Chapter 4

The Power of “Crowdsolving”

Adriano La Vopa

Introduction

Like open innovation, crowdsourcing has become a buzzword. Especially for small and medium enterprises (SMEs), where surplus cash is often negligible, we believe that when a company approaches the crowd, it should be done in a careful and structured way. The risk of doing crowdsourcing without the correct “preparation” is a recipe for dramatic failure. It is imperative to have a clear idea on what to ask the crowd and then determine which is the best “crowd” to approach and how to get their attention.

Crowdsourcing overlaps with some other open innovation approaches, like technology scouting or cocreation with lead users, to mention only two. Indeed, it is difficult to position crowdsourcing in a separate frame from other approaches. The use of the crowd is already an indication that the company is open and that is seeking solutions provided by people outside its own supply chain (see Figure 4.1).

As shown in the picture, the search for solutions via the crowd can be used in a variety of contexts. Usually, the crowd is engaged in one of two different ways: the first is by launching a contest and the other is by opening a challenge. Since the words contest and challenge are synonyms, it is important to explain how we understand them.

A contest is usually initiated to attract new ideas or designs, or to call for cocreation of new concepts. A fun example is the National Aeronautics and Space Administration (NASA) Goddard Space Flight Center’s Optimus Prime Spinoff Challenge where precollegiate students propose new products that leverage space technology to solve problems on earth (see http://ipp.gsfc.nasa.gov/optimus/). In a contest, a company usually posts a need to be addressed, a time frame for submission of ideas, and, in most of the cases, there is a selection process that leads to rewarding the winner with a prize. The contestants usually are asked to submit their ideas in a “conceptual” way. For instance, a design contest typically asks for submissions of visual material (three-dimensional [3D] videos, sketches, storybooks, drawings, etc.), since the need of the company could be to look for a new concept of their product or a totally new product they never thought about. The NASA Optimus Prime Spinoff Challenge has the children make videos illustrating the use of the product.

A challenge is something more elaborate, where the crowd is called to participate with ideas that are mainly solutions to a problem that the company has defined. In a challenge, the company posts its own need, which is essentially a problem that could not be fixed internally, and then the call is open to the crowd. The need may be posted on its own portal or that of an intermediary. It can be a company-specific portal or one shared with other entities, such as http://Launch.org. Here the contributors submit more elaborated ideas, in many cases, a proof of concept involving technologies that are protected by patent, copyright, mask, or other intellectual property (IP) rights. A challenge could be granted with some prizes, awards, or recognitions, or, in some cases, the possibility to work with the company to develop the winning solution. A challenge foresees activities of problem solving, cocreation, and codevelopment of solutions for a specific problem. In the following, we use the example of an SME in the injection molding business, which has encountered a problem during product development. It poses a challenge on their portal for a crowd of innovative suppliers to respond to. When a solution emerges, it is adopted and immediately used by the company.

Although the difference may seem minor, this brief explanation highlights that crowdsourcing, as a method of open innovation, requires attention to objectives and requirements, who the crowd is, how they will be approached, and how they will be rewarded. In this chapter, we guide you through how to think about crowdsourcing. Along the way, we provide some examples on how the potential of the crowd can be used.

Specifically, for SMEs looking for ideas and advice (or money) from the crowd, we believe the approach to follow is “crowdsolving.” The reason for this rewording is because you want to ask the crowd to solve your problems. Going to the crowd can provide access to new knowledge and expertise that can be applied by SMEs to come up with the right solutions. Crowdsolving should be the overriding concern when using crowdsourcing.

In this chapter, we explore using crowds. Suggestions on how to determine what needs are appropriate to take to the crowd are provided as well as advice on how to define them and guiding templates to ensure you capture all the essential parts of the process. In addition, we discuss what to do when solutions start coming in. Here, we examine how to deal with some of the trickier parts of the process: the IP, the risks involved, the roles to give to contributors, and how to motivate and involve them effectively.

Defining Crowdsourcing

Crowdsourcing, like most of the methodologies commonly used within open innovation, is a way of exploiting the knowledge of the crowd. Like open innovation in general, crowdsourcing was originally a process used primarily by large companies. Today, SMEs, including start-ups, exploit it.

