes were offered for improvements to cars during the early days of the automobile industry4. These prizes were often associated with races, and were designed to provide incentives to improve specific characteristics of cars, such as speed, economy, size, noise, safety, and performance. This incremental improvement approach may be more practical than the common space approach of trying for "great leaps" in progress in multiple areas at once. At the time of the prizes, there was no car industry, but there were "car startups", some of which later became car industrialists. The races and prizes helped focus the efforts of these car experimenters, gave them publicity, and allowed them to learn from each other.
Perhaps because of the similarities of their industries, possibly the most commonly used model for discussing space technology prizes is the series of aviation prizes offered during the early days of that industry5. However, it isn't easy to tell how significant these prizes really were to the early aviation industry, since there were other powerful incentives to improve aviation technology at the time of the prizes, such as commerce, military interest, and mail contracts6. It is probably prudent to consider the prizes as yet another effective tool used in conjunction with existing market forces and other incentives, without overemphasizing their effect. Like the car prizes, the aviation prizes tended to encourage targeted, incremental improvements, such as distance, altitude, and time records. They set goals for the contestants but did not specify in detail how those goals should be achieved7. Although one may have a preconceived notion of government or non-profit organizations offering prizes that small businesses compete for, in fact any of these organizational types can fill the role of prize sponsor or prize contestant. In the case of the aviation prizes, governments sometimes were contestants8. A couple lessons for space prizes can be learned from the famous Orteig Prize to cross the Atlantic without stopping. One lesson is that one of the reasons Orteig offered the prize is that he believed that a flight that could cross the Atlantic would be good for his New York hotel business that catered to French aviators9. In other words, he used the prize to achieve a goal for his business. Another lesson is that the successful win of the prize was followed with incrementally more challenging but similar prizes to reach Hawaii and Tokyo from the mainland United States10. Will similar, but incrementally more ambitious, prizes follow the X Prize? If not, it is possible that the long term significance of the X Prize may be diminished.

Another illustrative example of a technology prize is the Super Efficient Refrigerator Prize for an energy efficient and environmentally friendly refrigerator11. In this case the prize was based on a combination of measurable physical capabilities and market measurements. One of the goals of the prize was to encourage not just technical success but also commercial success. The winner, Whirlpool, achieved the technical goals but never achieved the market goals, in part because it won the technical prize round, thereby defeating the other contenders. The other contenders lobbied to postpone stricter energy efficiency regulations, which weakened the market for the product. This prize illustrates the dangers of multi-phase prizes, and the possibility of politics intervening in a prize. The prize also lost the benefit of innovation by small entrepreneurs, since only the largest competitors could hope to win the market challenge.

In contrast to the Refrigerator Prize, the Kremer Prize for Human Powered Flight was accessible to small entrepreneurs, but an immediate market for the new capability was unlikely to materialize12. The prize and associated innovation allowed the winner to continue his small innovative business. He was able to win future prizes, gain sponsorship of Dupont, whose materials were used in the innovations, and contribute to future innovations such as long duration unpiloted airplanes, tiny planes, the high altitude airplane Pathfinder, solar and electric vehicles, and fast human powered ground vehicles.

Many other technology prizes have been offered, but these provide a representative sample of the kinds of technology innovation prizes that can be offered, the reasons why an organization might want to offer them, the reasons why an organization might want to go to the trouble to win them, some approaches that have succeeded, and some approaches that have failed. This leads to recent events in the space industry, where prizes are finally becoming accepted.

III. Current Events Related to Space Technology Prizes

Although in recent decades technology innovation prizes have been a minor factor in technology innovation, a new interest has developed in technology prizes. There are many reasons for this, such as frustration in certain fields that problems have not been solved using traditional innovation management approaches and theoretical developments in the area of prize economics. However, one crucial development bringing the recent interest in prizes is the creation and win of the Ansari X Prize to encourage development of a vehicle that can repeatedly reach the edge of space with passengers. This prize succeeded not only in its goal of encouraging the development of a particular technical capability, but also encouraged interest in commercial operation of the capability and related support businesses. In addition, it brought suborbital space flight to the attention of the general public. Its success in these multiple areas has brought renewed attention to prizes as an innovation management tool.

