by Prof. Nikolaus Franke
Organizations as diverse as NASA, Coca-Cola, Patagonia, Amazon, Greenpeace and Nissan have one thing in common: they rely on crowdsourcing competitions to boost their innovative force. The spectacular outcomes achieved so far have given rise to a flood of both individual competitions and crowdsourcing platforms such as InnoCentive, ATIZO and NineSigma. Even companies based solely on a business model that harnesses the innovative force of the crowd, e.g. Threadless and Local Motors, have been founded. In the following, Prof. Nikolaus Franke, Academic Director of the Professional MBA Entrepreneurship & Innovation at WU Executive Academy, will discuss whether crowdsourcing is in fact a cure-all for innovation-related issues and why the crowd comes up with better ideas and concepts than generously remunerated in-house experts.
The principle of crowdsourcing is simple: an organization informs the public that it is looking for innovative solutions to a given problem, offering a prize for the best idea. Anybody interested can participate and submit ideas. In the end, the best solution wins the prize. Jeff Howe coined the term crowdsourcing in 2006, based on the concept of “sourcing” from the anonymous masses, the “crowd.” The underlying principle itself, however, is much older. In 1714, the British government was struggling to deal with a significant shortcoming: longitude at sea could not be calculated with sufficient accuracy. The faulty measures resulted in about 1,000 deaths per year – officials were well aware of the problem but simply could not figure out a solution themselves. While experts believed that stargazing and observing planetary orbits were the way to go, the solution came from a wholly unexpected direction. Clockmaker John Harrison invented a precise chronometer fit for use at sea, which was then employed to determine longitude at sea.
One reason why the number of crowdsourcing competitions has increased so dramatically can be found in the lower transaction costs of communication. In this age of ubiquitous internet access and permanent connectedness, the crowd, and thus a vast multitude of potential solutions to a problem, can be reached very easily. The spectacular successes achieved also play a role. When NASA, for instance, looked for an improved algorithm for the alignment of nucleotide sequences in the field of immunogenomics, the crowd delivered a solution that was 1,000,000 (yes: one million!) percent more effective than the procedure developed by the organization itself. How is this possible?
Two principles explain why the crowd frequently produces superior results compared to in-house experts.
There is a rather low chance that the people charged with a task within an organization are actually the ones best suited to solve the problem at hand. What is far more likely is that somewhere there are people who have greater expertise in the field in question, have solved a similar problem in the past or have looked at the problem from a different perspective, producing a wholly unexpected solution (as was the case in determining longitude at sea). Unfortunately, we usually do not know who these people are. The self-selecting bias, however, assumes that those most suitable to solve a problem will proactively assign themselves to the task. A person with an idea will participate without having to be prompted to do so. In a recent research project carried out at WU Vienna’s Institute for Entrepreneurship & Innovation, the crowdsourcing competition investigated clearly attracted particularly proficient problem-solvers. The qualifications of the 69 people who submitted their ideas of their own accord by far surpassed those of the 11,897 people that were actively contacted to consider a submission.
Even the smartest and most creative thinker cannot produce innovative ideas at the drop of a hat. At the same time, anyone can have a stroke of luck occasionally. Throughout history, individuals have come up with genius ideas, a feat that they could not reproduce a second time no matter how hard they tried. Such “one-hit wonders,” as they are called in the music industry, can also be found in science and economy. Crowdsourcing harbors great potential because it reaches a large number of likely solution-providers. Even though on average, their qualification levels might be eclipsed by those of the organization’s own experts, the best ideas produced by the crowd often prove stronger than concepts developed by in-house staff. A follow-up research project conducted by the Institute explored whether the number of participants or their qualification profiles was more important for success in the competition. The profiles of 1,089 participants in a (different) actual crowdsourcing competition provided the preliminary data. Based on these data, we computed 36,400 crowdsourcing competition simulations. The results spoke a clear language: the number of participants had a greater impact than their average qualification level.
Firstly, crowdsourcing works best in situations in which it is unknown who will produce the optimum solution. It is thus particularly suitable for creative, poorly structured, and difficult problems. It is more adequate for issues related to innovation than projects centered on optimization. You can rest assured that it will attract those who easily come up with innovative solutions – and the competition should be designed in a way to appeal to them.
Secondly, crowdsourcing competitions should strive to reach and strike the interest of a large number of potential participants. Innovation cannot be programmed and the outcome depends on luck more than we can appreciate. However, you can try to attract good luck by increasing the number of attempts. This is also a question of how the competition is organized. Keep these principles in mind and crowdsourcing may in fact become your magic bullet.
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