OECD Scaling Learning Journeys Series: What works to design and manage Challenge Funds so that the chosen innovations can reach impact at scale?
Summary of the OECD i30 Event | 18th January 2023
Scaling innovation, scaling development impact - next steps for the OECD Development Assistance Committee and partners
By: Aurore Pasquet (OECD Innovation for Development Facility), Mansi Agarwal (OECD Innovation for Development Facility), and Benjamin Kumpf (OECD Innovation for Development Facility)
Over the past two decades, levels of interest and investments in realising the potential of innovation in international development have grown considerably. Investments in novel approaches and technologies, from vaccines to cash transfers to mobile banking, have transformed the lives of poor and vulnerable people. There are new methods and tools, new collaborations and partnerships, and new ways of working.
This rising interest in innovation led to the increasing use of open innovation methods in the international development sector and across the membership of the OECD Development Assistance Committee (DAC). More and more development organisations realized and are realizing that the best expertise is usually to be found beyond organizational boundaries; that people directly affected by development challenges are experts and often the best-suited innovators to address local problems.
Leveraging the creative potential of all people and from any sector is at the heart of open innovation. Mechanisms that have gained remarkable traction in international development are innovation and challenge funds.
Generally speaking, a challenge fund is a mechanism to allocate funds for specific purposes using competition among organizations or individual innovators as the lead principle. A challenge fund invites companies, organizations, public institutions or individual entrepreneurs to submit ideas, usually in the form of project proposals. The modality enables development organisations to engage more actors than previously in problem-solving. It also enables development organisations to engage private capital in matching financing of ideas and leverage transparent competition to identify locally relevant and cost-effective solutions. The design of challenge funds can vary. Depending on whether the main objective is to find a breakthrough solution, stimulate ecosystems, advance market development, or act as catalysts for public awareness of specific problems.
In most cases, a key criteria of success is to find and support solutions that unfold positive impact – at the appropriate scale.
Helping solutions to unfold impact at the appropriate scale is at the heart of international development cooperation. Yet, there are few examples of international development organisations consistently and systematically innovating and reaching relevant scale over prolonged periods of time.
To advance better practice, we the OECD Innovation for Development Facility, partnered with OECD Evalnet, the OECD Results Community of Practice and with the Scaling Up Community of Practice, Million Lives Collective and the International Development Innovation Alliance.
Together, we designed a three-part learning journey for the OECD i30 Group, the peer-learning mechanism on development innovation for members of the OECD Development Assistance Committee.
Following the first session that focused on the state-of-play of scaling and good practices development and the second session on strengthening institutional capabilities, the last session on 18 January 2023 focused on scaling impact through open innovation mechanisms, especially challenge funds.
We were joined by more than 30 innovation leads from across the DAC membership. The speaker line-up included Jonty Slater, Director of International Development at Challenge Works, part of Nesta, Josephine Gustafsson, Program Manager of Challenge Funds & Innovation at Sweden's International Development Agency (Sida), Michael Unwin, Innovation Advisor in the Technology & Innovation Unit at the UK Foreign, Commonwealth & Development Office, Nilima Mehta, Advisor Innovation at USAID’s Centre for Innovation & Impact, Matthew Kentridge, Director at Kentridge Strategic Counsel, Tarah Friend, Manager of Humanitarian Research and Innovation Portfolio at the UK Foreign, Commonwealth and Development Office, Tatiana Zilkova, Team-leader of the Development Cooperation/ International Institutions from the Ministry of Finance of the Slovak Republic, Sasha Gallant, Chief of the Development and Innovation Ventures at USAID.
All speakers reflected on: what works to help drive innovations to scale through challenge funds and other open innovation mechanisms including challenge prizes and hackathons? This note summarizes the main insights of the session. It does not provide a comprehensive overview of the aggregated lessons on open innovation and scaling from the available evidence. Here is a good overview on designing Challenges from Nesta’s Challenge Works and here are guidelines from Sida’s Challenge Funds – showcasing good practice in international development cooperation.
Following our learning journey, we are now working a synthesis and next practical steps with members of the OECD Development Assistance Committee. More below, here are the main insights from the I30 event:
1. Pre-requisites for Challenge Funds to drive solutions to scale
Clarify scaling expectations
A pivotal first step is to formulate a vision for appropriate scale in the early stages of the design of a fund and integrate scale considerations in the selection criteria. Most open innovation mechanisms currently employed by development funders support innovations in early stages. Data derived from evaluations of USAID’s Grand Challenges for Development Evaluation (2021), the Global Innovation Fund Evaluation (2019) and Sida’s Global Challenge Funds Evaluation (2018) suggests that about 85 per cent of funding support ventures in the first three stages of this scaling framework, developed by the International Development Innovation Alliance.
The appropriate vision for scale will depend on the development challenge. Is it a challenge affecting large parts of the population, such as youth unemployment? Or is it impacting specific groups, such as non-inclusive legal services, excluding persons with disabilities. It is about setting expectations that reflect a realistic understanding of the local context and particularly of potential exclusionary effects of innovation and scale. Every innovation or intervention has its own appropriate scale. For example, using malaria nets to reduce incidence of malaria can reach millions of people fairly quickly while a behaviour change intervention to alter poor health practices in specific communities may take years to reach just thousands of people. Managing and setting these expectations beforehand can help set more realistic and achievable scaling objectives and expectations.
