By Marty Michaels

The use of prizes — and the money and glory that come with them — is undergoing a “renaissance” in the nonprofit world, helping spark innovative approaches to solving social problems, says a new report.

Prizes for philanthropic-minded efforts are increasing not only in their number, but also in the size of the cash awards they convey, and are being applied by an ever-expanding list of sponsors to a broader range of issues than in the past.

But the report, issued by McKinsey & Company’s Social Sector Office, warns that this growth has also resulted in “many overlapping prizes and growing clutter,” and that quantity doesn’t always signal quality.

The authors attribute this proliferation to several factors, including the creation of prizes by venture philanthropists, companies, and others who feel that advocacy and grants have not been sufficient to solve certain social problems and take advantage of opportunities.

Other factors include new attitudes among social entrepreneurs to “shifting risk,” the networking abilities of Web 2.0 technology, and intensified interest in the potential of collaborative, “open source” approaches to combating poverty and other large-scale social conundrums.

The report estimates that of prizes created since 2000, corporations and new philanthropists account for two-thirds of the accompanying capital, as they “pursu[e] arenas closely linked to their commercial interests or individual philanthropic passions.”

For example, software mogul Thomas M. Siebel last year created the $20-million Siebel Energy Free Home Challenge, which has the goal of designing homes that use “net zero” non-renewable energy yet cost roughly the same as other houses on the market.

Meanwhile, corporations — including Google and Progressive Insurance — accounted for one-third of the 219 prizes worth $100,000 or more that were tracked by the report’s authors.

About 60 of those large prizes were created in 2000 or later, say the authors, representing nearly $250-million in new prize money. The total funds available from the 219 “big purse” prizes have more than tripled over the past decade and now exceed $375-million, according to the report.

And even-larger “massive inducement prizes” may be on the horizon, say the authors, citing as one example John McCain’s campaign proposal that would have given a $300-million award for the design of ultra-efficient car batteries.

Making a Difference

The glut of philanthropic prizes should cause some thorny issues to be raised, say the report’s authors.

For instance, does a medal given at the end of a lengthy career change social practices or behaviors?

Do new or redundant prizes “dilute” the efficacy of existing ones?

And is there any assurance that innovative ideas or designs that win a competition will spur the “widespread adoption critical to improving lives on a large scale”?

To help answer these questions, the report delineates seven ways through which it says philanthropic prizes can “deliver change”: by identifying and rewarding excellence, influencing public perception on an issue, focusing a “problem-solving community” on a specific task, identifying and mobilizing new talent, creating networks that share ideas, educating people while also improving their skills, and acting as a catalyst to attract additional money.

Among the report’s other key findings:

The larger prizes are increasingly shifting away from the arts and humanities — which have historically been dominant — to new areas such as aviation and space, climate change and the environment, and science and engineering. Prizes can be useful tools for tackling “problems for which the objective is clear, but the way to achieve it is not.” For instance, the Virgin Earth Challenge, created in 2007 by Sir Richard Branson and Al Gore, promises a $25-million award to an individual or team who design a commercially viable instrument that can remove human-produced greenhouse gases from the atmosphere. In most cases, the effectiveness of a prize is due to a well-considered strategy, not the size of its purse. Ashoka’s Changemakers program, for example, provides $5,000 awards through its “open source” competition to social entrepreneurs worldwide working on access to water and sanitation, rural development, and other critical social issues. A sponsor’s responsibilities shouldn’t end with the presentation of an award. The authors say that “post-prize investment can reinforce a winning idea or bring it to scale, and can be used to apply lessons learned for future competitions.”

The report is based on academic appraisals, interviews, surveys of prize sponsors and competitors, and databases of prize opportunities. The authors also took into account related fields such as intellectual property and theories on human incentive and motivation.

The John Templeton Foundation, in West Conshohocken, Pa., provided support for the project.

The report, “And the Winner Is… Capturing the Promise of Philanthropic Prizes,” is available for free online.