Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy by Challenge Works

Mission Possible The role of challenge prizes in a revitalised UK Innovation Strategy

About Nesta and Nesta Challenges Nesta Challenges exists to design and run challenge prizes that help solve pressing problems that lack solutions. We shine a spotlight where it matters and incentivise people to solve these issues. We are independent supporters of change to help communities thrive and inspire the best-placed, most diverse groups of people around the world to take action. We support the boldest and bravest ideas to become real, and seed long-term change to advance society and build a better future for everyone. We are part of the innovation foundation, Nesta. For further information on Nesta Challenges please visit our website www.challenges.org or please contact us at: challenges@nesta.org.uk

Mission Possible The role of challenge prizes in a revitalised UK Innovation Strategy Summary 4 1 The Government’s Innovation Strategy – investment, reform and strategic direction

2 Measurable, time-bound Innovation Missions demand new ways of working

3 How challenge prizes might be integrated into Innovation Missions

4 Challenge prizes – getting them right

5 Some ideas for Mission-oriented UK challenge prizes

Managing Chronic Conditions Prize

Aquaculture Revolution Prize

Smart Data for Consumers Prize

Assisted Cognition Prize

Green Travel Infrastructure Prize

Rare Disease Treatment Prize

Space Energy Prize

References and Endnotes

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Summary The UK has bold ambitions to be a global science and innovation superpower. It already punches far above its weight in science, where growing public investment will further strengthen its position. But to achieve the same for innovation, where it lags, the UK innovation ecosystem will require not only new resources but also new ways of working. The paper makes the case that challenge prizes should step out of the shadows and be a key building block for the new Innovation Missions Programme announced in the Government’s recently published Innovation Strategy. It sets out how challenge prizes can complement grants, reduce risk in portfolios of government innovation investments, and can be particularly effective at stimulating near-market innovation targeting specific outcomes and private R&D investment. Nesta Challenges has been involved in many of the most high profile challenge prizes undertaken in the UK over the past decade. We share in this paper some of the insight gained from this experience for how to ‘get prizes right’ within the Innovation Missions, alongside ideas for a number of potential large scale technology challenge prizes that we have developed with partners in the UK innovation ecosystem.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

The Government’s Innovation Strategy – investment, reform and strategic direction The COVID-19 pandemic has highlighted starkly both our vulnerability to shocks and our deep dependence on the power of science and innovation. The pandemic elicited an unprecedented response from the UK’s science and innovation ecosystem, bringing progress in vaccine development and distribution that surpassed almost all popular expectations at the start of the crisis. As the UK Government’s Innovation Strategy published in July 2021 puts it: “[D]uring this COVID-19 pandemic, our innovation ecosystem has come to the rescue.”1 But far from these successes being a cause for complacency, the Innovation Strategy sets out a bold new vision for the UK’s science and innovation ecosystem, building on its world-class strengths but reforming the way we do things where this is needed. Resources are part of the story: UK investment in R&D, public and private, remains stubbornly low by international standards2 and the Strategy reaffirms pre-pandemic plans for an historic increase in public funding for R&D. But the primary objective of the Strategy is to ‘boost private sector investment across the whole of the UK’. And it sees Government taking a more strategic role in innovation policy, actively directing innovation towards our most important societal challenges, as critical to achieving that goal.3

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Measurable, time-bound Innovation Missions demand new ways of working What does this more strategic role for Government mean in practice? Central to the Innovation Strategy are plans for a new programme of specific, measurable and timed Innovation Missions, focussed on some of the Government’s highest policy priorities, potentially including climate change, biodiversity, pandemic preparedness and the impact of an ageing society. These Missions will be inclusive by design, mobilising all sectors of the economy including the public sector, industry, civil society and universities. This represents a new direction for UK innovation policy, which has historically shied away from providing direction through ‘measurable and timed’ objectives – in part no doubt because of the long shadow cast by industrial policy failures of the past. So for example the 2017 Industrial Strategy, which this Innovation Strategy succeeds, defined strategic themes in the form of four Grand Challenges, to provide strategic alignment for specific missions, individual challenges and over 1,600 projects.4 But while a step beyond historical focus on horizontal, sector-agnostic policy such as R&D tax credits, the Industrial Strategy stopped short of a commitment to specific, measurable goals. We welcome the Innovation Strategy’s move to introduce specific, measurable and timed Innovation Missions, because: • They provide a mechanism for more directly tying public investment in innovation to progress against the social and economic objectives that matter most to the public. They thereby complement growing investment in basic scientific research, which will continue to be the bedrock of the UK’s R&D system. • They provide focus and direction that can help coordinate the many different players in the economy whose contribution is needed to tackle significant challenges. By making Government priorities more explicit and its future actions more predictable, credible Missions can provide a firmer basis for private investment decisions than broad themes. They could thereby help translate growth in public investment in R&D to growth in private investment, helping to correct the UK’s longstanding R&D investment deficit. • In moving the focus away from process to outcomes, they help strengthen accountability, encourage experimentation with different approaches and allow for more robust evaluation and assessment of ‘what works’.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Mission-oriented innovation policy and the UK Vaccine Taskforce While much discussed in recent years, missionoriented innovation policy has historically suffered from a lack of UK success stories. The COVID-19 pandemic has however created another success story in the form of the UK Vaccine Taskforce, and the plan set out in the Innovation Strategy is described as being based on learnings from the pandemic.5 The Taskforce: • Had a clear, verifiable, challenging but achievable objective to ‘secure access to promising vaccine/s for the UK population’.6 • Signalled its intentions clearly and credibly, enabling industry players to make investment decisions with confidence and to focus on the risks they were best placed to manage. • Enjoyed extensive delegated authority and freedom of manoeuvre, combined with clear accountability, and benefited from expedited approval processes. • Brought together and coordinated action by Government (including regulators), industry and academia under expert leadership. • Took a holistic approach to addressing the challenge, including not only vaccine development but also manufacture and distribution, and making progress on these issues in parallel rather than sequentially. • Took a portfolio approach to its investments, balancing off different kinds of risk against one another in the light of the overall objective being pursued. The Taskforce provides an unusually clearcut example of public investment generating demonstrable innovation outcomes at pace. Its

