1 “Light and fast” funding for innovation:Making EU innovation policies fit for the webDavid Osimo – Tech4i2 ltd David.firstname.lastname@example.orgTable of contents Abstract.................................................................................................................................................. 2 1 Background and methodological approach................................................................. 3 2 The problem: innovation policies failed to reduce the web competitivenessgap............................................................................................................................................................ 4 3 The reasons: an innovation policy designed for the 20thcentury...................... 6 4 A new objective, and its challenges.................................................................................. 8 5 Cases................................................................................................................................................. 9 5.1 The Principi Attivi initiative of the Puglia Region........................................... 9 5.2 The Global Security Challenge.................................................................................10 5.3 The US government challenge.gov platform....................................................13 6 Analysis: why and how........................................................................................................13 6.1 Design: the key features of light and fast ...........................................................15 6.2 Participation and impact.............................................................................................16 7 Conclusions: yes we can.......................................................................................................16 8 References....................................................................................................................................17
2 AbstractEU Research and innovation policies are designed for investment--‐intensiveresearch and do not fit with the innovation paradigm of the web: this gap isgrowing by the day. For instance, the emergence of web 2.0 has been notablymissed by the roadmap-‐based approach of the EU Framework Programmeuntil it has reached full maturity, and this has certainly not helped thecompetitive positioning of EU web companies. The future does not lookpromising: in the context of increased global competition and a dramaticeconomic, financial and fiscal crisis, simply pouring fresh money into theexisting programmes is not a viable option. The paper aims to advanceconcrete proposals on “innovating innovation policies”. It sets out ataxonomy of features would make R&I programme “fit for the web”, such as:capacity to involve of new actors beyond “the usual suspects”; openness tobottom--‐up innovation; involvement of the users and demand from the earlystage; flexibility to accept modifications in project outcomes; shorter time--‐to--‐market and smaller projects; the usage of reputation and networks in theselection process in order to reward excellence. These features are notablyabsent from traditional R&I programmes. This gap is not new: it is recognizedin ex--‐post evaluation of the programmes, and is today accepted also bypolicy makers. Initial steps have been taken such as the decision to adopt anew integrated framework for Research and Innovation (Horizons 2020). Butthis decision remains at the level of “declaration of principles”, while thecritical issues is the translation into concrete policy choices. We argue thatthere are today concrete features that are effective in addressing these gaps:these include specifically open and bottom--‐up funding; inducement prizes;reputation--‐based funding; and public procurement of innovation. The paperpresents a long--‐list of examples, from Europe and abroad, on policies thatmatch these features. It then analyze in depth three case studies of thesepolicy measures: the Security Challenge (US), NESTA, (UK) and FET--‐Open(EU). Based on these cases, for each instrument, it analyzes the potentialbenefits and drawbacks, and extracts key lessons learnt. For instance,inducement prizes are found to be a very effective demand--‐driven approachto attract new innovators and overcoming the “usual suspect effect” ofcurrent funding framework. Because they reward achievement rather thanproject--‐writing skills, they are also particularly effective in translatingresearch results into marketable products. There is therefore a growing usageof inducement prizes in the context of open innovation policies, also by thepublic sector: the US government has in one year managed through itsinternal platform Challenge.gov about 38 Million dollars worth of prizes. Thepaper concludes therefore that these are readily actionable options to addressthe gap of existing innovation policies, that should be urgently adoptedwithin the reform of EU research and innovation policies.
