The Sweet Science of Incentives: How Prizes & Awards Are Changing Philanthropy

A couple of weeks ago, the Blue Avocado issued the Just Awards, a cheeky release from the nonprofit sector. The winner of the Award for Abominable Press Coverage was Stephanie Strom for her article in the New York Times, "Charities Rise, Costing U.S. Billions in Tax Breaks." Then, the crowning Award for Narcissism in Philanthropy was handed to the President of the Rockefeller Foundation, Judith Rodin. The sponsors describe the effort as "civil society's pointed mockery of itself," but just like People Magazine's 10 Worst Dressed List the point is not as much self ridicule as a stab at others.

I believe that there's a real use for this kind of platform, but the irony for me goes beyond offering a prize for bad behavior. Digging into the announcement, they name a few runners-up. Though somewhat encrypted, it's not hard to find my favorite. One of them is "a large bank that gives out funding based on American Idol-like popularity contests where nonprofits must urge their supporters to vote for them on the bank's website." So, here we have it, an award taunting an awards program. Now, it gets interesting.

Back in 2007, the Case Foundation started experimenting with online contests through America's Giving Challenge. It wasn't perfect, but they issued a frank analysis of the experience through a 20 page "Assessment and Reflection" report. And, we've seen a lot of followers. Most recently, news and controversy over Pepsi's Refresh Project and Chase's Community Giving Competition (yes, the "large bank") have echoed a lot of the same lessons.

If you're going to do it, you better start with an open, fair and utterly transparent process. Practical pointers include offering a leaderboard, technical support and lots of carnival barking heading into the final votes. By the way, the folks at Blue Avocado chose to remain vague in describing their process (including anonymous nominations), putting new meaning to their use of "Just." If you want to see a pretty interesting discussion of the inside scoop on these kind of contests, check out Global Giving's Chief Business Officer, Donna Callejon, at her interview on UStream. And, stay tuned for even more experimentation; at the latest count, the number of well documented case studies is growing and more are in development.

At the same time, we're witnessing a massive growth in other prize and award models. Last year, McKinsey issued a 123 page report on "prizes," describing it as a renaissance in philanthropy. In full disclosure, I was leading the prize development department at the X PRIZE Foundation at the time, and I participated in the study.

It doesn't take much research to learn that prizes and awards can work well, particularly for inducing some pretty amazing historic results (for a quick review, check out the KEI report, offering examples dating back to the 15th century). We've seen some highly credible studies from people like Karim Lakhani at Harvard, breaking down who and how these competitions are won. Even local governments are getting on board, with DC and New York opening up massive databases, so that public and private competitors can develop applications for real time bus locators or customized walking tours of these Cities.

And, this Friday I'm heading to a White House conference as a discussion leader to work with federal departments in adopting these models. In the United Arab Emirates, the Abu Dhabi Future Energy Company is using prizes in their commitment to build Masdar, a $30 billion investment in a zero-carbon and zero-waste City. So, from the largest possible scale to a town near you, the notion of offering incentives and competition to drive innovation is gaining traction rapidly.

Whether we like these models or not, there are two interesting stories here. First, none of these competitions are easy to pull off, even when you're trying to be ironic. Second, they are not a fad, no more than the social networking tools used to drive them. During a time when trends in philanthropy are pointing towards more market-based principles, the solid notion of competition for limited resources, the borrowed maxim of leveraging investment, and the holy grail of only paying for measured outcomes, prizes and awards offer these strengths and more.

Today, we hear many promises of the world to come, but whether we are transformed by these promises requires us to image something different. Too often, we can only see the change coming if there is something within reach, something relevant that we have already witnessed. So, I'm offering an analogy.

We are living in a time when technology is providing us with social interactions in a way that has never happened before (for those of you not convinced, please note that Facebook just passed Google as the most visited site in the US). But, we have to remember that the first generation of these social networking tools started with simple e-mail and then transformed into an amazing interconnected network. There, the virtues of openness, fairness and transparency are what determine an interesting forum from an abandoned one.

The challenges are the same, and social networking tools are highly relevant. We can and should use the Internet, or at least the analogy of a Web2.0 reality, to envision a new form of philanthropy, in which we can reach out and draw wisdom from these crowds. We need to blow the cobwebs out of traditional grant making, where decisions are made behind closed doors and bring a little democracy to our common causes. Through prizes and other incentives, we can achieve what was formerly only imagined.

Photo credit: terren in Virginia