The first use of the term crowdsourcing was in an article from Jeff Howe in Wired magazine1 back in 2006. He said, “The new pool of cheap labor: everyday people using their spare cycles to create content, solve problems, even do corporate R&D.” His article proposed for the first time a reasoned analysis on some successful examples from a crowd of unusual contributors. iStockPhoto, InnoCentive, NineSigma, and Mechanical Turk are some of the examples he mentioned. What his analysis pointed out was the economic benefits engaging with a crowd of people that could provide extremely competitive solutions to problems. Compared to hiring professional consultants and researchers, he pointed out that the crowd is a “cheap labor” force. After this first publication on the subject of crowdsourcing, many others followed, addressing the different definitions, the motivations pushing individuals, the “types” of such individuals, and, of course, the different ways of managing this huge innovative power.

Nowadays, it is common to read in both the scholarly and popular press and blogs that most innovation comes from customers and consumers who are seeking more performance, better quality-price ratios, better product features and functionality, and so forth. Companies that listen to customers and consumers use this feedback to improve their existing products and create new ones. More and more companies are claiming to be “consumer (or customer) centric,” and indeed they are. It does not really matter if the business is B2B, B2C, or B2B2C. Today’s global economy is driven by innovation, and an SME that ignores the harsh reality of product life cycles has a hard time surviving.

While the length of product life cycles and the diversity of products offered varies by industry, in innovation-driven economies, failure to innovate effectively and cost efficiently can dramatically jeopardize an SME’s competitiveness. In both large companies and SMEs, there is constant pressure to come up with new brilliant ideas that can be translated into blockbuster products—or at least solid performers. Yet, especially in SMEs with a small or no research and development (R&D) department, these new product ideas can be hard to discover. Everyone is too busy with the day-to-day operations, and the need to support day-to-day operations diverts even future-focused R&D. R&D can also be too biased by their technical domain. Despite its best efforts, lack of time, lack of money, and lack of broad-ranging technical expertise can make it hard to find the right solution to problems in current operations, let alone develop new products. These are common issues for any company, of any size, and with any type of capital reserves and investment raising capabilities. So the question becomes: What to do then?

Clearly, one possible answer is crowdsourcing. If we simply divide the word in two, it is clear the meaning of crowdsourcing is that someone gets something from the contributions of a group of individuals in reply to the request by that someone. Thus, in order for an SME to use this method, it has to determine the type of source, the type of crowd, and the approach (Figure 4.2) that best fits the problems it would solve or the questions it would answer.

Crowdsourcing is sometimes thought of as rainmaking for the company using it. If we follow this metaphor, we can assume that the crowd is like a cloud comprising a group of individuals who are sharing the same interests, passions, and, perhaps, the same professions. The targeted crowd is a community of people who should be willing to contribute to your addressing need because of their own interests. However, just who the crowd actually is when you do crowdsource is usually highly uncertain. It is difficult to foresee who will be in the crowd when an open request is made to source something—especially when using the Internet. Thus, on one side we have the defined cluster, or group, of contributors we would like to tap, while on the other, we have a larger undefined group that will see the request. We cannot usually be totally clear in advance from where replies will come. Indeed, part of the reason for crowdsourcing is we want this element of serendipity. The crowd is like a cloudy sky where inner darker clouds (groups with known interests we want to tap) are present amid a sky of gray and white clouds (diverse groups with varying interests); Figure 4.3 depicts this metaphor. Having this picture in mind, it is clear that crowdsourcing brings along an uncertainty as to whether it will rain or not and if so, from where.

The challenge becomes to find a path and approach that focuses on the targeted crowd (the right inner cloud of interests in our metaphor) in order to tap the best individuals to help us with our specific sourcing search (Figure 4.4). The solution is to use communication channels already monitored by the desired groups in our approach. If an SME is looking for software, it reaches out through blogs, trade press, newsletters, LinkedIn groups, and so on, and crowdsourcing sites that are monitored by programmers. If an SME is looking for a new coating, it reaches out through channels monitored by chemists and materials scientists. This tactic works, because individuals already are naturally clustered into communities (clouds) of interest.

The channel is only one part of the approach. The other parts are the message and the motivation.

Borrowing from the two main typical management approaches, top-down and the bottom-up, we can address how to structure these in crowdsourcing.

The Top-Down Approach

The top-down approach implies that a clear need definition comes directly from the top (in crowdsourcing is usually the company making the request). This request is translated and broken down into the lingo of the community whose advice is being sought. The same request can give birth to a myriad of targeted messages depending on the diversity of the crowd being sourced. What does not vary across messages is the underlying specifications and constraints that define an acceptable solution. The top-down approach emphasizes that it is the SME that drives the request or the challenge, and that to respond, a contributor must be bound by this request and its specifications. Figure 4.5 depicts this approach.

