What can governments learn from Canada’s challenge-driven innovation?

  • Andrea Richardson

    Andrea Richardson

    Programme Manager

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As governments globally face increasingly complex problems – from the climate crisis, to the long-term implications of COVID-19, to the consequences of rapidly evolving technology – some, like the Canadian Government, are taking a new approach.


Governments across the world are facing increasingly complex problems: problems that are devastatingly urgent, that cross sectoral and political boundaries, and that are difficult to measure progress against. Many governments are tackling these problems with the same arsenal they’ve always used – primarily grants and procurement programmes. But some, like the Canadian Government, are taking a new approach. They recognise different facets of these complex problems are best tackled with different tools and methods.

Launched in 2017, Impact Canada is a Government of Canada-wide effort to help accelerate the adoption of innovative funding approaches to deliver meaningful results to Canadians. Under this initiative, the Impact and Innovation Unit was established within a central agency – the Privy Council Office – to experiment with innovative programme delivery models to close the gap between policy development and implementation. Challenge-driven mechanisms – which Impact Canada organises into challenge prizes, Grand Challenges and competitive accelerators – have been some of the first approaches explored.

These challenge mechanisms (collectively called challenge prizes or simply ‘challenges’ in the rest of this piece) offer a series of incentives with a final prize to whoever can first or most effectively meet a defined challenge. They are problem-specific and outcomes-focused, most effective when a problem is well-defined but who can solve the problem (and how) is unknown.

Challenge prizes use different incentives and achieve different results than governments’ existing tools:

  • Today’s problems need fresh and diverse thinking. Challenge prizes incentivise new and original thinkers to solve a problem, surfacing solutions that may not have been otherwise imagined or considered. By offering cash and capacity-building support, innovators with a clever idea but little track record or innovators who traditionally get overlooked by traditional funding programmes are better placed to compete with the incumbents.
  • The element of competition and the fixed end date of challenges accelerates progress.
  • The high profile and mission of a challenge can raise public awareness, building momentum and drawing in others to work on a problem.
  • Today’s complex problems require collaboration across sectors, countries and political boundaries. Challenges are refreshingly actionable projects to gather stakeholders and collaborators around.
  • Challenge prizes can help identify best practice and inform policy or regulation, contributing to systemic change.
  • Because challenges pay the final prize at the end of the competition, they reward tested solutions and outcomes rather than ideas and plans. They result in measurable, tangible progress.
  • Offering the final prize for solutions and outcomes also makes challenges economically efficient, allowing governments to support long shots and radical ideas while minimising financial risk. By drawing attention to a problem they crowd-in investment.

Nesta Challenges’ challenge prize practice guide categorises these results into three impacts – (1) incentivising breakthrough innovations (2) helping innovators thrive and (3) unlocking systemic change.

Canada has explored all three impacts through their portfolio of challenges to date:

(1) The Canadian Government used the Drug Checking Technology Challenge to incentivize the development of breakthrough innovations. Launched in 2018 by Health Canada, the challenge is a response to the opioids crisis. The challenge aims to accelerate the improvement of drug checking technology to allow the community of people who use drugs and those who support them to make more informed decisions based on the composition of a drug and to reduce harm. The challenge successfully attracted new ideas and innovators; most of the applicants to the challenge were new to Government of Canada funding[1].

(2) The Women in Cleantech Challenge was launched to help women cleantech innovators thrive. Only 5% of technology companies in Canada are founded by women; therefore, in 2018 Natural Resources Canada launched the challenge with the explicit aim of increasing women tech founders. Women developing technologies to tackle energy and environmental challenges are competing for the $1m final award. They are also receiving business advice and technical and financial support through a customised accelerator hosted by MaRS Cleantech, including the opportunity to work with federal labs and researchers.

(3) Julie Greene the Impact and Innovation Unit’s Lead of Capacity and Partnerships, explores how challenges can unlock systemic change in her blog “Before and Beyond Solutions: How Can Challenge Prizes Help Advance Broader Policy Objectives?” She explains how the Canadian Government has used challenges to communicate and advance broader priorities and define space for innovation.

Canada isn’t the only government adding challenge prizes to its toolkit; there’s been a rebirth of challenges as of late. The United States Government’s Defence Advanced Research Projects Agency (DARPA) has turned to challenge prizes instead of conventional means (like grants and procurement) because they encourage thinking outside the box and broad participation. They’ve also found the economics make sense: “Prize purses are paid out only if someone succeeds, and in many cases, the amount of time and money invested by multiple teams as they vie for the prize exceeds the size of the prize purse itself”[2]. The European Union has drawn on Mariana Mazzucato and her mission oriented innovation policy work to develop their five research and innovation missions, Horizon Europe and the related Horizon Prizes. Here in the UK, the Department of Business, Energy and Industrial Strategy (BEIS) sponsored the formation of Nesta Challenges in 2012. Our team has subsequently run 35 challenges, piloting the method to tackle a wide range of problems.

Nesta Challenges has the pleasure of guiding and supporting the Canadian Government’s extensive programme of challenge driven innovation.


Our team works in partnership with the Impact and Innovation Unit (IIU) as they co-design challenges with government departments. These departments are using challenges, alongside more traditional tools, to meet their mandates and achieve their existing policy objectives.

Using this model since 2017, Impact Canada has launched 10 challenges (with more in the pipeline), making up a portfolio of over $700 million in funding to solutions best meeting their challenge prizes’ desired outcomes and contributing to policy objectives.