3 1 Background and methodological approachThis paper is set in the context of the debate around the forthcoming Horizon2020 programme, the main European funding instrument for research andinnovation. Both the Digital Agenda for Europe (COM(2010) 245) and theInnovation Union (COM(2010) 546) argue that there is a need for a change inthe way innovation is funded, as recent evaluations have confirmed that thetraditional design of the Framework Programme is unfit to involve the mostinnovative SMEs. Both initiatives mention the need for “Light and Fast”funding instruments.Light and fast funding instruments are already in use in the private sector: this is the form that seed and venture capital typically takes, through agile selection processes that focus on the project, are incremental in nature and focus on content rather than paperwork. It is also frequently in the non-‐profit sector, in cases such as Omydiar Network1, Digital Pioneers2 in the Netherlands, ant the Open Society Foundation. However, its implementation in the context of government funding for innovation appears far more challenging. This study brings together studies carried out by the author on EU innovationpolicy, and specifically for the European Commission on Enterprise 2.0(Osimo 2011); Collaborative e-government (Osimo 2012); Impact assessmentof FP8 (Deloitte and Tech4i2 2011); Crossroad research roadmap (Osimo et al2011) and for IBBT (Osimo 2009). Needless to say, the paper only presentspersonal position of the author.The questions that this study addresses are therefore:1. Is it necessary that future EU innovation policy include light and fastfunding instruments, and why?2. Is it feasible to adopt these instruments in the government context?3. How could they be designed?The methodology is based on the traditional Policy Impact Assessmentapproach (EC 2009). At its core lies the notion of explicit causality relations asa transparent mechanism to design effective policies. The paper followstherefore a linear logical reasoning:1. Definition of the problem and its implications: the incapacity ofEuropean innovation policy (and namely FP) to attract innovativeplayers and to stimulate the EU web competitiveness2. Identification of its causes: the design of the FP is appropriate forcapital intensive R&I but at odds with the web innovation paradigm3. Description of the objective: to design “light and fast” innovationpolicies that are fit for the web; and the most common objections raisedto is implementation4. Identify through exemplary case studies the design of the programme,in order to describe what are the key features that make innovationpolicy “fit for the web” - therefore address “the causes” identifiedabove at point 2 1 http://www.omidyar.com/ 2 http://digital-‐pioneer.net/
4 5. Analyse its impact in terms of participation, with particular regard tothe involvement of most innovative players; and the impact, withparticular regard to the capacity to generate marketable innovation –therefore addressing “the problem” identified above at point 1.Based on this analysis, and in particular in how it addresses the objectionsraised in point 3, we provide a set of actionable policy recommendations.The logical model of this analysis is illustrated below.Figure 1: The logical model of the Impact Assessment analysisThe definition of the problem and its causes determine the answer to the firstresearch questions and it is based on desk-based research.The answer to the second research questions derives by the identification ofrelevant cases studies of light and fast funding instruments in the publicsector. The very existence of such programmes in the context of publicfunding for innovation confirms its feasibility.The more complex third research question is answered through an analysis ofthe three case studies based on primary research (interviews and greyliterature), integrated with desk research on similar case studies. In particular,the case studies are used to identify actionable answers to the most commonobjections identified in section 4.Each case study is analyzed in terms of description of the design features,participation of innovative players and capacity to bring innovation tomarket.2 The problem: innovation policies failed to reduce theweb competitiveness gapThe “innovation gap” between Europe and the US in the domain of web-based companies is undisputed. Almost all the most known global web!"#$%&()*+#,-./(#-.-0)12-3#4/15#&6#7)#899&:/;&9#89#<$=#>"#?/.-)-+#%8@8A##<$=#A)-8@9#B"#CD)1;:)+#48@E2#/9A#6/-2#F"#G)7#A)-8@9##6)/2.%)-#H"#I*0/12+##899&:/;:)#0/%;180/92-3##G)7#0%&A.12-#
5 brands, such as Facebook, Google, Foursquare, Twitter, Innocentive andLinkedin, are US-based. While there are plenty of European successful start-upss, they fail to grow and reach critical mass. According to Lindmark (2009),only 14 out of the top 99 web 2.0 companies were based in Europe. At amoment when Facebook just launched a public IPO with an estimatedevaluation at 94 billion dollars, it is worth remembering that the single mostsuccessful European social networks, Tuenti, sold to Telefonica at a valuationof 75 million Euros.3The implications of this gap for the European economy are difficult toestimate but likely to be significant.The impact of web industry in terms of GDP and job creation is far from beingclearly established. Industry-funded studies from Boston Consulting Group(2011) estimate that the digital economy accounts for more than seven percentof GDP in the UK but the very definition of the “digital economy” is far frombeing consolidated.In terms of final users, the risk of negative impact appears negligible asEuropean citizens and companies have so far access to similar services thanUS-based companies and citizens. McKinsey and IAB Europe found Europeanconsumers enjoy €100 billion in consumer surplus—almost three times therevenue online advertising companies receive (McKinsey 2010).More worrying it the medium-term gap in terms of innovation spillovereffects (Nadiri 1993). Web-based services’ competitive advantage lie thepersonal data they collect. Personal data are increasingly seen as key strategicassets for companies and regions: in the words of WEF (2011) “personal datawill be the new “oil”. Because of the lack of web companies in the EU, thepersonal data of the European citizens are now largely owned by UScompanies, which then resell them as value added services to Europeancompanies for example for advertising purposes.The European gap in web competitiveness is therefore considerable, and it islikely to have negative socio-economic implication both directly andindirectly.While this problem has long been recognized, existing policy instruments,and namely the Framework Programmes, have so far been unsuccessful inovercoming it.In particular, two shortcomings of the Framework Programme that have beenparticularly hard to address are:-‐ with regard to participation, the involvement of innovative SMEs-‐ with regard to impact, the lack of capacity to translate research resultsinto marketable productsThese are problems that are transversal to all priorities of the FrameworkProgramme, but particularly relevant for the specific context of webindustries.On the latter problem, with regard to web-based services, the most importantweb innovations of the last years have been noticeable for their absence in theFramework Programme, such as social networking. There is almost no 3 http://www.expansion.com/2010/08/03/empresas/tmt/1280869139.html
6 evidence of successful web start-ups born out of the research carried out inFP, and most of the projects remain far from market deployment (Arnold2011).On the former, innovative start-ups shy away from the FrameworkProgramme: the ex post evaluation of the Framework Programmedemonstrate that “there are major barriers to involve the most innovative andgrowth oriented SMEs”: only 5% of the SMEs holding highly cited patentsparticipate in the Framework Programme (Aho et al. 2008). The FP has astrong “usual suspects” effect were the same companies tend to participate,based on their expertise to navigate the daze of EU funding. (Arnold 2011):“Framework Programme contains limited countervailing activity that wouldstimulate disequilibrating, disruptive technologies and innovations that canunseat the established players and unleash the development of newindustries”. This is typically of any complex funding instruments: theytypically tend to attract the “money grabbers” (Cottica 2009 and Prieto Martin2011) rather than the real innovators.3 The reasons: an innovation policy designed for the20thcenturyTraditionally, the most recognized reasons for this non-participation is thecomplexity of administrative procedures behind FP funding, which make“compliance difficult for any organisation that lacks specialised personnel todeal with the problems” (Arnold 2010).We take a more general perspective, and argue that the main reason behindthis lack of participation is that the design of the main EU innovation policyinstruments, the Framework Programme on Research and Innovation, issimply not appropriate for web innovation. The Framework Programme wasdesigned in the 1980s to foster innovation in hardware andtelecommunications, and partially for packaged software. The programme isdesigned, and effective, for capital-intensive innovation, with long andpredictably innovation cycle (such as Moore Law). Semiconductors,nanotechnologies and other enabling technologies need stable, large-scaleinvestment that allows existing companies to increase their competitivenessthrough innovation. The nature of innovation in the ICT sector has changedradically in the last years. The Ghent Manifesto spells out the key challengesand requirements of a renewed innovation funding: truly multidisciplinary,demand-driven, market oriented and agile. (Ghent Manifesto 2009)The simple comparison of the design of a typical FP7 STREP project inapplied software research and the product release cycle of a web start-upillustrate this difference.A typical FP7 STREP (Specific Targeted Research Projects) has a budget ofaround 3 million Euros, spread between 5/6 partners from differentcountries. The project is conceived after the call for proposal comes out, whichtypically leaves about 6 months before the final submission, and further 8months for evaluation and administrative formalities before the projects kicksoff. The duration of STREP is typically 36 months, which makes about 50months between conception and delivery. If you take into account that theactual call for proposal indicating the specific research areas to be addressed,takes about 6 months of preparation, one can easily calculate that the time-to-
7 market from the identification of the research problem to the final delivery isabout 5 years, and any change of scope in the process has to be justified,authorised and fully documented. To put this in perspective, five years agoTwitter was just being launched: the problems identified in any workprogramme are unlikely to be relevant after such a period of time.The most important web innovation cycle range between a few days to a fewmonths, are led by a very small team with constant iteration, is designed toaddress emerging needs in an agile and bootstrapped way. Decisions andmodification are taken on a daily basis and after the service is launched.Table 1: Differences between typical STREP projects and typical web innovationTypical FP7 STREPprojectTypical web newproduct or serviceBudget 3 Million Euros Below 100.000 EurosTeam 5/6 partners (largecompanies, SMEs,university professors,consultancies) – usualsuspectsStart-ups or smallinformal group, often bydrop-off students -outsidersTime-to-market 4/5 years (6 month callpreparation, 6 monthproject writing, 8 monthsevaluation, 36 monthsproject duration)3 monthsMain presentationvehicle60 pages project 2 minutes elevator pitchApproach Technology roadmapbasedDemand-pull and user-drivenDisciplines Computer science,engineeringIntegration with design,marketing, businessManagement Linear and engineered Emergent and agileType of innovation Technological Business modelinnovationUsers involvement 22 months after start From month 1Distribution ofinnovation90% before public release,then minor adjustment90% after first beta releaseFailure Exceptional and to beavoidedNormal and fastChanges Exceptional, throughformal authorisationwhich lasts weeksNormal and dailySelection process Mostly ex ante, based onassessment “on paper”Mostly ex post, based onresults
