Giving Compass' Take:

• Fast Company surveyed the nonprofit sector about funders organizing competitions to make decisions on grants and whether it really helps foster innovation. 

• Both sides are presented: On the one hand, a competition can encourage bold ideas and provide valuable feedback, even for organizations that don't win. But it may also hurt some organizations doing good, methodical work.

• One trend that Vu Le from Nonprofit AF wants to see end: popularity-based grants.

Earlier this year, the Chan Zuckerberg Initiative joined with the Rockefeller Foundation to offer $10 million in prize money for the winners of their Communities Thrive Challenge. The idea is for community groups to suggest scalable ways to build more economic opportunity for low-income and financially insecure people in the areas they serve.

It’s just the latest entry in a now powerful trend: using competitions to find the best places to direct funding. According to a new State of Open Innovation report by strategy and innovation consultancy Luminary Labs, which surveyed a variety of entities that are experimenting with everything from “crowdsourcing, prize competitions/challenges, hackathons, data jams, open science, and more.” The report notes that that 41% of nonprofits surveyed are fully committed to some type of decentralized idea generation, while the rest are still developing their plans. Overall, the survey found that roughly two-thirds of respondents, including private sector companies, government agencies, and nonprofits, are sponsoring or executing external prize competitions.

Although the group’s sample size is arguably small — it polled roughly 100 industry leaders, including 17 nonprofits — the report includes responses from well-known sector practitioners like Schmidt Futures, Sage Bionetworks, MIT Solve, and the Barbara Bush Foundation For Family Literacy. “These results apply primarily to funders, although they suggest new funding avenues for groups or individuals looking to solve complex problems in a new way,” says Luminary Labs CEO Sara Holoubek in an email to Fast Company. “For funders, there is early evidence that open innovation is potentially a more efficient and effective grant-making process that reaches a larger, more diverse group of potential solvers.”

Read the full article about how competitions are taking over nonprofit funding decisions by Ben Paynter at fastcompany.com.