Following the X Prize, Bigelow Aerospace offered the larger America's Space Prize, a cash prize along with the possibility of subsequent business, to encourage development of an orbital spacecraft that can transport passengers to an orbital space station that company wants to develop. This is a key example of how space innovation prizes could be used as a management tool by a commercial business. Bigelow Aerospace envisions a core business model of orbital space tourism. The company is focusing its efforts on developing this service. However, it recognizes there is a capability outside of its core business that is required for its business to succeed, namely a means to cheaply and safely transport passengers to and from a Bigelow space station. Bigelow could have used more traditional means of encouraging that this capability is developed, such as in-house development, a research and development contract, or a research grant. However, the advantages and disadvantages of the various mechanisms were in all likelihood analyzed, and in this particular case the prize was chosen as the most appropriate management tool.

Prizes do not have to be huge to be successfully used by a space business. For example, XCOR Aerospace offered a small prize for a steam engine that met specifications that could be useful to them. This prize was won, which allowed XCOR to explore an alternate solution to an engineering problem they had investigated13. The point is that in the technology and cost driven space industry, there are many situations where a lighter, or cheaper, or more robust, or otherwise improved capability may be desired by a space business. A prize may be an efficient means for the business to solve such problems without diverting significant funding or management attention to the problem.

After the X Prize win, NASA began the Centennial Challenges series of space technology prizes. Compared to most space programs, these challenges are small. They offer prizes that encourage work on particular technology goals whose solution would be useful to NASA programs, such as a better astronaut glove or stronger tethers that could be used on a variety of space missions 14. However, the Aldridge Commission report suggested that NASA's Centennial Challenges do not offer large enough prizes or encourage developments that are critical enough to NASA to either achieve NASA's internal goals or to significantly encourage commercial space business. Most current Centennial Challenges offer prizes at about $250,000; the commission recommended ambitious prizes in the range of $100 Million to $1 Billion15.

A number of non-space technology inducement prizes have been offered or proposed since the X Prize. For example, a series of prizes to encourage new energy technologies has been proposed in Congress16. These prizes may increase today's decision-makers' general familiarity and comfort with technology innovation prizes as a management tool.

IV. Current Practices: Patents, Grants, and Contracts

To understand how to manage technology prizes, it is important to understand other means to achieve the same goals. Only then can the advantages and disadvantages of the various options be understood. The traditional ways to encourage technology innovation in outside organizations are patents, grants, and contracts.

Patents reward technology innovation by giving the inventor a temporary monopoly on the commercial use of the technology. In exchange for developing the new technology and making its internal workings public, the innovator has a chance to develop a business without competition for some time. The patent mechanism is of course a technology encouragement tool used by government, but it does influence the decisions a commercial manager will make. One advantage of the patent system for the sponsor is that it doesn't require funds like a prize does, except for those funds used to evaluate innovations and manage the patent process. However, there are a number of other costs of the patent system. The patent system is general, so it is not effective at directing effort at a particular capability that the government may decide is needed. Another problem with patents is that they are not effective incentives in areas where a sufficient commercial market is not available to justify the investment, such as the development of pharmaceuticals that could help small numbers of people or agricultural products that could be used by poor farmers17. Another problem with patents is that the resulting monopoly is harmful to the consumers of the product18. For this reason, various prize mechanisms have been suggested that could replace or augment patents. For example, the government could determine a prize value for patents and offer cash instead of a monopoly. However, it would be difficult to determine how much a patent is worth, especially since there many not be a one to one correspondence between patents and commercial products19. For this reason, it has been suggested that a general series of prizes be offered as a technology development incentive, but the prize would not be offered until long after the innovation is made public so a more accurate assessment of its value can be made.