8 4 A new objective, and its challengesHowever blunt the statement might look, its core message is far from new,and it is widely recognized in policy debate. The ISTAG advisory group callsfor the EC to “Enlarge the stakeholder community as new, non-conventionalactors become increasingly important […] Create open fast-track schemes forinnovation detection, amplification, and acceleration”(ISTAG 2010). TheDigital Agenda action 52 proposes SME-‐targeted activities including open schemes from 2013.However these general objectives has not (yet) been translated in concreterequirements. The proposed measures within Horizons 2020, as described inthe most recent proposal (COM 2011/808) are incremental modification to theexisting framework, basically in the direction of administrative simplificationand dedicated funding for SMEs, and they no longer mention terms such as“light” “open” and “fast” instruments.We argue that there is certainly a welcome progress a bolder, more disruptiveapproach is needed. The problem analysis highlighted in the previous sectioncall for a radical re-design of the funding programme, at least for whatconcerns applied research. We posit that this design of the fundingprogramme makes it impossible to achieve any significant web innovation,and that especially in times of budgetary restrictions the alternative is tointroduce radically new instruments or to cut the research and innovationbudget on applied web-related research altogether. In particular, the capacityfor reaching outside the usual suspects should the key priority of Researchand Innovation policy on ICT, where most of the innovations come from newplayers.The reasons behind this lack of progress in this area are to be found not onlyin traditional institutional stickiness and resistance to change, but also insensible objections:1. Light and fast instruments are not allowed by financial regulations:accountability, control and audit systems make it unfeasible to carryout2. They are much more labour intensive for the funding agency:managing small and open-ended projects requires a deeper level ofengagement by the agency3. They lack a critical mass to generate disruptive innovation on themarket4. They lack rationale for EU-level intervention since they are mosteffective at regional/local level: one of the key arguments for EU-levelintervention according to the Impact Assessment methodology is theneed for adequate critical mass and financial resources. Therefore,small funding is expected to be more local, as if there is a correlationbetween the amount of the funding of the single project and thegeographical coverage of the funding institutionIn the rest of this paper, we analyse three cases of funding instrumentsactually implemented in the public sector.
9 We thereby outline the main features of these innovation-funding measures,and analyze case studies of “light and fast” funding programmes. We willaddress the design of these programme (also with reference to the twoobjections spelled out above), and their results in addressing the objectives ofthe research and innovation policy.5 CasesWe selected and analysed the following cases:1. The Principi Attivi initiative of the Puglia Region (IT)2. The Global Security Challenge (UK)3. US government Challenge.gov service (US)The cases were not selected because they are dedicated to web innovation, butrather because of their “light and fast” nature. The first is a kind of “small andsimple” funding instruments, while the second and the third pertain to thespecific category of “inducement prizes”.On each case, we carried out interviews with the main official in charge of theinitiative, integrated by desk research. To provide additional insight, we alsoconsidered evidence on other research programmes such as FET-OPEN (EC),NESTA (UK), European Research Council (EU), SBRI (UK) and the IBBTinnovation-funding model (BE).45.1 The Principi Attivi initiative of the Puglia RegionThe Puglia Region is a Convergence Region in the South of Italy. Theobjective of the regional government was to activate the innovation capacityof young people in their region, discouraged by the bleak employmentpossibilities. Also existing funding such as the Structural Funds tended to“play safe” by requesting in-depth knowledge of the rules and economicsoundness of the proposal. Therefore, the funds favoured established playersrather than innovators with genuine new ideas.Taking into account these factors, the Puglia Region Government launchedand managed in-house a €10MLN call for proposals for micro-projects (up to€25.000) mirroring the thematic areas of the Structural Funds programming:-‐ Environment and local development-‐ Innovation-‐ Active citizenship and inclusionThe distinctiveness of this call was in its design:-‐ Restricted to informal groups of young people could participate (atleast two people below 32) 4 A full list of “light and fast” innovation plicy instruments is provided at http://www.diigo.com/user/osimod/innovationpolicy20