A challenge in a top-down approach is to provide an incentive for responding that cuts across various communities, as it is impossible to ensure that a member of one community may not see a message directed to another community. For example, if an SME could target only graduating college students, a job might be a good incentive. But a job would not be much of an incentive for a retiree. This potential diversity of motivations across communities is probably the reason monetary prizes or rewards and public recognition are among the primary incentives used to stimulate responses when crowdsourcing ideas. (Crowdsourcing investments rely on different motivations, of course. As previously noted, like the channel, both the message and the motivation have to be carefully considered when planning the approach.)

Use of Intermediaries

Consider, for instance, a company producing connectors for a customer that sells equipment to electric power grid operators. This company is a medium enterprise with a couple of hundred employees and a turnover of about $20 million. The R&D department consists of a number of engineers and designers who are developing, designing, and testing the new connectors. The firm’s marketing director comes to the head of R&D with a new interesting idea captured in a discussion with their main customer. The idea is to create a connected connector, which is a connector that has the ability to measure and transmit data on the energy consumption occurring at a specific node of a power line. The firm’s “customer-driven” management immediately approves this project. The challenge for R&D is to create the product. The head of R&D has two choices: develop the connectivity system in-house or develop the connectivity system by using external resources. Assume this SME does not have all the necessary capabilities in-house. For the head of R&D, it makes sense to explore the open innovation option before incurring the costs of acquiring new capabilities to create the product from scratch. How does the firm do that?

A possible option is to use one of the many service providers, or intermediaries, that help companies in reaching a wide network of solvers. Intermediaries are service providers who can help define and (and sometimes or, depending on their services) implement the approach in exchange for fees. Usually, such intermediaries are companies that have either a network of a wide range of solution providers or a publically accessible portal where they collect different problems provided by customers (the SME in this case).

In the former case, the intermediary reaches out to its network in order to discover solution providers. It may also send messages through channels frequented by people likely to have, or be able to develop at a moderate cost, solutions. It reviews replies it receives for compliance with the requirements of the SME client and forwards the ones that meet those requirements to the client.

In the latter case, the intermediary posts the request on its own portal. These portals may be open to all or only accessible after registration and possibly some due diligence on the registrant. Problem solvers subscribing to such portals may get newsletters or rich site summary (RSS) feeds on the latest problems posted. Distinct from the prior intermediary who reaches out broadly, this one uses a preexisting network of solvers that grows and shrinks over time depending on who registers or hits the portal. The problems of the SME could be addressed to anyone in this network.

A very important step for an SME using either kind of service is to be very clear on its needs and requirements. Good intermediaries will help their customers to create a specific proposal consisting of a clear problem statement, clear metrics for acceptable solutions, and the incentives for providing solutions. Once the proposal is clear, the project is started and outreach occurs or a post added to the portal. The problem is now out there and whoever wants to participate, can propose a solution. At the SME, the R&D department can gather the ideas solicited, review them, and select the best ones to be further explored, leading to development of their connector system.

It is critical to emphasize that posting a request, unless it is carefully worded, may be making a contract offer. If someone meets the requirements, and responds, the SME may find that under contract law, the responding party has accepted the offer and the SME is now legally bound to pay (or provide whatever incentive is proposed) for the solution. For this reason, a lawyer needs to review what is being sent out to solicit responses. The good news is that once a “safe” boilerplate is created that clearly states the request is not a legally binding offer but merely an exploration of options, it can be used by the SME to make a variety of requests. If the intermediary insists the SME use its template, the SME’s lawyer, in advance of any dissemination or posting of the request, should review it.

The aforementioned scenario is typical of when a company does not want to run this activity on their own, and for this reason, they decide to pay for an intermediary to do so for them. This approach has pros and cons. It is convenient when the company is inexperienced in crowdsourcing and advantageous when the company does not want their name to be disclosed. On the other hand, the use of intermediaries almost always means they have to pay something. For the SME, the question is whether the benefits gained are worth the cost. That depends on more than the price paid. It also depends on the quality of the work the intermediary does. Since crowdsourcing is a growing field, the number of such organizations is growing fast. It is now possible to find a wide range of services offered at a wide range of prices. We stress that, at present, very few intermediaries specialize in providing services to small and medium-sized companies. As with any vendor, intermediaries can be very expensive, particularly if the wrong ones are chosen, so conduct your due diligence before retaining one.