success has led many to ask: why can’t innovation policy achieve similarly rapid, demonstrable successes against other urgent priorities, for example in the fight against climate change or dementia? Of course, the conditions within which the Taskforce was created and operated were extraordinary. It was a crisis situation unprecedented in living memory, creating a ‘whatever it takes’ mindset in Government. There was a strong consensus that securing access to vaccines should be an overwhelming priority, there were strong grounds for confidence that COVID vaccines could be developed (based on past successes), and the benefits promised by vaccines vastly outweighed the costs of developing them. There was also an unusually high intensity of public interest in progress, including through the media and the political process. An obvious difficulty is how to create a similar sense of urgency and focus for other innovation priorities, including addressing no less devastating but less immediately salient challenges such as climate change. Credible Innovation Missions can create conditions similar to those that drove the success of the Vaccine Taskforce. Specific, measurable, time-bound Innovation Missions will demand new ways of working to take advantage of the opportunities this new approach offers. This will be strengthened by the governance role played by the new National Science and Technology Council, chaired by the Prime Minister, in defining and steering the Missions. Further, while the budgetary freedom enjoyed by the Taskforce was exceptional, its model of operational flexibility combined with strong accountability and expert leadership could serve as a model for the Innovation Missions.

Specific, measurable, time-bound Innovation Missions will demand new ways of working to take advantage of the opportunities this new approach to innovation policy offers. In particular the new principle of organising policy around measurable outcomes, rather than basing it on broad themes or established processes, creates opportunities for greater methodological diversity, flexibility and experimentation and more open engagement with all parts of the UK innovation ecosystem.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

So we welcome the Innovation Strategy’s commitment to employing ‘a diverse range of funding and policy instruments’7 to support Innovation Mission objectives and to make the most of the wider economic benefits they offer. Among these diverse instruments, we believe there is a particularly strong case for challenge prizes to be one of the fundamental building blocks used in Mission planning and deployment.

Challenge prizes complement grants in risk-balanced innovation portfolios The default instrument used for publicly-funded R&D is the grant. Though data are not available for the breakdown of public R&D by funding instrument, it is clear that grants predominate in the approximately £15 billion that Government will spend on R&D this year.8 Is this dependence on a single kind of funding instrument the best way to maximise innovation outcomes from public investment in R&D? Grants are the right instrument to use to fund basic research undertaken without a view to marketable applications. Government subsidizes R&D on the basis of market failure: the social returns from R&D exceed the private returns, because the knowledge created through R&D ‘spills over’ to market rivals.9 This certainly characterises much fundamental or basic research, and it is also usually impractical and undesirable to specify in advance what the outputs of such research should be. Grants are a necessary instrument for financing such research. But the case for grants as the Government’s default instrument of choice weakens as the potential for private returns to R&D grows, and as it becomes more practical and desirable to specify the outputs sought from R&D: • Grants risk over-subsidising R&D that has greater potential for private returns, to the detriment of value for public money.10 • Grants are (at best) difficult to reconcile with the pursuit of specific outcomes. Grants by design are not outcome-contingent funding instruments. • Grants can be more detrimental to competition than other methods, conferring an advantage on some market participants over others. The new Innovation Missions are intended to be much closer to marketable applications than basic research,11 and will by design specify measurable outcomes. In such situations, other methods including challenge prizes12 offer different, and in some circumstances preferable, instruments for sharing risk and reward between the public sector and private innovators and for achieving targeted outcomes. In The Great Innovation Challenge,13 published in 2020, we made the case for challenge prizes to play a much more significant role in the way Government supports R&D in the UK, as part of a balanced portfolio of approaches that is likely to be more effective than overwhelming reliance on a single mechanism. The introduction of specific, measurable, time-bound Innovation Missions make the case for a significant role for challenge prizes even more compelling.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

While no two challenge prizes are exactly the same, their common characteristic is an orientation towards outcomes rather than inputs. The rewards offered to innovators by challenge prizes are (at least in part) conditional on the successful achievement of outcomes. In this they contrast markedly with R&D grants, which provide rewards (often following a competitive process) conditional on the promise of effort. The key differences between challenge prizes and grants can be summarised, in very broad terms, as follows: Challenge prizes…

Grants...