10 -‐ Very open, non prescriptive definition of the priorities-‐ Simple application process (max. 13 pages form)-‐ Open, peer-to-peer helpdesk that enabled the horizontal networking ofparticipants-‐ Transparent discussion of the selection resultsAnd the results were impressive. 420 projects (involving 1279 young people)were funded out of 1500 proposals. Only 5% of proposals did not reach theirgoals but more than half changed their objectives throughout the process.About 2000 deliverables (products, services, events) were produced. Itcomprised a web fiction in 12 episodes, maps in Braille language, patents forphotovoltaic products, reviving computers for non-profit associations. Thevariety of services is staggering and reveals the extent to which the initiativehas been able to activate the creativity and participation of citizens.In terms of additionality, 73% of participants would not have implementedthe project without the funding. What is more, 80% of the projects are stillactive three years after the call has ended.The simplicity, openness and extensive follow-up of the projects were thesecrets of the success. This follow-up was guaranteed by four dedicated staffmembers, but could only be implemented thanks to the extensive usage ofweb tools that enabled the peer-to-peer networking of participants. Theinternal forum had 8000 users who created 11000 messages and viewed 450Kof pages. The forum received 86% satisfaction rate by participants, secondonly to the direct assistance of the staff (94%).When asked if such an initiative could scale up at EU level, the intervieweeanswered “Who knows? The only way is trying!”, a sentence which shows thenecessary attitude for such a programme to work. The team running theprogramme received a strong “licence to experiment” by its management andwere free to try new solutions outside the comfort zone. It is also worthnoting that the initiative has not been funded by the Structural Funds thatproved too rigid and cumbersome for such an agile programme.5.2 The Global Security ChallengeIn the last years, mostly in the US, there has been an increasing usage ofprizes, rather than grants. Companies and governments have set up“challenges”, where the financial reward goes not to the best proposals, but tothe innovators who come up with the best working solutions. Examples arethe DARPA challenge (http://www.darpa.mil/grandchallenge/index.asp )for the self-driving car, or the recent Australian prize for the best algorithm toidentify patient at risk (http://www.heritagehealthprize.com ). Morerecently, we have seen an explosion of “apps contest”, born out of the firstAppsfordemocracy.org initiative, where developers compete for prizes bybuilding web and smartphone apps that help solving specific problems.Inducement prizes are a very old way to fund innovation: indeed they wereused largely in the 18thand 19thcentury to promote inventions (McKinsey2009). They were particularly suitable at that time where inventions werecarried out by amateurs, such as the famous “Longitude prize” which saw aclock-maker winning the prize at the expenses of the established astronomers
11 (Sobel 2005). The professionalization and specialization of science raised thecost of research and therefore reduced the scope for using such tools.Not all prizes are inducement prizes: indeed, the majority falls under thecategory of “recognition” prizes that reward past achievements. Inducementprizes instead call for new solutions to existing problems.One of the modern, high profile inducement prizes is funded by the“Technical Support Working Group”. TSWG operates as a program elementunder the Combating Terrorism Technical Support Office (CTTSO). It fundsdefence-related research through a system of grants, organised in multi-stageselection.The TSWG co-funds the Global Security Challenge, organised byOmniCompete. Now in its 6th year, the 2011 Global Security Challenge looksfor new technologies and innovations within the security sector.This year there are two categories, one for start-ups (embryonic companies,concept projects or university research projects) and one for SMEs. Prizegrants totalling $500,000 USD are available to the winners.The submission form is easy to complete with less than 20 questions that canbe answered in one session.The programme is characterized as a prize, with an open and simpleapplication, which rewards results not proposals. Cost for participation issmall: it is free, and forms are simple and take ½ hours to complete.Generally, prizes are a minor part of the total funding of the agency. In thecase of the Security Challenge, about 1% of the budget is devoted to it.Typically, a challenge includes substantial investment beside the prize itself.Designing a challenge, organising it, evaluating proposals and ensuringwidespread awareness requires significant investment. According to theinterviewees, non-prize costs can range from 20% to 150% of the actualreward that is linked to inducement prizes.The programme is implemented by private company (based in UK) on behalfof 3 agencies: Technical Support Working Group, Office of Naval Research,BAE Systems which pool resources to generate greater attraction power.The programme is fully complementary to existing grant measures. The prizeis designed to reach out to a wider variety of suppliers, beyond the “usualsuspects” which are involved in traditional grant programmes organized byTSWG. It is also designed as an intelligence programme to monitor securityproducts and markets.The key to attract participants is not the money, but the visibility towardsVenture Capitalists and potential customers, as TSWG acts on behalf of finalclients in government. The program is therefore strongly demand-driven.Jury is composed of government, industry, VCs and academia. The highprofile of the jury is crucial in ensuring the quality of winners, and inattracting participants.SMEs and innovative start-ups only are allowed to participate. 20% areuniversity spin-offs. The incentive to participate is provided by the finalpresentation to large number of high level buyers attracts participation
