Eyes on the Prize

Offering rewards for government innovation is vital to national security.

The federal government plays a central role in researching, developing and acquiring technologies to protect the nation from threats ranging from cyberattacks to nuclear disasters to pandemics. But during the past 40 years, there has been a growing innovation gap between government and the private sector.

Industry is now setting the pace in research and development spending, innovation and technology adoption across many fields. According to the National Science Foundation, federal spending accounted for 66.8 percent of the nation's R&D outlay in 1967, and in 2007, it accounted for only 27.3 percent.

The private sector's leading edge is good for the nation. Consumers and agencies benefit from commercially available technologies. Yet government's failure to lead R&D poses a threat to national security.

According to a recent report by McAfee, the United States is falling behind both China and Russia on cyber threat capabilities. The report suggests increased coordination with the private sector is necessary to shore up cybersecurity. Legitimate security and mission challenges slow government adoption, but bureaucracy, entrenched interests and inertia also play a role.

Ramping up technologies to bolster national security will require plugging into the vast innovation going on in the private sector. One way is to offer prizes for winning ideas, a practice long-used in industry.

The 2010 America COMPETES Act provides agencies with broad authority to conduct competitions to spur innovation, solve intractable problems and advance their missions. The Obama administration also established Challenge.gov as the central platform for crowd-sourcing to address federal challenges.

Competitions increase the number and diversity of minds in tackling tough issues, and require payouts only for success. They harness advancing global R&D across disciplines. NetFlix's offer of $1 million for the development of an algorithm to better predict consumers' movie preferences is a well-known competition that paid off. Another example is the Defense Advanced Research Projects Agency's Grand Challenges program aimed at advancing self-propelled robotic cars.

The approach is gaining steam in government, with 27 agencies issuing 70 competitions in February alone. Prize purses totaled $136 million. The momentum is promising, but to achieve widespread success agencies must address the underlying challenges of conducting competitions. They include the following:

Incentives. Innovation is inherently risky, and incentives for risk-taking are low in government. Agencies must create an incentive structure that stresses the upside to competitions and new ways of conducting competitions.

Training. Government must dedicate resources to teaching contracting officials new skills required to run competitions and recruit new employees who already have those skills. This will not happen overnight given the protracted budget cycles in government, so sustained support from senior leaders is critical.

Marketing. Officials must venture outside traditional contracting channels to market competitions to the public. Social media, press releases and media campaigns should target not only federal contractors but also those who don't focus on government work.

Bureaucracy. Agencies must ease the bureaucratic burden that dissuades many from engaging with the federal government. This is no small task and includes simplifying procedures for registering, competing and winning work.

Competitions can be highly effective, but they are not the solution for all innovation efforts. Under the right circumstances and with the right operational elements, however, competitions can foster vital public sector innovation in the years ahead.

Chan Harjivan is a partner and head of the Global Public Health Practice at the management consulting firm PRTM.