Another important tool to encourage technology innovation is the research or development grant. Grants are often used by government, but can also be sponsored by a business to solve a commercial problem. One problem with grants is that the process of selecting a grant recipient is too long and distracting for commercial operations20. Another problem with the grant process is that it uses a peer review system that favors the pre-conceived ideas of the peer reviewers. In cases where a problem has remained unsolved after traditional solution methods have been tried, less accepted ideas and approaches may be valuable to try. With the political process involved, governments in particular can have a difficult time selecting the most worthy recipient of a grant21. Also, after a grant has been won, and a project that at first seemed worthy is shown to be a dead-end, politics can interfere and cause the grant to continue to be awarded22. An important disadvantage of grants is that they involve a lot of expensive paperwork and cost on the part of the grantor and the grantee to allow monitoring of progress23. Note that every one of these disadvantages are particularly difficult for small entrepreneurial research or development businesses to overcome. A final disadvantage, from the point of view of the organization offering the grant, is that even if the project fails, they will have spent their funds24. Since the researcher or developer is more able to assess the project's prospects for success, it may be more appropriate for them to invest the funds. A prize model would encourage them to invest the funds if their assessment was that their chance of success made the effort worthwhile. Prizes address many of the drawbacks of grants, including the cumbersome process to select the grantee (prize contestants self-select), the tendency to select a conservative attempt to solve the problem (prizes encourage multiple diverse attempts at solution), the political process (a prize is more easily designed to be buffered from most political interference and based on physical measurements), and paperwork (the level of paperwork is up to the contestant).

Like grants, contracts are also often used by government, but can also be used by management of commercial firms to solve problems externally. However, contracts suffer from many of the disadvantages that grants do. Procurement contracts also suffer from a costly and time-consuming process to initiate the work25. They also limit the universe of those trying to solve the problem to the single organization that wins the contract. Contracts also favor conservative approaches, which may limit the benefit of the development even if it is successful26. If the project is not successful, the organization offering the contract will still have to pay for the work27. Unfortunately, it may be quite likely that the project will fail in this way, since a cost-plus style of contract does not give significant incentives for the contractor to work efficiently28. Contracts are also vulnerable to political manipulations in the selection and continuation of projects that meet political goals unrelated to the achievement of the technical capability that the contract is meant to provide. Like grants, contracts require expensive and time-consuming mechanisms to monitor proper conduct on the contract. As is the case for grants, prizes are an effective alternative that can address these weaknesses of contracts. In cases where these weaknesses are crucial factors, the alternative of prizes should be considered.

The literature on management of innovations suggests that large companies that dominate one generation of a business or technology are seldom the ones that dominate the subsequent generation29. In spite of the greater resources and experience of the existing large businesses, they have difficulty innovating because their management attention, priorities, business processes, current customer needs, and values are all centered on operating the existing business successfully and profitably. They do not have the attention, inclination, or habits to make the business decisions that will allow innovation to succeed and a new business that perhaps contradicts the old business to grow. For example, a mainframe business will not be impressed by the low profit margins and unimpressive capabilities of a first generation desktop computer. Their corporate mainframe customers wouldn't want such a thing, and the profits would be too small on each sale anyway. The same would be true of a big financial services firm's view of a first-generation H&R Block personal financial service. The key to innovation is often in small firms that use technologies in cheaper or different ways to provide new types of services. Unfortunately, it is often the large established suppliers least able to deliver innovation that win the grants and contracts. At a fundamental level the fact that prizes can circumvent this flaw is one of their greatest advantages compared to grants and contracts.