12 Hundreds of attractive start-ups from all over the world participated becauseof the visibility: according to ComputerWeekly.com , “You have to attend theGlobal Security Challenge to discover really innovative developments.”5The participation is diverse and global in nature. On average, 42% ofapplications originate from universities, 12% from corporate spin-outs, 29%from unaffiliated entrepreneurs and 17% from other sources. Geographically,the split of entries was 23% from Asia, 44% from Europe and 33% from theAmericas.In terms of impact, the main advantage is in reaching out to large amount ofinnovative ideas for security, and in generating visibility for these companies.Several products have then been bought by the final customers. GSC iseffective precisely in translating research into market, as they open up marketopportunities for new products. Secondly, they are designed only for SMEsand start-ups.Top contenders from previous competitions have subsequently raised over$80 million in new capital. For example:• The Global Security Challenge winner in 2007 was NoblePeak Visionfrom Massachusetts, which has developed breakthrough night visionsurveillance camera cores and components. They raised $12 million ina subsequent funding round, led by Chart Venture Partners of NewYork. "Customer interest in our night vision technology soared from thepublicity we received after winning the 2007 Global Security Challenge" saidCliff King, NoblePeaks Founder and COO. "As a direct result we arenow developing new camera systems with major OEMs for market launch in2009."• The Global Security Challenge winner in 2006 was Ingenia Technology,a UK start-up that developed a novel laser technology to authenticatedocuments and products. Ingenia received a significant contract froma US Federal Law Enforcement agency and launched a partnershipwith Bayer AG in Germany. Mark McGlade, Director of BusinessDevelopment said: "Ingenia Technology experienced a phenomenal yearsince winning the first Global Security Challenge in 2006."The results are highly promising precisely to address the three issues listedabove: these competitions are able to attract the best innovators, even thosetraditionally not engaged with government funding. They reward concreteresults, not proposals. They don’t require complex control systems. They areable to attract a far superior number of high-quality results than traditionalgrant systems. (McKinsey 2010, Stallbaumer 2004)The key advantage lies in the open approach, which fosters diverseparticipation and serendipitous innovation. Theres no need to select inadvance from a pool of prospective participants whos the most likely toproduce the desired result. Instead, the competitors determine for themselveswhether they believe they can meet the terms of the prize. As a result,unconventional solutions, which are often shunned because they are deemedtoo risky, are allowed to compete equally against less innovative approaches. 5 http://www.computerweekly.com/blogs/david_lacey/2011/02/reflections_on_rsa_2011.html
13 5.3 The US government challenge.gov platformIn the framework of the renewed innovation policy under the Obamaadministration, the US government has created a dedicated platform, calledwww.challenge.gov, to enable the organisation of competition by anygovernment, and has promulgated the America Competes Act to simplify andstreamline the organisation of challenges by government.Government agencies can post “challenges” that can be met by any citizens.The now very promoted apps contests neatly fit in but other challenges canalso be found, such as NASA competition for writing “algorithm to fly threesmall SPHERES satellites around the cabin of the International Space Station”.Challenge.gov is one year old so it seems to be perfect timing for looking backat its achievements.-‐ Technology costs are zero, the platform has been offered by a techprovider (under a no cost contract), two people are working on it(mainly on training and awareness)-‐ All federal agencies but two have used the platform to launch prizes-‐ So far 38 million dollars in prizes have been distributed, including a 18million dollars prize for Solid State LightingInducement prizes are an effective instrument for crowdsourcing andcollaborative problem solving. Not only “apps contest” but also any kind ofsocio-economic challenge can be addressed through prizes. Europe is nottaking full advantage of this opportunity. The America Competes Act andChallenge.gov initiative in the US are worth considering in order to clarifyhow to organize prizes and enable public administrations to use this tool.6 Analysis: why and howIn this section we build on the case studies to elicitate the key features of“light and fast” funding instruments. We then analyze to what extent they aresuccessful in achieving the objectives; and we finally answer the mostcommon objection.Based on the findings above, we can already positively answer the secondresearch questions: light and fast funding instruments can be implementedalso in the context of government funding. In particular, we address the mostcommon objections mentioned in section 4 and see how they could beovercome.Objection 1: they are not allowed by financial regulations: accountability, control andaudit systems make it unfeasible to carry outThis is certainly a well-founded objection. We’ve seen from the cases thatexisting regulation hinder the uptake of alternative funding mechanisms. Forinstance, Principi Attivi was not funded using Structural Funds because of thelegal uncertainty around its eligibility. In the US, before the AmericaCompetes Act, only NASA was allowed to use inducement prizes to fundinnovation. The existing examples show possible solutions: Principi Attivibypassed the problem by avoiding European Structural Funds money,despite being a convergence region, and chose to fund the intervention withnational funding. The US Challenge.gov platform was created following a