... Specify a desired goal or outcome

... Specify the input/ effort to be delivered

... Are focussed on what the funder wants

... Are focussed on what the grantee proposes

... Provide a reward conditional on delivery of the outcome

... Provide a reward conditional on promise/ potential

... Have open participation

... Limit participation to the grantee(s)

In the prototypical challenge prize, many innovators compete and collaborate with one another to achieve the goal set by the funder; in grant programmes, innovators propose projects to the funder who then selects one (or more) for funding. Grants are well suited to expanding the knowledge frontier, while challenge prizes are well suited to applying knowledge to solve problems. Based on these characteristics, The Great Innovation Challenge sets out some common sense criteria for identifying situations particularly suited to the challenge prize model: • The goal to be achieved can be clearly and confidently defined, backed up by unambiguous criteria – so innovators know what they are being asked to do. • There is a clear benefit from fresh thinking and new innovators – for instance a field that is stagnant or has too few players in it. • New innovators could be effectively incentivised to take part – because the financial reward is sufficiently attractive and the barriers to participation sufficiently low. • The funding and support will accelerate progress – rather than just fund activity that was already going to happen. • There is a path to financial sustainability for the successful teams – so that the winners do not disappear once the prize money runs out. In practice, government innovation investments14 are often made not in isolation but as part of a portfolio of investments aiming at the same high level goal. So the question for any individual innovation investment is not only: “What is the best instrument for this investment, e.g. grant or challenge prize?” but also: “How does this investment – including the choice of instrument – affect outcome risk in the overall portfolio?” And because challenge prizes and grants have different and complementary risk profiles, balancing them out in a portfolio can reduce overall risk.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Challenge prizes and grants – portfolio considerations Investing in innovation entails taking on and managing risk and uncertainty. The successful outcome of individual innovation investments made by Government can, and should, be uncertain, but the uncertainty of individual projects can in part be mitigated through a portfolio approach. This was exemplified by the Vaccine Taskforce which, as the Innovation Strategy describes, “took a portfolio approach with the knowledge that value for money could not be assessed at the individual spending decision level.”15 While typically portfolio risk management is framed in terms of the mix of projects invested in, the portfolio mindset should also extend to the range of funding instruments used because the instruments themselves can complement each others’ risk profiles. For the highest risk, most uncertain innovation investments of the kind made by Government, a portfolio approach should mean not only investing in different projects – but also using a diversity of funding instruments that complement one another. Grants and challenge prizes entail different kinds of risk for Government as funder: • Grants entail a principal-agent problem: once the grant is made, it is difficult for the funder to ensure the recipient is using the funds as intended. Attempts to mitigate this problem can result in onerous monitoring requirements and inflexibility that are inimical to innovation.16 • Grants tend to concentrate the funder’s risk, because the funder has to select one (or a small number of) grant recipients based on the

information it has available to predict grantee performance. Selecting the ‘right’ grantee can be a high stakes decision based on highly imperfect information. • Challenge prizes require the desired outcome and associated reward to be specified in advance. This entails the risk of defining the ‘wrong’ outcome, or providing an inadequate or excessive reward for its achievement. For both grants and challenge prizes there are ways of mitigating their respective risks.17 But the risks of each method also naturally offset each other. For example: • While grants concentrate risk on selected grantees, challenge prizes typically diversify risk among many participants who compete and collaborate with one another; • While challenge prizes require a desired outcome to be specified, grants programmes can be open to outcomes being proposed by grantees. The upshot is that combining challenge prizes and grants (and other instruments) in a portfolio can help diversify the risks faced by Government in funding R&D. For any individual innovation project one method may ex ante be preferable to another. But for portfolios of projects – such as the Innovation Missions – the choice is not between challenge prizes or grants, but how best to combine them in a portfolio.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

The challenge prize model aligns strongly with measurable, timebound Innovation Missions Although the specific focus of the individual Innovation Missions has not yet been determined, the Innovation Strategy describes the key characteristics they will share. They will: • Target a clear and measurable outcome and be timed • Tackle some of the most significant issues confronting the UK and the world • Draw on multiple technologies and research disciplines • Work with different industries and supply chains • Tackle innovation, manufacturing and logistical challenges • Coordinate policy across the whole of government • Invest at risk in portfolios of projects • Employ a diverse range of funding and policy instruments There are strong prima facie reasons for challenge prizes to be central to the way these Missions are delivered. • Challenge prizes are themselves processes that seek to achieve measurable outcomes to a timetable. Like Missions, they have an in-built urgency and focus that can be lacking in grant programmes. Challenge prizes are therefore natural ‘building blocks’ that fit consistently within the overall architecture of a Mission. • Challenge prizes are a particularly powerful tool for engaging a wide range of businesses in the Government’s innovation priorities. They are naturally low in bureaucratic overhead and have low barriers to entry relative to grants, by virtue of their focus on outcomes rather than on pre-award disclosures and post-award monitoring. • Challenge prizes can serve as an energising focal point for multiple stakeholders, both within and outside government. During most of the lifetime of a prize its outcome is still uncertain, which naturally creates interest, excitement and an appetite to ‘get involved’. With grants programmes, by contrast, focus and interest can dissipate once the grants have been awarded. • Challenge prizes work by setting in train diverse approaches to solving a problem – they are themselves a portfolio-based approach. By contrast grants programmes typically place their bets on one or a small number of approaches to a problem following a competitive process, basing their award decision on a combination of the quality of the case made and on reputation.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