V. Advantages and Disadvantages of Prizes

A few of the advantages of prizes compared to contracts and grants have been discussed, such as reduced paperwork, the shift of risk from sponsor to contestant, the buffer from political influence, and the opportunity for multiple approaches to solve the problem. However, it is worthwhile to more fully explore the advantages and disadvantages of prizes for technology innovations to give insight into what situations do and don't call for prizes.
One advantage of prizes is that they are particularly effective when the prize sponsor knows exactly what capability they need, but don't know how to get that capability or who might be able to offer it30. Compared to a grant or contract, a prize relieves the sponsor of the need to figure out who, if anyone, can solve the problem. The contestants themselves determine that by their performance.

Another aspect of prizes useful to the prize sponsor is that even if the contestants fail to produce a winning innovation, the prize itself may succeed31. For example, if a number of attempts are made to solve a problem, depending on how open the contestants are to sharing or selling information, some insights may be gained into partial solutions to the problem, or avenues of investigation that are not worth following up, or other avenues of investigation that may yield better results if more effort is applied. Armed with this knowledge, and still possessing the prize money, the manager in charge of the business that needs the capability can decide whether to attempt to solve it with a larger or different prize, a grant, a contract, or internal development. Alternately, they could decide to abandon or alter the business that needs the capability.
Yet another advantage of prizes is that, if managed properly, they can provide good advertizing or public relations value32. This is true for both the business sponsoring the prize and the businesses competing to win the prize. Since prize competitions can, if presented properly, invoke the same kind of entertainment aura as a horse race or a television game show, it may be relatively easy to get considerable free media attention at numerous phases of a prize competition, such as the announcement of a prize, the entry of a contestant in a prize competition, the competition itself, and the award ceremony33. This is particularly true since prizes are not a commonly used mechanism to inspire technological innovation, so there is currently a certain amount of novelty to the approach. Since advertising and public relations can be expensive, this savings can in some cases offset the cost of the prize itself. Good publicity and advertising for both sponsor and contestant is doubly beneficial to both, since in all likelihood the health of the contestant winner is important for future interests of the sponsor, and vice versa, such as in the case where the new capability will become a commercial product that the sponsor will buy from the winner34.

Another advantage of prizes is that they are not necessarily restricted to business contestants, whether large or small. A prize can be designed to allow numerous types of contestants. For example, a space prize might not just be offered to large aerospace corporations and entrepreneurial space companies35. If the sponsor is interested in encouraging many teams to try to solve the problem with both conservative and non-traditional ideas, they just need to design the prize rules to allow this. In addition to the space industry, such a prize might also be winnable by rocket clubs, academic departments or labs, astronomy clubs, space interest societies, open source software volunteers, large and small companies that are completely outside the space industry, and the general public. It is also possible for any combination of these potential sources of innovation to combine efforts to win the prize. Even separate competitors can cooperate to help each other increase their chances to win, which is entirely to the benefit of the sponsor36. A similar situation is difficult to imagine in a traditional cost-plus contract environment.

Just as it is possible for prize contestants to combine resources, it is also possible for prize sponsors to combined resources. For example, the NASA Centennial Challenges program is interested in sharing prize costs with other interested organizations. They already have arrangements with a number of external organizations to manage many of the Challenges. The X Prize was also the result of a number of sponsors. It is not out of the question for a number of businesses with a similar problem, even if rivals, to combine resources to create a prize that would solve a problem they all share.

Another advantage of prizes is flexibility in designing their rules. For example, a company can design a non-cash prize. They might commit to purchasing a certain number of the product that is the goal of the prize at a certain price if it meets certain specifications. This may be something they would be glad to do anyway if the product existed, in which case in effect the prize itself would not cost them anything.

Another advantage of prizes is that they can be combined effectively with other mechanisms like contracts, grants, and patents. For example, a small prize could be offered for prototypes that solve a particular problem. Several awards could be given if multiple prototypes are created that meet the requirements. With the prototypes available for study, testing, and comparison, the sponsor can then evaluate which prototype is the best, and offer a traditional development contract for the winning organization. This would improve cost estimates compared to a contract offered before a prototype is made, and would reduce overhead costs since there is no need to oversee development of the prototype phase37.