14 reform of the regulation on prizes. The America Competes Act states that“Each head of an agency, or the heads of multiple agencies in cooperation,may carry out a program to award prizes competitively to stimulateinnovation that has the potential to advance the mission of the respectiveagency.” (Senate, 2010. America Competes Act). “Light and fast” instrumentstherefore call for regulatory intervention or at least regulatory clarificationsand guidelines that would help convincing administrators of the legitimacy ofthe acts.Objection 2: they are much more labour intensive for the funding agencyThe case studies partially confirm this objection. Principi Attivi managed 10Million Euros funding with 4 full time staff (2,5 M Euros per employee). Thisis above the typical ratio for FP project. Interviews with EC officials in chargeof FET-OPEN and of IBBT confirm the resource-intensity of open-endedprojects. All project officers confirmed the need for continuous, in depthinteraction with project managers in order to fine-tune the ideas, but alsounderlined how this additional cost was highly beneficial for both theresearch team and the funding agency: a hands-on approach which remindsus of the arrangements between venture capitalists and start-ups.Furthermore, innovative solutions for monitoring and support have beendeveloped: the Principi Attivi initiative was able to complement thismonitoring and support service through a peer-to-peer approach throughdedicated online forums, which were considered by participants as useful asthe official support services (Principi Attivi 2011).Finally, inducement prizes have a very reduced need for monitoring as theyreward the final product, rather than the project proposal.Objections n. 3: they lack a sufficient critical mass to generate disruptive innovationon the marketThis objection does not appear to be confirmed by the cases. High-profileinnovative companies were featured for example in the Security challengeand went on to successful market deployment. In Principi Attivi, a project ledto patents for photovoltaic innovation. But more importantly, this objection isdismissed based on the web innovation model itself, which requires lowcapital investment and low barriers to entry. The most disruptive webinnovation such as Google, Facebook and Twitter were deployed with verylittle initial investment (Kiskis, 2011).Objections n.4: small funding lacks a rationale for EU-level intervention since theyare most effective at regional or local level.One of the key arguments for EU-level intervention according to the ImpactAssessment methodology is the need for adequate critical mass and financialresources that would not be available at national or local level. Therefore,small funding is expected to be more local, as if there was a correlationbetween the amount of the funding of the single project and the geographicalcoverage of the funding institution. Based on the case studies, we argue thatthis association is not necessarily true. Inducement prizes such asChallenge.gov show that global and federal (in the US sense) geographicalcoverage is meaningful and effective also for relatively small amounts offunding. The wide geographical scope is needed to raise the quality of theproposals, their visibility and the knowledge flows, not only because of thesize of the investment.
15 6.1 Design: the key features of light and fastBased on the problem analysis in table 1, we present below the key features ofan innovation funding system “fit for the web”. For each feature, we point toalready existing examples.Small fundingThe advantage of offering small grants is in their capacity to reach for highnumber of participants: by definition small size grants mobilize a much largertarget population than large grants. A grant of 25.000 Euros in many cases issufficient to get innovative web initiatives off the ground, while further roundof funding can be assigned at a later stage. Because of their smaller size, theirsocial benefits are not limited to the projects funded, but represented by themuch larger pool of applicants induced to generate innovation projects. Theoverall cost of the small funding programme represents a minor percentage ofthe overall agency spending: 1% for TWSC and the 10 Millions Eurosallocated to the Principi Attivi initiative in the Puglia region are negligiblewhen compared to overall Structural Funds investment in the region.Short project timeThe activities supported have to be completed in a relatively short period oftime, e.g. only the expenditure incurred within the 12 months following thedate the benefit is awarded. In the case of web applications contests, such asappsfordemocracy.org, usually 2 months are given for developing theapplication.Open, non-prescriptive and flexibleThe programmes do set only loosely defined research domains, often basedon general research direction or on solving specific challenges. While thisapproach is traditional in basic research, it can and should be used for appliedresearch and innovation. This helps not to limit the number of potentialbeneficiaries by defining target industries or expected forms of innovation,thereby opening up to unpredictable outcomes; embracing this principlemeans not assuming that the public (state or agency) knows better what willbe the origin of future innovation: the Security Challenge only calls forinnovative products that enhance security. Furthermore, such programmesaccept changes in the course of the project as normal, so that unexpectedoutcomes and serendipitous innovation are encouraged: in the case ofPrincipi Attivi, the majority of projects changed their goals in the course of theproject.Multi – stage fundingThe “light and fast” funding is often just a first step, complementary tomainstream innovation funding: most of these initiatives manage to attractsubsequent rounds of funding through venture capital, public procurement(such as in the case of the Security Challenge) and mainstream public funding(as in the case of Principi Attivi. The initial funding is small and not selective,while based on the results additional, larger funding is assigned. This limitsthe risks and favours ex-post selection of results, rather than ex-anteevaluation by experts and gatekeepers, thereby lowering the risk for both theapplicant and the funder. Furthermore, because of the low initial selectivity,unusual solutions are more likely to be funded.