How challenge prizes might be integrated into Innovation Missions Ambitious Missions of the kind announced in the Innovation Strategy are new to UK innovation policy and there is no ready-made blueprint for how to design and execute them effectively in the UK context. Although the specific focus of the individual Missions has not yet been determined, it is reasonable to expect that they will be diverse in character, demanding a flexible and creative approach to their management individually and as an overall programme. We offer here preliminary reflections on how Missions might be conceptualised and organised, and based on these the role that challenge prizes could play in their execution. A Mission may usefully be conceptualised as a coordinated portfolio of investments that evolves over time with a view to achieving a specified goal. Although the objective of the Mission overall will remain constant, what the Mission needs to accomplish at any moment in time en route towards that objective will change. For instance, at any moment in time it could be the case that: • The ‘best’ future roadmap, or sequence of problems to be solved to achieve the Mission, is clear, though the best solutions to these problems are not clear. In this case the Mission will focus on navigating that part of the roadmap it has reached; or • It is still unclear which of several possible roadmaps to achieve the Mission is best. In this case the Mission will focus on comparing and evaluating different possible roadmaps. Taking this perspective of a Mission as an evolving portfolio of investments, key challenges for those with responsibility for leading a Mission will be: • Identifying and creating the ‘best’ portfolio of investments at a particular point in the Mission’s lifetime; and • Planning and preparing for how the portfolio should evolve over time under conditions of considerable risk and uncertainty.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Because Missions aim to achieve specific measurable outcomes, they will need over time to converge on a preferred roadmap and solutions. What that journey towards convergence looks like, and in particular what it means for the planned evolution of the investment portfolio over the Mission’s lifetime, depends on the Mission’s starting point – Missions may start with the preferred roadmap more or less well defined. For example, the roadmap for a Mission addressing a complex societal challenge may at first be quite unclear – for instance, how best to address regional disparities in life expectancy across the UK. Such a Mission may start with a period of experimentation and evidence-gathering before converging on preferred solutions. The roadmap for a more narrowly technological Mission – for example, achieving the cost effective deployment of carbon capture, usage and storage in the UK – may be more well established based on expert technical consensus. As a consequence, both the use of challenge prizes in the portfolio of investments, and the type of challenge prizes undertaken, may vary between Missions and over time.

Two key categories of challenge prize – ‘first’ and ‘best’ Although an underlying feature of all challenge prizes is that they provide rewards conditional on outcomes, they are a flexible and adaptable method. A key difference is between challenge prizes that reward ‘firsts’, and those that reward ‘best’. Prizes for ‘firsts’ reward the first in time to achieve a specified goal. Because of this they can be indeterminate in length, or may determine a cut off after which the prize will not be awarded. The original Longitude Prize in the 18th century for a practical and reliable method for determining longitude at sea, and the modern Longitude Prize run by Nesta Challenges, are examples of such prizes.

But in practice contemporary challenge prizes today are more often for ‘bests’ – they reward whoever provides the ‘best’ solution to a specified problem within a given timeframe. This model is attractive for funders and for participants because it determines in advance when the prize will end – but at the risk that, with more time, better solutions might have been developed. The outcome of a ‘best’ challenge prize depends crucially on the quality and diversity of the participating innovators, so such challenge prizes are open by design and creating profile is a key success factor. Because the Innovation Missions themselves will be time-bound, challenge prizes for ‘bests’ are likely to be a natural fit.