Impact Canada is running these challenges on a broad array of topics, tackling components of the climate crisis, housing affordability, food waste, the opioid epidemic and others. They’ve proven that challenges can be an effective tool on social, economic and environmental topics, provided (1) the problem is well defined (2) there’s benefit to opening up the problem to a wider pool of innovators (3) these innovators will be incentivised to participate (4) there’s benefit to accelerating progress and (5) solutions will be adopted. (We call these the five “green light criteria”). If these criteria aren’t met, more traditional grant and procurement processes are likely the right fit.

Working with the IIU, Nesta has had the pleasure of seeing the Canadian Government’s challenge prizes work toward their desired impacts – while also impacting government itself. Working on these projects has empowered departments to learn new skills, be creative, take new approaches and (at times) navigate complicated processes to make things happen. As a Canadian myself, it’s been exciting to see. By being a leader in outcomes based funding and showing a federal government can “do something different”, my hope is that Canadian institutions (both in and out of government) will become even more receptive to using wider innovative methods for the good of Canadians.

 But what’s the secret to Impact Canada’s success? Which parts of their model should other innovation-focused governments consider?


With the launch of Impact Canada, the Canadian Government elected to strategically deploy challenge prizes, and other outcomes-based methods, as part of its arsenal to tackle complex problems and deliver results for Canadians. This centralised, joined-up approach has been especially effective because of Impact Canada’s dedication to the following:                                                   

Investing in capacity development

The IIU supports partnering departments to “learn by doing”; each department takes ownership of its challenge prize design and delivery. When a department expresses interest in running a challenge, the IIU will host an introductory meeting. Often in partnership with Nesta Challenges, the IIU is then available to guide the department through the application, approval and challenge development process. We share learning from our respective experiences and mistakes and can provide extra hands to pick up particular tasks.

The IIU is now working to codify its challenge prize method and learning into a shareable resource. In addition, there could be great benefit in building connections between now-experienced departmental delivery teams and those starting out.

Building dedicated time and resources

In addition to developing capacity, the IIU has made sure to build in the required time and resources to design and deliver high quality challenges. They recognise effective challenge prizes, being used to address important policy objectives, cannot be completed side-of-desk. Therefore, they are vigilant about committing a realistic timeline to the rigorous design of challenges – often a year, although this may reduce as more learning and procedures are codified. They encourage and empower departments to build formal project teams with dedicated project leads. They developed the Impact Canada Fellowship programme which recruits subject-matter and technical experts to help foster innovation in the public service. Challenge prize Fellows are placed directly into department delivery teams, to work in tandem with Impact Canada and build departmental skills and capacity.

Earning senior department buy-in

The IIU works with departments to understand why and where challenge prizes make sense. This understanding, in addition to the “stamp” of Privy Council Office approval (the Privy Council is widely known for its rigorous analytical and challenge functions) can help earn buy-in from departments’ senior stakeholders. This buy-in has been assisted by the success of early best-in-class examples, such as Drug Checking Technology Challenge. Awareness of a high profile challenge prize, addressing a high profile issue, led by a high profile department can help pave the way for future challenges.

Focusing on centralised impact evaluation

The IIU has developed a robust method for evaluating the impact of its challenges, testing the results of each project against its desired objectives and outcomes. Doing this from the centralised position of the IIU allows for the systemic and consistent trialling and improvement of the challenge prize method horizontally across government. At the first stage, the IIU will use existing administrative data to understand how Challenge applicants and semi-finalists perform over time, compared to those who don’t apply. In time, the IIU should have the ability to compare the impact of challenges to alternative funding methods. This is not the case, for example, in the UK public sector where the use of challenge prizes is fragmented and cumulative learning is difficult.

 Providing both social and technical permissions

Building Impact Canada’s centre of expertise, the IIU, inside the Privy Council Office created top-down support for new outcomes-based models like challenge prizes. And beyond these “social permissions”, Impact Canada ensured there were “technical permissions” like new Terms and Conditions “…built in a flexible manner to support departments in their experimentation with prizes, challenges, micro-funding and other outcomes-based and innovative programming approaches”.

The right team and mindset

IIU team members are selected for their innovative mindsets, openness and dedication to change. They’re a group willing to adapt and improvise, they’re comfortable being uncomfortable and they understand there’s no precedent for their role; they’re “building the boat while sailing”.  Partnering government departments have demonstrated similarly impressive values and skillsets. Working with the IIU and its partners, our Nesta Challenges team has been impressed by their determination and resilience. It’s easy to see the social and logistical barriers to doing something different. Yet, we’ve watched these teams relentlessly come back to the question “what will create the best results for Canadians?” and tirelessly drive toward their answer.

Moving forward, governments need to update their arsenals with new tools and methods. Best said by Rodney Ghali, Assistant Secretary to the Cabinet of the Impact and Innovation Unit, “our collective perception of risk is not calibrated appropriately. We shouldn’t equate new with risky. Rather, we need to constantly question status quo, understand the risks of maintaining it, and recognise when we need to responsibly test something new”[3].

To read more about what the Canadian Government’s Impact and Innovation Unit does and how they do it, have a look at their annual report.


[1] Section 3.1.2 (a), Impact & Innovation Unit 2018-2019 Annual Report

[2] Prize Challenges, Defence Advanced Research Projects Agency (DARPA)

[3] Foreword, Impact & Innovation Unit 2018-2019 Annual Report

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