Plan for volatility
There are practical ways to plan for uncertainties and volatility. A number of organisations incorporated additional funds in the original design, to have reserves that can be dispersed in unforeseen circumstances, particularly natural disasters or other crises. Other practical tweaks to enhance flexibility are transparent rules on the extension of funding and implementation windows, shorter time periods between funding tranches in times of greater need for faster delivery.
Understand the local ecosystem
Behind every innovation is a person or a team and they need a ‘line of sight’ to bring an idea from conception to sustainable scale. This line is nested in the local innovation ecosystem, comprised of policies and regulations, available financing opportunities, human capital, market dynamics, research and academic institutions, networking assets, support mechanisms such as incubators and accelerators, and other factors. Every innovation investment in international development needs to be based on a solid understanding of the local ecosystems, its strengths and weaknesses. Accordingly, the kind of support provided to entrepreneurs and ventures, based on the specific local needs. Overall, the demand for flexible forms of capital to drive pro-poor and other social innovations in low-income countries is much higher than its supply, particularly for later-stages.
Localise venture support
Supporting entrepreneurs and ventures from far-away HQ locations has proven to be as not cost-effective for a number of organsiations that shared experiences. Several speakers underlined how diverting the support structure from the global north to partner countries themselves and hiring local experts has enhanced the effectiveness and scale-potential of their work. Particularly useful is to recruit a local team that is well-connected, brings personal experience of at least one member in scaling an innovation and that has operational and fiscal dexterity to advice on scaling pathways: either through commercial pathways or through the public sector.
2. Requisites during venture support
Invest in tailored capability development
Every innovation and the person(s) behind it require bespoke forms of support. Some Challenge Funds invest in pioneers, operating without precedents in their locality, nor with locally-relevant playbooks. Others support ventures led by experienced and well-connected entrepreneurs. All ventures are unique and as such, off-the-shelf capacity development offers are not cost-effective and suitable to support scaling pathways.
Consider low-cost delivery options
Scaling development impact can mean scaling the effects of a policy and thus advocating for changes to rules and regulations. It can mean scaling the breadth and depth of a service, such as cash-transfers to all eligible households and individuals. It can mean scaling a product and access to it, such as a vaccine. For products and services, evidence suggests that innovations and solutions that are deliberately working on lowering the delivery costs per person are more likely to scale. In a number of contexts and for specific challenges, this can mean considering the digitization of services and products. But this has to be assessed with an equity-lens, considering gendered and geographic digital divides.
Leverage relationships
To scale the impact of an innovation or any regular development programme, relationships and cross-sectoral partnerships are key. All too often, the support development organisations provide focuses on aspects related to financing and technical capabilities. Yet, different forms of social capital play crucial roles in scaling and development organisations and open innovation mechanisms can play a role in deliberately strengthening bonding, bridging and linking efforts. Particularly to support connecting grassroots organisations and innovators with formal governmental and financial institutions.
Scope follow-on financing options
Building on the vision for appropriate and sustainable scale, and the assessment of the local innovation ecosystem, development organisations should work with their partners on identifying financing opportunities for the next stages. This is relevant to catalyze co-financing from private investors and to chart a path for scaling through public institutions. Challenge Funds and other open innovation mechanisms should set aside dedicated budget for such referral support during and after the duration of the Challenge Fund backing.
3. Post requisites
Budget for sustained referral support
All too often, innovators and their funders make the false assumption that the innovations or projects they support will “grow organically” because someone, anyone, will pick them up and run with them. As such, it is necessary to develop a ‘’post-transition to scale’’ strategy. The USAID Centre for Innovation and Impact, for example, has implemented such provisions as a regular feature of their Challenge Funds.
Offer peer-learning opportunities
A number of Challenge Funds is investing in connecting its grantees for peer-learning and -inspiration. Creating such mechanisms of current and alumni enables not only learning but sharing of contacts and matchmaking.
Invest in portfolio evaluation
Not every investment in innovation will result in measurable impact, let alone impact at considerable scale. Assessing the social return of investment on a single project or innovation level is therefore not useful. Instead, assessing effects needs to happen on the portfolio level, as demonstrated by USAID’s Development and Innovation Ventures team. A recent analysis demonstrated that a 17:1 social return on every US-dollar invested for 5 of the 41 innovations supported for the first 2.5 years of the Challenge Fund. Quantifying impact and rigorous evidence-based evaluation allowed DIV to demonstrate pathways to scale. Such assessments require a dedicated focus on the appropriate indicators for the various scaling stages and on suitable data collection processes at do not overburden innovators.
Scaling innovation, scaling development impact - next steps for the OECD Development Assistance Committee and partners
This session concluded the three-part learning journey on scaling, in partnership with the Global Community of Practice on Scaling Development Outcomes, the International Development Innovation Alliance and the Million Lives Collective.
Our next steps are to kick-off a joint effort with the OECD Community of Practice on Results-Based Management and OECD Evalnet to produce practical guidance with and for members of the DAC. We will work closely with our aforementioned partners and with intrapreneurs from DAC member ministries and agencies. We know that simply accelerating and scaling development innovations and efforts will not result in advancing the required economic and social transformations. We know that international development organisations, particularly funders, can and need to do better to provide financing for innovation and scaling. From flexible early-stage support to long-term, patient capital. We know that policies and regulations play a key part in hindering or facilitating scaling. We know that these and additional institutional capabilities are needed to scale innovations and the effects of many development programmes.
If you are working on enhancing scaling practices or are in the process of scaling innovations in low and middle-income countries, please get in touch: indef@oecd.org