In the early stages of a Mission, when a high degree of convergence on the preferred roadmap may not have been achieved, a portfolio of methods, with each playing to their known strengths, could be particularly effective as a method for discovery and exploration of the solution landscape and of the barriers that will need to be navigated on different roadmaps. Grants may focus, for example, on more speculative research by research institutions at the relevant knowledge frontier, while challenge prizes are used more to engage a wide range of innovators (regardless of sector) that may have value to bring to the Mission, and to learn which innovation opportunities private sector investment is currently prioritizing and how this may evolve. Challenge prizes at this stage might target quite broadly defined (rather than very focussed, measurable) objectives, may require relatively little investment from innovators to participate in order to encourage the widest possible participation, and may be relatively short in duration with a focus on early stage prototyping rather than achieving scaled adoption.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Over time, as the preferred roadmap for achieving the Mission and the nature of the expected barriers and opportunities along the way become clearer, the role that challenge prizes (and other methods) play would evolve. • Challenge prizes may increasingly be used to target specific, measurable technological advances that have been identified as barriers or opportunities • There may be a greater focus on challenges that require cross-sector collaboration and private sector co-investment, with a view to the ultimate scale-up and adoption of solutions • As the solution landscape becomes clearer, opportunities to coordinate policy and regulatory inputs to facilitate the timely adoption of solutions will become clearer. For example it may be that the timely scaling of promising solutions identified by a challenge require regulatory input that can be brought in in parallel with the challenge rather than sequentially. As Missions converge on a preferred roadmap, it will often be the case that achieving the Mission objective requires significant input from the private sector – for example to find the best ways to scale up adoption or distribution. Because challenge prizes are a particularly powerful method for tapping into the ingenuity of private sector innovators, where this is the case we would expect to see challenge prizes play a growing role in the Mission portfolios over time.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Challenge prizes – getting them right As the Government defines which Innovation Missions it will prioritise and how these will be taken forward, we hope it will consider the important contribution that challenge prizes could make as part of a balanced portfolio of funding instruments. Challenge prizes are a distinctive method and their execution demands a different approach from the grant programmes that currently predominate in public R&D funding. Based on our experience at Nesta Challenges delivering over 40 challenge prizes since 2012, ‘getting prizes right’ requires a particular focus on the following aspects of execution. Robust design Challenge prizes should set objectives that are ambitious but also achievable, and should offer rewards that incentivise high quality engagement with the challenge. So defining the problem and setting the right target is key to a prize’s success. Before launching a prize we undertake detailed research consulting with problem-owners, innovators and beneficiaries to identify the opportunity space on which the prize should focus, the barriers to innovation, the landscape of potential innovators and their motivations. We do all this to be confident that the prize is focussing on the right problem and will bring forward solutions that can flourish beyond the lifetime of the prize. Getting the best from innovators Challenge prizes build from the premise that great innovation can come from unexpected places, and that the more that a diverse range of innovators engages enthusiastically with the prize the greater its impact. This demands an understanding of and empathy for innovators – who they are, what they are trying to achieve, what they need to prosper, and how to level the playing field – and designing the prize so that it works with the grain of innovator mindsets. This means keeping processes

simple and unbureaucratic, moving at pace, and transparent, clear and timely communication. We use prizes to build networks and communities of innovators who support and challenge one another and create opportunities together. Creating profile Challenge prizes are designed to raise awareness and to get noticed. We use the power of communications to shine a light on a problem, demonstrate why it matters and what opportunities it creates, and to highlight the solutions that prize participants are creating. The high-profile nature of prizes develops downstream customer demand, and can stimulate further private sector investment many times greater than the direct financial rewards provided by the prize. The COVID-19 pandemic has demonstrated the appetite for high quality information about science and innovation where this is made relevant to people’s lives and daily concerns. We believe that to date we have barely scratched the surface of challenge prizes’ potential to stimulate public engagement with science and innovation. Challenge prizes could play a key role in engaging the public in the Innovation Strategy, the Innovation Missions and the wider UK science and innovation ecosystem.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Some ideas for Mission-oriented UK challenge prizes Ambitious, large-scale challenge prizes accelerate progress towards clear impact goals. They also build the innovator community – through funding and nonfinancial support, but also through signalling government support, creating shared objectives and publicly demonstrating the effectiveness of the new technologies. Finally, they raise awareness, engage the public and can inform policy and regulation. All three of these impacts make challenge prizes appropriate tools to support the delivery of Innovation Missions. The following examples are illustrations of what some large-scale technology challenge prizes could look like, how they would relate to the broader objectives of some (putative) Innovation Missions, and what sorts of impacts they could have. We have developed these in consultation with expert stakeholders – we would be keen to discuss whether these concepts, variations on them, or other ambitious technology challenges could be developed into ready-to-launch challenge prizes that would be part of the Innovation Missions Programme.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Managing Chronic Conditions Prize A £5m prize awarded to the inventor of a wearable device that can effectively manage and reduce symptoms of chronic illness through measuring biometric data Why a prize? Management of the symptoms of chronic illness (pain, fatigue, inflammation etc.) needs innovation that it can’t get from current players in the sector. The Managing Chronic Conditions Prize would incentivise tech entrepreneurs to pivot into the healthcare sector, bringing unique expertise to join that of clinical experts

Technology leadership for the UK The prize would support new directions and opportunities for the closely-related sectors of data science, IoT, hardware design and software design existing areas of technology leadership for the UK. It would also foster collaborations between existing healthcare firms and institutions with these tech firms.

already working in the space. Traditional R&D grant funding would be unlikely to attract such higher-risk innovators whereas challenge prizes are good at attracting fresh thinking and new perspectives. As well as a £5m financial reward for the best team, competing teams would receive support to work with vulnerable users, ensuring their technology is co-designed to meet the highest technical and ethical standards.

