The use of prizes by philanthropies and private businesses to encourage innovation and achieve social benefits is burgeoning. A McKinsey study of prizes worth more than $100,000 suggests that the aggregate value of such large awards has more than tripled over the past decade, to $375 million. Moreover, the role of prizes is changing: nearly 80 percent of those announced since 1991 have been designed to provide incentives for specific innovations rather than to reward excellence in general. An understanding of the characteristics of effective prizes and of how they are evolving would be useful for not only philanthropists but also public- and private-sector players hoping to harness their potential for innovation.

To learn how prizes are meeting the goals of the philanthropies that finance them—and how their effectiveness might be improved—we studied 219 prizes, each with a value of $100,000 or more; interviewed about 100 experts on innovation, prizes, and philanthropy; and surveyed the sponsors of 48 major awards. Further, we conducted in-depth interviews with the sponsors and administrators of 12 public, private, and philanthropic prizes that have particularly interesting strategies, designs, and management practices.¹