16 While not explored in the context of these cases, we also identify additionalfeatures to be further explored such as the enhanced multidisciplinarity, andtransparent and peer-based evaluation process, and the usage of reputation inthe selection process.6.2 Participation and impactIn terms of participation, the cases have a strong capacity to attract realinnovators, as the submission process is highly simplified with short projectproposals. Principi Attivi attracts participants that are typically not recipientsof Structural Funds and would not have been able to implement theirinitiative without the funding, while the participants of the Global SecurityChallenge are innovative SMEs not involved in mainstream research funding,such as Ingenia Technology (UK). Challenge.gov hosts challenges that areparticipated by individual citizens and informal groups, and in particular the“apps contest” are able to attract individual developers that are otherwise notinterested in participating to traditional research project.The impact of these innovation programmes in terms of generatingsustainable market opportunities is equally impressive. Out of the 420projects funded by Principi Attivi, only 5% of proposals did not reach theirgoals and 80% of the projects are still active three years after the funding hasended. In the case of the GSC, top contenders from competitions havesubsequently raised over $80 million in new capital, and to attract large-scalepurchase of innovative products.7 Conclusions: yes we canThe analysis has covered each of the three research questions.With regard to the first one, we demonstrated that new funding instrumentsare urgent and necessary for European web companies to participate inresearch programmes and deliver disruptive innovation on the market.European web companies are not competitive and the current FP7 isineffective to bridge this gap because it is ill designed for web innovation.With regard to the second one, light and fast funding instruments areapplicable in the government context, not only in the private and non-profitsectors. There are examples that show this feasibility.With regard to the third one, we analyzed the key features of suchprogrammes. However, in order to answer all objections, light and fastfunding instruments require some institutional interventions:-‐ in terms of regulatory change, to issue regulatory clarification on howsmall funding and inducement prizes could be used within the existingfinancial regulations, with the possibility to introduce new regulationsto simplify the organisation of such measures-‐ in terms of cultural and management change, to speed up the movetowards ex-post evaluation of results, rather than ex-ante control overprocessThis shows that “light and fast” funding instruments are not just a genericgoal for the future, but a feasible option for today. They offer tangibleopportunities to address some of the key challenges of European funding: the
17 capacity to reach out to new innovators, and the likelihood to turn researchinitiatives in marketable products. Countries such as the US and the UK haveincreased their investment in inducement prizes, and have establishedcompetence centre such as the newly founded NASA “Centre of Excellence inCollaborative Innovation” and NESTA “Centre for Innovation Prizes”. Intimes of tight budgetary restrictions, and after to many evaluation of FP ICTproject highlighting its limits, it becomes urgent to give an honest look at theeffectiveness of the current spending approach and make sure that thefunding goes to the real innovators rather than expert project writers (Osimoet al 2011). In the recent “Digital Single Market” conference, Esko Aho, authorof the ex-post evaluation of FP6 IST, stated that “if Framework Programme isthe way EC is going finance innovation, we dont have hope”. Thecost/benefit ratio of “light and fast” instruments versus traditionalinstruments cannot be ignored.In view of this discussion, we recommend the following policy actions:1. the integration of inducement prizes in Horizons 2020, with a 1%funding for each applied research priority to be distributed as prize2. the re-orientation of prescriptive research work programmes into openand challenge-driven funding model, not rigidly divided between priorities3. the launch of a peer-to-peer support network for project proposals tobe used also in the monitoring and evaluation of on-going projects4. the institution of a small projects assignment for each fundingpriorities, with maximum funding of 25000 Euros, small partnership, also forinformal groups and simplified submission and evaluation mechanisms.5. The move towards a stronger ex-post evaluation of projects and ofadministrators, even after 5 years of the finish, with results of the evaluationbeing publicly available and being used to future evaluation of both projectofficers and project proposals.This paper aimed to demonstrates that a radical change in the way innovationis funded in Europe is necessary and urgent: the combination of the re-designof Horizons 2020 and of the financial crisis make this moment unique. And itprovides concrete, actionable and low-cost policy actions. In our opinion,Europe would be better off by simply cutting the funding of web-related FPprojects than by maintaining the current system.8 ReferencesAho, E., 2008. Information Society Research and Innovation: Delivering results withsustained impact. Final Evaluation FP6 ICT,Arnold, E., 2010. Catalysing European Competitiveness in a Globalising World:Panel Report of FP7-ICT Interim Evaluation,BCG, 2010. Report The Connected Kingdom,Cottica, A. & Bianchi, T., 2010. Harnessing the unexpected : a publicadministration interacts with creatives on the web. Journal of ePractice,(March), p.1-9.Deloitte & Tech4i2, 2011. Ex ante evaluation and impact assessment FP8 ICT.EC, 2009. IMPACT ASSESSMENT GUIDELINES, European Commission.EC, 2010. A Digital Agenda for Europe, European Commission.EC, 2010. EU2020 flagship - Innovation Union, European Commission.
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