Alignment with the seven technology families of UK strength and opportunity Advanced Materials and Manufacturing AI, Digital and Advanced Computing Bioinformatics and Genomics Engineering Biology Electronics, Photonics and Quantum Energy and Environment Technologies Robotics and Smart Machines

The problem Poor management of the symptoms of chronic conditions such as rheumatoid arthritis is a widespread but under-recognised problem in the UK. For example, nearly 62 per cent of over-75s live with persistent pain, and it is widespread in all age groups. Pain affects quality of life, but it is also a burden on the economy, with many people leaving the workforce or altering their working practices. Support currently often comes in the form of medication with severe side effects.

The impact In principle, flare-ups in the symptoms of chronic illness e.g. pain and fatigue can be predicted and even

prevented without medication, if we use biofeedback - data gathered from our own bodies - to help personalise management strategies. The Managing Chronic Conditions Prize would incentivise tech developers to work with clinical professionals to design wearable devices (such as smart watches) that gather biofeedback data that dramatically improves the quality of life of people living with these conditions.

The mission The Managing Chronic Conditions Prize could be part of a mission to double the number of years of good health enjoyed after retirement.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Aquaculture Revolution Prize A £10m prize awarded to the team that can invent a digital service that trebles healthy fish production by smallholder farmers in India or Bangladesh, and scales it to at least 50,000 fish farms within three years Why a prize? Much developing world agriculture and aquaculture is still done by smallholders – some of the poorest people on Earth. The Aquaculture Revolution Prize would incentivise the transfer and adaptation of advanced techniques and technologies developed for industrialised fish farming, to make them suitable for use by poor smallholder farmers. The prize would

Technology leadership for the UK The prize would foster innovation and technology development primarily in AI, digital and advanced computing – existing areas of strength in the UK. It would galvanise collaboration between technology and agriculture sectors, and between UK and Indian firms.

provide a £5m split between the teams who create the most promising technology, and a £5m final prize for the team that can demonstrate adoption and impact in the real world by successfully rolling out to 50,000 farmers in India and Bangladesh – a model of incentive-driven scaling previously successfully demonstrated by the Haiti Mobile Money Initiative and the Million Cool Roofs Challenge.

The problem

The impact

Fish production is big business in the developing world, providing cheap, healthy and relatively sustainable protein. There have been vast production increases in recent decades, driven by the adoption of scientific management in intensive farms. These include technologies such as pumps, filters and aerators – but also advanced data-driven, digital services to help with the management of farms. These improvements have not, to date, been replicated in the huge but unproductive smallholder fish farming sector in India and Bangladesh.

Our a nalysis s uggests t hat productivity increases of up t o 3 00 per cent a re e nvisageable for smallholders, using relatively simple scientific fish farm management techniques. Such increases would have a transformational effect on h ousehold livelihoods in fish farming communities. The prize would incentivise tech developers and agricultural suppliers to design digital services to help manage and supply inputs to these newly productive fish ponds.

The mission The Aquaculture Revolution Prize could be a keystone element of a mission to double income levels in farming communities in the Global South.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Smart Data for Consumers Prize A £5m prize for digital products that use smart data to achieve significant reductions in loyalty penalties paid by vulnerable consumers Why a prize? Challenge prizes deployed alongside regulatory change have been used to successfully kickstart open banking innovation in the UK. The Smart Data for Consumers

Technology leadership for the UK The UK has world-class digital, design, data and fintech sectors, and has been a pioneer in open banking. Fintech has demonstrated the benefits for consumers of shaking up key markets. These leading edge sectors are well placed to take advantage of smart data rollout and to create a new generation of services that change how consumers engage with a range of essential markets.

Prize would challenge the UK’s thriving digital, data and design sectors to create services that help consumers to get the best deals in banking, energy, pensions, insurance and other markets, building on Government’s plans for smart data rollout.

The problem Before COVID, Citizens Advice identified a £4 billion ‘loyalty penalty’ paid by customers in essential consumer markets including mobile, broadband, home insurance, cash savings and mortgages, with low income and vulnerable customers often on the worst deals. The COVID-19 crisis makes tackling this problem all the more urgent: of the 20 per cent of the population on the lowest incomes, 42 per cent saw their household income fall last year. In longer term UK workers need to save more to enjoy the retirements they hope for. They face a complex pensions market with opaque pricing, leading to underinvestment and overpaying. Government’s smart data agenda to expand the open banking model to other markets can unlock a wave of

innovation and competition benefiting consumers. The Smart Data for Consumers prize would run in parallel with this expansion, kickstarting innovation focused on services that result in meaningful savings and better options for lower income and vulnerable consumers.

The impact Enabled through smart data, AI, and compelling design, the next generation of digital products can enable meaningful financial behaviour change leading to greater short and longer term financial resilience for consumers.