A final advantage of prizes for the sponsor is that they can, if designed properly, actual earn money. For example, a prize that captures the imagination of the public, or at least the relevant industry, can make money with entry fees for contestants. This may also reduce prize management costs by weeding out contestants that aren't serious. Tickets could also be sold to the prize competition or the award ceremony38. The key to achieving this advantage is to create a prize that is compelling enough to generate enough interest to allow ticket charges. However, this challenge must be addressed anyway, since a compelling prize is needed to attract contestants in the first place.

Some of the advantages of prizes are particularly pertinent to the businesses trying to win the prize. For example, the public relations and free advertising that can come with being a prize contestant or prize winner can be particularly important to a small entrepreneurial company. Another benefit to an entrepreneurial prize contestant is that their credibility can increase dramatically if they win a difficult prize37. The prestige and honor of winning a prize can be more important than the prize itself. In addition, competing for or winning a prize can result in many improvements inside the company, such as improved morale, better motivation, high employee self-esteem, better quality, better teamwork, and increased job satisfaction39. Many employees grow up participating in and enjoying sports or games. The similar environment of a technology prize competition, as opposed to the less clearly defined traditional market competition, may suit them well.

Although there are numerous advantages of prizes, there are also a considerable number of disadvantages to this approach to acquiring new technical capabilities. One disadvantage is they do not supply contestants with the money they need to win the prize40. This can be an important disadvantage if the best prospects for achieving the required innovation are from small, poorly funded entrepreneurial firms. This disadvantage is particularly important if a prize is especially challenging. Even with a very large prize as an incentive, it may be impossible to encourage enough research or development funding to win the prize, since the competitors may not be sure if they can solve the problem, or, if the prize is a "first through the gate" type of prize, whether or not another competitor will win first41. Funding organizations may not be willing to take on such a risk.

Another disadvantage of prizes can be the overhead to manage the prize42. For example, the DARPA Grand Challenge project spent $11 million to manage the prize because of safety and environmental concerns. The actual prize value was much smaller.

Another disadvantage of prizes is that a prize winner is not necessarily the one that can continue to offer the new product in the marketplace43. However, this disadvantage also holds for contracts and grants. If the goal is simply to encourage a technical solution to a problem which the sponsoring business can then adopt, and not to encourage an on-going market, this disadvantage is irrelevant. If the goal is to encourage a commercial product, it is always possible that a competitor that doesn't win the prize will nevertheless develop a commercial product that meets the needs of the prize sponsor, which from the sponsor’s point of view is just as good as if the prize winner developed the commercial product.

Another disadvantage of prizes is that there is no way to ensure that any competitors will actually work on the prize44. At least with a contract or grant, there is an assurance that someone is at least trying to solve the problem.

An important disadvantage of prizes is that they are an innovative technique that may inspire opposition from groups that rely on traditional methods. Threatened businesses or organizations usually will fight new innovations using all available resources, whether commercial, public relations, or political45. For example, existing contractors or grant recipients, and Congressional representatives who support them, may limit the size of government technology prizes, may force government prize administrators to spend prize money on other jobs, or may use their influence to structure prizes in such a way that they will be easier for their preferred constituents to win. This sort of thing is always possible in a government program, since representatives aren't only interested in achieving technical results but are also interested in political goals like industrial policy and constituent jobs, but it is particularly likely in a new type of program that threatens established interests46.

The important conclusion is that technology prizes have many advantages compared to grants and contracts, but they also have many disadvantages. The manager that is presented with a needed but unavailable capability should be aware that in some cases technology inducement prizes may be an effective tool to solve their problem. However, they should also be aware that a management tool that might work brilliantly in one situation would be hopelessly inappropriate in another47. A manager should be aware of the advantages and disadvantages of all of the methods, and be able to choose the right one for a given situation. In addition, they need to understand how to manage whichever method they chose.

