The Case of the X Prize Foundation

The use of competition-based processes for the development of innovations is increasing. In parallel with the increasing use of competition-based innovation in business firms, this model of innovation is successfully being used by non-profit organizations for advancing the development of science and technology. One such non-profit organization is the X Prize Foundation, which designs and manages innovation competitions to encourage scientific and technological development. The objective of this article is to analyze the X Prize Foundation and three of the competitions it has organized in order to identify the challenges of competition-based innovation and how to overcome them. keywords: Radical innovation, breakthrough innovation, competition-based innovation, innovation competition, modularity, X Prize Foundation A recently developed approach for creating radical or breakthrough innovations is taking clear shape: competition-based innovation. In competition-based innovation, innovations are created by engaging entities or individuals to submit solutions for specified challenges within a stipulated time frame. Then, the best solutions are selected and rewarded by the organizers of the innovation competition. Competition-based innovation is not a new concept (MacLeod, 1971), but the Internet and other advances in information technology have made its use significantly easier and consequently more widespread (Kalil, 2006). The currently popular concept of open innovation (Chesbrough, 2003) has helped to focus the attention of scholars and practitioners on competition-based innovation. Similar terms used to describe competition-based innovation are design competition, idea contest, innovation contest, innovation jam, and tournament-based innovation (Adamczyk, Bullinger, & Möslein, 2012). Some scholars have argued that modularity is necessary in order to create innovations based on ideas obtained from external experts (Baldwin & Henkel, 2014; Henkel, Baldwin, & Shih, 2013). In the modular approach, the original problem is partitioned into smaller subproblems, termed modules (Baldwin & von Hippel, 2011). Each module is then separately presented as a challenge in an innovation competition. One drawback of modularity is that protecting intellectual property rights can be more difficult for the innovator, and imitation can be easier for competitors (Ethiraj, Levinthal, & Roy, 2008). An alternative approach to modularity is the unitary approach. When this approach is used in competition-based innovation, the original challenge is submitted to external experts without partitioning it into smaller modules. Because of the strong belief in the requirement of modularity, competition-based innovation has not been frequently used to achieve breakthrough innovations. Only recently have successful examples of competition-based innovation in advancing the development of science and technology challenged the traditional belief in the value of modularity. One of the pioneering organizations founded to design and manage innovation competitions to advance scientific and technological development is the X Prize Foundation. The objective of this article is to show how competition-based innovation can be used in creating breakthrough innovations. We describe the X Prize Foundation and three innovation Mokter Hossain • Ilkka Kauranen Competition-based innovation: The case of the X Prize Foundation 47 competitions organized by the Foundation. Based on the X Prize Foundation case, we discuss how innovation competitions should be designed in order to support successful breakthrough