The mission The Smart Data for Consumers Prize would be part of a mission to build back better post-COVID.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Assisted Cognition Prize A £10m prize awarded to the inventor of an AI tool that helps people with dementia live at home for longer by learning from and compensating for their condition as it progresses, helping them remember, understand and navigate everyday tasks Why a prize? The Assisted Cognition Prize would stimulate teams to research and develop smart assistant devices (like Siri and Alexa) but adapt these to the unique and changing needs of people affected by dementia, people currently underserved by this type of service. Alongside the final

Technology leadership for the UK The prize would support and strengthen UK leadership in digital products and services, including artificial intelligence and data science, where UK firms and universities are strong.

cash prize, awarded to the team whose solution helps users stay in their own homes longest (as demonstrated in a consumer trial), teams will be provided with information on existing datasets to help train their algorithms and support with testing and co-design – to ensure that solutions meet the highest technical and ethical standards.

The problem 850,000 Britons are diagnosed with dementia every year and, with our ageing population, this burden is expected to double. Treatments that prevent or arrest disease progression are still years away. Yet improved assistive technology could help preserve quality of life, maintain independence and help people with dementia live in their own homes for longer.

The impact The Assisted Cognition Prize would focus on demonstrated impact of solutions that prove they can

help people live independently at home for longer. Our analysis suggests that the key elements to solving this challenge are in building the complex algorithms that can track and adapt to users’ changing condition over time, so that they remain useful and usable and learn from their preferences and habits; and in the design of interfaces and functionalities which are useful and easy to use for people with cognitive impairments.

The mission The Assisted Cognition Prize could be part of an innovation mission to reverse the growth in adult social care spending by 2030.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Green Travel Infrastructure Prize A £10m prize for the first team to demonstrate a reliable solution that can charge and run an electric bus fleet of at least 50 vehicles across a city for a month Why a prize? The Green Travel Infrastructure Prize will incentivise innovators to solve many of the barriers to rollout at scale of heavy electric vehicles (buses and HGVs). To

Technology leadership for the UK The prize would support innovative research and development by UK companies working on decarbonisation, electricity and batteries. The UK has extensive strength, both in the technology and in the policy, regulatory and financial expertise needed to roll out this infrastructure.

win the final prize, innovators must run an in-route electric charging infrastructure while a range of vehicles test out simulated bus and HGV routes to test its capabilities.

The problem

The impact

Key barriers in the UK’s transition to net zero include revamping the transport sector (electrifying fossilfuelled transport modes) and providing the green energy supply and infrastructure that enables this. Rollout of in-route charging of zero-emission vehicles (in particular heavy vehicles such as buses and trucks) faces specific issues, including balancing electric demand on the grid, providing infrastructure and ensuring collaboration between the key stakeholders (operators, local authorities, regulators, energy companies).

The Green Travel Infrastructure Prize would incentivise collaborative research, development and demonstration of low-carbon bus technologies. This would eliminate a major source of CO2 emissions while improving urban air quality, raising the quality of public transport and creating UK leading technology firms in this critical growth area.

The mission The Green Travel Infrastructure Prize would contribute to the UK’s mission to reach net zero emissions by 2050.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Rare Disease Treatment Prize A £25m prize to trial Phase I therapeutics in UK patients for conditions in Genomics England’s 20 priority therapeutic areas Why a prize? The Rare Disease Treatment Prize would incentivise UK biotech companies to trial their treatments in the UK rather than going abroad, through a combination of

Technology leadership for the UK The prize would focus support on UK biotechs, including startups – firms that are currently often testing and marketing their products abroad, particularly in the USA. The prize’s focus on support with clinical trials closely tied to NHS commissioning would help make the UK the go-to location in the world for developing and testing new drugs.

the prize’s financial incentive, provision of data, support with clinical trials and support with NHS procurement – kickstarting a socially and commercially beneficial sector in the UK.

The problem Despite Genomic England’s world class database of individual’s genomes and the potential of NHS to match patients with treatments, UK biotechs tend to prefer doing their trials in the US because of market pull. This means that both children and adults are missing out on access to treatments that could have a dramatic impact on their health. The emerging field of personalised medicine, where drugs are tailored to our genomics is still an emerging field and the UK risks not being an attractive location to trial these drugs.

The impact The prize would signal government support for UK leadership in the genomic medicine sector. It would

give UK biotech a chance to shape and become a dominant player in the market. If the UK can establish itself as a leader in testing genomic medicines, and support the pipeline from testing to adoption in the NHS, UK patients, in particular children with rare genetic diseases, will benefit from quicker access to lifesaving drugs.

The mission The Rare Disease Treatment Prize could be part of an innovation mission to halve the number of qualityadjusted life years lost to rare diseases in the UK by 2035.More rare disease clinical trials in the UK will support British-based start-ups and established biotechs, as well as expand a promising new driver of the clinical research sector.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Space Energy Prize A £30m prize awarded to the first team to demonstrate safe, scalable and reliable transmission of energy between two orbiting satellites launched from a UK spaceport Why a prize? The Space Energy Prize would give visibility and support to this cutting-edge field of research and development, signalling UK commitment, helping teams

Technology leadership for the UK The UK’s space sector is extremely strong, particularly in satellite design, but the sector is undergoing largescale disruption at present. The Space Energy Prize would establish UK leadership in one of the emerging opportunity areas in space technology while signalling support to the broader UK space sector, including launch.

raise private investment and cementing UK leadership in the fast-changing space and satellite sector. It would provide a key enabling technology for net zero and help develop the regulatory environment to make the UK a leader in this field.