VI. Management of Prizes

Before even considering embarking on a prize business strategy, the business needs to encounter a problem, such as the need for a new innovation, that could be solved by a prize. Then it needs to determine that a prize is the most appropriate means of resolving the problem, keeping in mind the advantages and disadvantages, discussed earlier, of prizes compared to other methods. Having chosen to implement a technology prize, a manager is suddenly presented with many unique opportunities. At the same time, they are presented with many ways to fail. Management of prizes may be uncomfortable to a manager accustomed to cost-plus contracts or research and development grants. Fortunately, management of prizes is not a mysterious or unknown process. Many thousands of prizes have been offered in many contexts for many years. Some organizations have developed the management of prizes into a routine procedure. Prizes are not commonly used in the context of technology innovation encouragement, but the lessons of prizes in other industries apply well, with only minor customization, to technology innovation in the space industry.

As with prizes in other contexts, such as media awards like the Academy Awards, business quality awards, and prizes to honor accomplishments of employees within an organization, a space technology prize needs to be designed to meet the goals of the prize, and then management needs to follow through on this design. There are a number of areas to consider in this design and implementation process. Although there are a myriad of management actions needed for technology prizes as with any complex management task, some of the most important areas for management are overall prize administration, prize rules, costs, income, legal and ethical issues, public relations, and the option of an awards ceremony.

Administration of a prize includes many different management tasks, including all of the areas just mentioned, but also including many others such as selecting prize competition judges, managing communication among various internal and external participants and stakeholders, and making numerous decisions. Typical decisions include what to do with the prize money while it has not yet been won, whether or not to assist competitors with planning meetings or advise, how to manage insurance or liability issues if the technology could cause accidental harm, and whether or not to seek recommendations from celebrities or industry leaders48. If a prize is needed by a certain deadline, or it is a scheduled prize such as an annual contest, various other events in the prize time line need to be scheduled going backward from this date, with adequate buffer times for unexpected events49. Another important decision is whether or not the prize should be cash, or a guarantee to buy a certain amount of the new technology at a certain price, or a combination of these incentives50.

One aspect of a technology prize is that it may act as a message to existing suppliers. They may realize that their customer is not satisfied if they see that the customer is offering a prize to essentially replace them. This message may result in improved efforts by the supplier, but the message needs to be handled carefully.

Prize rules need to be designed to meet the goals the prize is intended to meet. They should be clearly written so there is no misunderstanding for any contestant. They need to be written in such a way that the winner cannot win the prize without meeting the underlying business need. The rules also need to be fair for all competitors, or potential competitors will likely not appear, and public appreciation for the prize will be low. There are all sorts of prize details that need to be precisely defined in the prize rules, such as who is eligible to compete, what happens in a tie situation, how many prizes can one group win, how is the contest run, how is the contest judged, and what are the deadlines51. Although these and many other issues need to be addressed in the prize rules, it is important for clarity and for efficient operation for the rules to be as succinct as possible.

Depending on the design of the prize, there are many potential costs involved. These costs need to be quantified before embarking on the prize. Examples of costs that should not be overlooked are the costs of travel and meetings associated with managing the prize, the costs of implementing any prize competition event, costs of any award ceremony for the winner, costs of public relations, communications, and advertising associated with the prize, and costs of physical artifacts like office supplies to run the prize, trophies, computers and Internet presence, and media artifacts like program books, rule books, and videos. There may be other costs, such as legal representation, hotel or conference site costs, and food and drink costs for any prize events. The value of the prize itself should not be overlooked52.

Although there are many potential costs during a prize life cycle, there are also many opportunities for income from a prize beyond what the winning technology will bring to the organization. As with the costs, these will depend on the design of the prize. One possible source of income is an entry fee for competitors. Such a fee should not be so high that it drives away competitors. It is possible to earn income during a popular competition event through sales of tickets, vendor spaces, souvenirs, videos, or brochures. Similar types of income are possible if an award ceremony is planned and the prize has earned sufficient public recognition. It is also possible to gain income by selling media rights to groups like television stations. It is also possible to offset costs with income from secondary event sponsors. Needless to say, a prize contest or ceremony must be special in some way to generate enough interest that these income sources become feasible. For example, a large breakthrough prize, a prize with sponsorship or attention from popular sports or entertainment personalities, or some other compelling aspect of the prize designed by the public relations group would be needed53.

