Competition can be a powerful incentive for creativity, which is why many challenges today tap into the wisdom of the crowd to generate new ideas. But how about hosting innovation contests for employees?

The notion of using prizes to spur innovation and achieve breakthroughs has become particularly popular in recent years, highlighted in a boom of competitions across a wide range of science, technology and business fields. While many such innovation challenges are held by external organizations — the X-PRIZE Foundation, NASA, DARPA, U.S. Department of Energy, Audi, etc. — it is important for companies to remember another well of untapped creativity: their own employees.

One way to ensure the flow and capture of creative ideas is through innovation contests or tournaments, a process in which many raw opportunities are considered at the outset and only the best survive.

“Contests breed competition and competition in numbers can be fierce. But what about throwing a contest for your own employees? Instead of advertising a contest with a big cash reward for the public, save the money and put it back into your talented employees,” the TRIZ Journal, an online innovation resource, advises. “Use their knowledge to grow the company… . When employees feel supported, they are free to swim in creativity and help the bottom line of an organization.”

Across industries, about half of an organization’s innovation opportunities are created internally, according to Wharton School professors Karl Ulrich and Christian Terwiesch. “Another quarter comes from interaction with customers and new customer requirement,” Ulrich and Terwiesch wrote in their 2009 book Innovation Tournaments: Creating and Selecting Exceptional Opportunities. “The remaining quarter of opportunities reflects new competing products, insights from suppliers or a company’s sales force, or from collaboration with universities or independent inventors.”

According to a study by the Delphi Group, nearly 88 percent of a company’s knowledge resides in the minds of its employees. Unfortunately, most companies “lack an efficient system that enables them to tap into that knowledge in ways that provide a strong return on investment.” (Source: AskMe-Realcom)

“Organizations that are good at innovation contests or challenges can reap numerous benefits,” Dwayne Spradlin, CEO of InnoCentive, a company that helps organizations generate new ideas through online communities, recently wrote at Federal Computer Week. “Yet many organizations struggle with this component.”

Innovation begins with creating an organizational culture open to breakthrough thinking. For innovation contests or tournaments to be worthwhile, there must be a willingness to enable employees to take new ideas and turn them into concrete actions — whether processes, products or business models. “In such a culture, people understand that their ideas are valued, trust that it is safe to express those ideas, and oversee risk collectively, together with their managers,” McKinsey Quarterly (registration required) says.

To break barriers, an innovation tournament usually consists of multiple rounds of competition, beginning with a large set of opportunities (“contestants”), followed by a filtering process that selects a subset to move to the next stage (into the “playoffs”) and, from those, picking one or more winners, according to Ulrich and Terwiesch.

In the context of innovation contests or tournaments, encouraging and embracing creativity should be tempered with discipline. The rules should not be too vague.

“Don’t just ask employees for ideas,” TheAge.com’s Innovator blog advises. “Formulate the problem and ask employees for solutions.”

“Make sure people are working on the right issues,” consultancy and training firm Idea Champions suggests on its Heart of Innovation blog. “Identify specific business challenges to focus on. Be able to frame these issues as questions that start with the words, ‘How can we?’”

On a practical level, leading a change initiative that fosters creativity, or a culture of “trying something new,” can be a daunting task. A major challenge for organizations today is figuring out how to support innovative thinking effectively — and sticking with it.

To that end, Innovation Tournaments highlights the importance of the “small win” to organizational change: “You seek to accomplish a meaningful objective without a huge investment of time and money in order to get people excited, to create buzz and to build momentum.”

Ulrich and Terwiesch have found that a one-day innovation workshop — with groups of 15-40 workers from across various departments — is effective in that regard “because it can engage a relatively large number of people in the process quickly, because it communicates the key ideas of innovation tournaments and because it typically leaves the participants clamoring for more.”

At the same time, Spradlin recommends that organizational leaders avoid treating innovation as an event: “Innovation should be deeply ingrained in how the organization operates day in and day out, not highlighted in one-off contests.”

“Whether they originate from internal or external sources, the ability to successfully capitalize on new concepts hinges on an organization’s ability to capture and identify the value of these concepts,” a 2008 Aberdeen Group report states (registration required). “[I]t takes more than a great idea to innovate, but that’s where the process starts.”

Resources

Book Excerpt: Innovation Tournaments: Creating and Selecting Exceptional Opportunities
by Christian Terwiesch and Karl T. Ulrich
Harvard Business School Press, 2009

Facilitating Systematic Innovation – Innovation Contests
by Courtney Shannon Strand
The TRIZ Journal, 2009

Procter & Gamble Enhances Innovation…
AskMe-Realcom, July 16, 2001

6 Keys to Building a Culture of Innovation
by Dwayne Spradlin
Federal Computer Week, Aug. 4, 2010

Leadership and Innovation
by Joanna Barsh, Marla M. Capozzi, and Jonathan Davidson
McKinsey Quarerly, January 2008

Real Creativity
by Seth Godin
Seth Godin’s Blog, March 26, 2006

Can You Leave Innovation to the Customer?
by Kristen Le Mesurier
Innovator (TheAge.com), Sept. 21, 2007

50 Ways to Foster a Culture of Innovation
by Mitch Ditkoff
The Heart of Innovation (Ideas Champion), Dec. 09, 2009

Getting the Process Right: A Fresh Look at PLM and Product Development
by Amy Rowell
Aberdeen Group, September 2008

How to Launch Your Company’s Innovation Contest in Three Easy Steps
by Ron Shulkin
Examiner.com, July 21, 2010

How to Win Innovation Contests
by Eugene Eric Kim
Blue Oxen Associates, Oct. 11, 2010