The problem

The impact

The UK’s commitment to net zero emissions will require innovations in how we generate electricity. Spacebased solar power (capturing the power of the sun high above the atmosphere – avoiding both clouds and night time, and generating reliable energy) is a promising longer-term technology in this field. But to do this, we need a reliable and safe way to transmit that power – first, between spacecraft, then from spacecraft down to the Earth’s surface.

Aside from the contribution towards decarbonising the economy, a space based solar power challenge would give welcome backing to the UK’s strategically important space sector. It would complement the roadmap of the Space Energy Initiative by providing incentives that motivate a wide range of engineering teams to participate in this growth opportunity.

The mission The Space Energy Prize would be part of the UK’s mission to achieve net zero emissions by 2050.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

References Department for Business, Energy & Industrial Strategy, ‘UK Innovation Strategy: Leading the future by creating it.’ July 2021.

National Audit Office, ‘UK Research and Innovation’s management of the Industrial Strategy Challenge Fund.’ February 2021.

Industrial Strategy Council, ‘Lessons for industrial policy from development of the Oxford/AstraZeneca COVID-19 vaccine’, February 2021.

Nesta Challenges, ‘The Great Innovation Challenge: How challenge prizes can kickstart the British economy.’ July 2020.

Endnotes 1. Department for Business, Energy & Industrial Strategy (BEIS), 2021, p.18. 2. In 2019 UK domestic spending on R&D was 1.8 per cent of GDP, and the average across the OECD was 2.5 per cent of GDP. Source: https://data.oecd.org 3. The Prime Minister has stressed the need for Government to play a more strategic role in innovation policy: “It is also the moment to abandon any notion that government can be strategically indifferent, or treat research as a matter of abstract academic speculation.” Source: https://www.gov.uk/government/ speeches/prime-ministers-article-in-the-daily-telegraph-21june-2021 4. Data as of January 2021, from National Audit Office, 2021. 5. BEIS, 2021, p.19. 6. Source: https://www.gov.uk/government/publications/thevaccine-taskforce-objectives-and-membership-of-steeringgroup/vtf-objectives-and-membership-of-the-steering-group 7. BEIS, 2021, p.83. 8. Source: https://www.gov.uk/government/publications/ beis-research-and-development-rd-budget-allocations2021-to-2022/beis-research-and-development-rd-budgetallocations-2021-to-2022 9. See e.g. Bloom, Nicholas, Schankerman, Mark, & Van Reenen, John, 2013, ‘Identifying Technology Spillovers and Product Market Rivalry.’ Econometrica, 81(4). 10. Grants programmes can include match funding requirements for the private partner(s) to address this risk. But apart from the practical difficulties of monitoring compliance with a match funding requirement, there is no robust way of calibrating what an appropriate match funding requirement should be for any given project.

11. The Missions are intended to drive “transformative spill-over benefits for industry and the wider economy by strengthening the innovation cycle from research through to commercialisation and adoption.” BEIS, 2021, p.81. 12. Other instruments not considered here include advance market commitments and R&D loans. 13. Nesta Challenges, 2020. 14. ‘Innovation investment’ is used here to mean a situation where Government makes a discretionary decision to commit resources at risk with the aim of achieving a more or less specifically defined innovation outcome. Such investments may be made using various instruments or methods, including challenge prizes, grants, advance market commitments and R&D loans. 15. BEIS, 2021, p.19. Industrial Strategy Council, 2021 also highlights the portfolio diversification strategy taken by the Taskforce, and the use of different instruments including advance market commitments (p.18). 16. The Government has commissioned an independent Review of Research Bureaucracy led by Professor Adam Tickell, to “advise on a substantial reduction in unnecessary research bureaucracy in government and the wider sector.” 17. For grants the ‘repeated game’ quality of grant funding is key – grant recipients have to account to prospective funders for how they have used previous grant funds. Alternatively postgrant monitoring is used – but this can become a bureaucratic exercise focussed on the ‘letter’ of a grant rather than the ‘spirit’ in which it was provided. For challenge prizes, pre-launch research and stakeholder engagement can help mitigate the risk of misspecifying the targeted outcome and rewards.

58 Victoria Embankment London EC4Y 0DS +44 (0)20 7438 2500 challenges@nesta.org.uk @NestaChallenges www.challenges.org Nesta is a registered charity in England and Wales with company number 7706036 and charity number 1144091. Registered as a charity in Scotland number SCO42833. Registered office: 58 Victoria Embankment, London, EC4Y 0DS.

Mission Possible: The role of challenge prizes in a revitalised UK Innovation Strategy

Articles inside

Measurable, time-bound Innovation Missions demand new ways of working

References and Endnotes

Challenge prizes – getting them right

How challenge prizes might be integrated into Innovation Missions

The Government’s Innovation Strategy – investment, reform and strategic direction

Summary