Public relations is more important in the management of innovation prizes than with grants or contracts. It is crucial for gaining the attention and interest of a wide range of competitors in the first place. It is also important in inspiring public interest, or at least industry interest, in the prize. This interest and support is one of the main drivers for the sponsor of the prize and for the competitors. In a prize competition like "American Idol", the sponsor Fox benefits from public interest in terms of ratings, the prize winners and Fox benefit from efforts like albums based on the winning entry, and other contestants can also sometimes do well commercially after the event54. The situation is completely analogous for a space technology prize. However, these "side" benefits of the prize are entirely dependent on the success of public relations. There are many tools available to the public relations effort, such as trade magazine ads, press releases, and Internet sites on the prize. The public relations group should always be able to respond to media questions about the prize. Press releases and media inquiries are essentially opportunities for free advertising that the public relations group should use. The goal of the public relations group is to show the public or industry why they should be excited about the prize, how it is beneficial to them, and how fairly and professionally the prize is being managed55. It is up to the management of the prize to ensure that the nature of the prize makes this job easy for the public relations group.

The prize needs to be run in a fair, legal, and ethical manner. A prize relies on the perception of the public and contestants. A lapse in ethics, fairness, or legality, or a perception of such a lapse, will tarnish the prize. It is important for all rules to be written unambiguously so there is no room for controversy during the prize life cycle. Unclear rules invite lawsuits. It is also important when a technology prize could involve injury or other harm, such as a prize involving some kind of space vehicle, to make sure all competitors know and are capable of managing the risks appropriately, and that disclaimers are in place for any actions of competitors. Finally, with technology prizes, it is important to specify what rights, if any, the business expects to have to the intellectual property of the innovation56.

An awards ceremony presents many opportunities for income, for recognition of the prize, contestants, and winner, and for celebration. It also presents many opportunities for public mistakes. If an awards ceremony is planned, it should be managed, since the intangible benefit of recognition and honor are so important with a prize. Thought should go into the choice of venue for the prize. For a space technology prize, will the ceremony be in or near a space-related museum or historical site, or will it be near a space industry conference? Good choices will improve the chance that the public or industry will want to be spectators at the event. It is important to arrange and schedule all aspects of the ceremony, such as guest speakers, food, lighting, entertainment, comfort, and number of seats. Giving the audience a good experience will make any future prizes easier to manage. With modern media expectations, it is appropriate to script, schedule, and practice the entire ceremony so any issues can be discovered before the audience is present. Because a space technology prize award ceremony is likely to be viewed mainly by industry participants, it is appropriate to schedule times for deal-making and similar social activities57.

VII. Conclusion

In the end a business may be interested in technology prizes as a management tool, but they may not be ready to make such a dramatic move all at once. In this case, one option is for such a business to experiment with incentive prizes for employees, or prizes mainly involving recognition rather than money for small technology innovations. If these succeed in addressing business goals, the business can build upon these successes.

Another possibility is to contract for prize management services. If the prize method becomes more commonplace, a new type of business may arise that manages prizes, or phases of the prize business model. For example, one type of prize management business might organize the whole prize process from beginning to end for their corporate clients. Perhaps they would develop business units with expertise in specific industries such as space. Other businesses might concentrate on smaller parts of the process, such as public relations, legal issues, or award ceremonies. This new type of business might have corporate, government, and non-profit customers. They might also have customers with prizes not related to technology innovation, such as management of any of countless existing prizes. However, until such time as experienced external prize management services become available, management that decides to use a technology prize will be best served if they become intimately familiar with the history, current environment, advantages and disadvantages of, alternatives to, and ways to manage technology innovation prizes.

