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In this week’s Business Surgery, Conor Wilcock takes a look at the phenomenon of crowdsourcing

In 2003, a quite delightful and intelligent chap named Henry Chesbrough – a professor of the Harvard Business School – coined the term “open innovation.” His argument was that companies should innovate by combining internal and external ideas; this would be effective because the lines between an organization and its environment were becoming more permeable. What he was referring in part to, was crowdsourcing. This is a process by which a company delegates a task (often involving idea creation and innovation) to an external group, rather than using internal resources, such as paid employees.

Almost a decade later, we are in a position where companies can truly reap the rewards of exposing their challenges to the masses. Prof. Chesbrough was onto something: technology just hadn’t caught up with him yet. Though the idea behind crowdsourcing has been utilized for decades and perhaps longer, its potential has grown exponentially due to the Internet and the social media revolution.

In what was perhaps a homage to his fellow Harvardian, Andrew McAfee of the Harvard Business Review has written an article on the subject of open innovation and crowdsourcing: “Let The Crowd Fix Your Product’s Bugs.”

McAfee’s thread of argument is that companies who use crowdsourcing competitions to solve problems reap much greater rewards than those who use internal R&D teams to face those challenges. Organizations, he notes, prevent successful innovation because of the false assumption that the greatest (and only) expertise regarding problem-solving for the company, is from within:

“Businesses certainly know where a lot of the relevant expertise is in any situation, but…they certainly don’t know where all of it is.”

In short, dealing with the elephant in the room isn’t quite enough anymore. Companies can enjoy much greater success when it comes to innovation, by leading the elephant outside the room and offering it to fresh pairs of eyes – and lots of them at that. External expertise might deliver something which outperforms an internal strategy or “solution”, simply because they have the organic viewpoint of the outsider. Maybe the problem sitting uncomfortably in the corner isn’t even an elephant, after all…

McAfee cites crowdsourcing companies such as Kaggle and Innocentive, which host innovation competitions. A company presents a challenge to a diverse group of people, each of whom develops a solution to the problem. A winner is chosen and offered a prize; it’s worth noting that though often significant, monetary incentives pale in comparison to internal R&D costs. More often than not, the external solution is considered to be more effective than the internal solution.

Of course, there are roadblocks associated with each one, mainly due to overcautious companies not willing to fully embrace the risks of crowdsourcing:

Will the crowd care? If I have learned one thing as a market researcher (to my superiors reading this, rest assured that I have learned more than merely one thing), it is that people relish the opportunity to share with you their opinions. According to McAfee, the best crowdsourcing solutions are often borne from individuals who are “marginal to the domain of the challenge.” Put simply, people do care, and will care.

Can we wait? Effective crowdsourcing takes time, as does internal decision making on innovation. There is a tendency, however, to assume that online crowdsourcing is a quick hit solution. Allocating sufficient time to a project will allow it the opportunity to nurture successfully.

What do we need to tell them? In order to develop an innovative solution, members of the crowdsourcing community will likely need to be party to certain data and information, some of which might be deemed to be confidential. Companies must carefully determine the amount of information necessary for the project to succeed. Remember that crowdsourcing is rarely a comprehensive fix; R&D teams should work with external solutions to innovate.

Perhaps the biggest challenge is for a company to convince itself that crowdsourcing may well make a difference. It can look to successful case studies and feel confident in the knowledge that this is no longer on the periphery of business strategy: advocates of crowdsourcing include Intel, Microsoft, HP, The Economist, and the US Census Bureau.

Companies should also not be afraid to make mistakes regarding innovation. Crowdsourcing doesn’t work 100% of the time, and that’s ok. As a fairly well regarded gent by the name of Thomas Edison famously said:

“I have not failed. I’ve just found 10,000 ways that won’t work.”

Innovation can be a light bulb appearing above a thoughtful head (see what I did there?!), but it is more likely to be the result of collaboration, trial and error, and managed risk. One thing we know for sure is that innovation can be the lifeblood of a company. In a vain attempt to support my hypothesis by namedropping, I’ll leave you with American management expert, Gary Hamel, whose thoughts on innovation are thus:

“Somewhere out there is a bullet with your company’s name on it. You can’t dodge the bullet – you’re going to have to shoot first. You’re going to have to out-innovate the innovators.”

In the event of an innovation shootout, wouldn’t it be nice to have a crowd on your side?

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