References

1National Academy of Engineering, "Concerning Federally Sponsored Inducement Prizes in Engineering and Science, Report of the Steering Committee for the Workshop to Assess the Potential for Promoting Technological Advance through Government-Sponsored Prizes and Contests", Washington, DC, 1999.
2Sobel, D., Longitude, The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time, Walker and Company, New York, 1995.
3Masters, W.A., "Research prizes: a mechanism for innovation in African agriculture," Paper presented to the 7th International ICABR Conference on Public Goods and Public Policy for Agricultural Biotechnology, Ravello, Italy, 2003.
4Macauley, M. K., "Advantages and disadvantages of prizes in a portfolio of financial incentives for space activities". Space Policy, Volume 21, Issue 2, 2005.
5Maryniak, G. "When Will We See the Golden Age of Spaceflight?" Space: The Free-Market Frontier. The CATO Institute. Washington D.C., 2002.
6Davis, L. N. and Davis J., "How Effective Are Prizes as Incentives to Innovation? Evidence From Three 20th Century Contests." Presented at DRUID Summer Conference 2004 on Industrial Dynamics, Innovation and Development Elsinore, Denmark, 2004.
7Macauley, 2005.
8Ibid.
9Schroder, A., "The Application and Administration of Inducement Prizes in Technology", Independence Institute, Golden, CO, 2004.
10Masters, 2003.
11Masters, 2003.
12Davis, 2004.
13XCOR Aerospace, URL: http://www.xcor.com/ [cited 27 July 2006].
14Wade, D., "A Zoom with a View", IEE Review, 2006. www.iee.org/review.
15"A Journey to Inspire, Innovate, and Discover." The President’s Commission on Implementation of United States Exploration Policy, 2004.
16The H-Prize Act of 2006. U.S. House of Representatives, Committee on Science, Hearing Charter: H.R. 5143.
17Masters, 2003.
18Penin, J., "Patents Versus Ex-Post Rewards: A New Look", Research Policy 34, 2005.
19Abramowicz, M. B., "Perfecting Patent Prizes", George Mason Law & Economics Research Paper No. 01-29, 2001.
20Schroeder, 2004.
21Abramowicz, 2001.
22Newell, R. G. And Wilson, N. E., "Technology Prizes for Climate Change Mitigation", Discussion Paper, RFF DP 05-33, Washington, DC, 2005.
23National Academy of Engineering, 1999.
24Newell, 2005.
25Schroeder, 2004.
26The H-Prize Act of 2006.
27MacCaley, 2005.
28Newell, 2005.
29Luecke, R., Managing Creativity and Innovation, Harvard Business School Press, Boston, 2003.
30Holtz-Eakin, D., "Economic and Budgetary Issues with Cash Prizes to Achieve NASA's Objectives", CBO Testimony before the Subcommittee on Space and Aeronautics, Committee on Science, U.S. House of Representatives, 2004.
31Schroeder, 2004.
32Davis, 2004.
33Masters, 2003.
34Leverence, J., "And the Winner Is... Using Awards Programs to Promote Your Company and Encourage Your Employees", Merritt Publishing, Santa Monica, 1997.
35Holtz-Eakin, 2004.
36Davis, Lee N, 2004.
37Leverence, 1997.
38Ibid.
39Ibid.
40Macauley, 2005.
41Holtz-Eakin, 2004.
42Schroeder, 2004.
43Davis, Lee N, 2004.
44Macauley, 2005.
45Luecke, 2003.
46Newell, 2005.
47Washington, W., Some New Approaches to "Reward" Contracting. Acquisition Review Quarterly, 1997.
48Schroeder, 2004.
49Leverence, 1997.
50Newell, 2005.
51Leverence, 1997.
52Ibid.
53Ibid.
54Schroeder, 2004.
55Leverence, 1997.
56Schroeder, 2004.
57Leverence, 1997.

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