Use of a Company-Owned Portal

A company that operates in the injection-molding machine sector has a very competent R&D department of 25 engineers. A project is developing a new machine that will inject recently developed polymers into the same molds currently used by their customers to make multicomponent products. Unfortunately, R&D has hit a problem as the hot chambers for injecting the material clog if the viscosity of the material is not controlled very precisely. Indeed the viscosity “window” is so narrow that the new polymers consistently overcome the thresholds and clog the injector. Without a solution, this problem will derail the entire project. Despite their best efforts, the R&D department is not yet able to provide a feasible, cost-efficient solution. The management is worried about the cost of this project and foresees serious problems if they were to the launch production of this new machine on schedule.

The SME’s core expertise is in assembling the injection-molding machine and developing the software that controls it. The parts and components they use come from suppliers. The vice president of Operations has read about how the big auto and aerospace companies have been forcing R&D and innovation down the supply chain onto their vendors. Before abandoning the project, the management decides to try this approach and challenge their vendors to come up with a solution. (Up until now, these vendors have only been suppliers. They know nothing about this new R&D program.)

The management posts a challenge to all their suppliers on a password-protected section of their intranet portal. They also send the challenge to some potential new vendors. The prize is a contract. Vendors and potential vendors have one month to submit their solutions. The challenge in not advertised on social media or trade publications, as the management does not want to telegraph this initiative to their competition. To encourage creativity by current vendors, everyone who is receiving the challenge is identified on the portal. The community of parts and components suppliers that comprise this crowd starts submitting solutions and new ideas. At the closure of the challenge, the company gathers many solutions to the problem and decides to implement a solution provided from two suppliers that codeveloped it.

In this case, the company has used their own means to advertise their needs and to mobilize their supply base, the latter responding in a very positive way and feeling part of the innovation process. This activity brought an immediately implementable solution, due to the fact that the company worked with their suppliers and other handpicked vendors, which meant working with a pool of experts who already know the business and the product. At the same time, the resources invested in all the process were paid back handsomely by the “fully packed” solution. Our SME has hit big by taking a risk.

Summary of Top-Down Approach

Top-down approaches work best where there is a specific problem your company is trying to solve. Usually this approach makes the most sense for solving process technology problems or for finding incremental product innovations. The two examples demonstrate it is possible either to use unrestricted crowds to do top-down open innovation or to limit the sourcing to a small select group. Regardless, top-down crowdsourcing only works where the SME is clear about the problem to be solved or product to be developed and can provide to the crowd what makes a solution feasible and cost-efficient (in the following figures you will see a simple chart which can be used to guide your company in tackling and defining a “needs proposal”).

The Bottom-Up Approach

The bottom-up approach (Figure 4.6) involves a different flow of contributions and typically works best when the company has a goal or objective in mind but not a specific problem. An example is the Ansari X PRIZE for the first nongovernment organization to launch a reusable manned spacecraft into space twice within two weeks. For SMEs, bottom-up open innovation provides a way to tap the external world in order to get a clearer understanding of opportunities in the market and develop products addressing those needs. As Eric von Hippel pointed out in his book on innovation communities, products like UNIX and the windsurf board grew out of collaboration with a community (a crowd). As the technology matured, one group of contributors realized they could build a company (e.g., Red Hat for UNIX) by capturing the open source innovations and wrapping them with a service and support organization. For an SME using a bottom-up approach, the objective is to define the market and a pathway and then encourage others to build upon it in exchange for either rights in or free or low-cost use of the resulting product.

Use of Your Own Network

Consider an SME that operates in the furniture business. The firm has about 150 employees and a turnover of about $20 million. Our SME is proud to be a customer-centric company. Indeed, acting in the B2C environment, they have to be very attentive to the trends of fashion, to the different regional preferences where they sell their products, to the different offerings of competitors, and, of course, to the range of tastes of their customers. Although such a company has a strong department of designers, engineers, and technicians who are capable of coming up with extremely good ideas, in 2007, they saw a downturn of about 15 percent in their profits. After some analysis of the causes of the downturn, they realized it was not enough to blame the global recession as there were bright spots in Asian and other emerging markets that they had failed to exploit. Facing this challenge head-on, the company decided to invest in creating their own network of sales advocates and advisors. To build this network, they reached out to customers, designers, architects, journalists, and others who played important roles in furniture markets around the world. They posted their newsfeed’s existence to social media as well as the traditional trade press and blogs. For anyone who registered, they offered a free subscription to the company’s internal synopsis of each day’s news about the furniture business, design trends, and new or improved materials for furniture. By doing so, in a very short time, the company had gathered a substantial crowd, which was interested in innovative ideas for furniture. By adding incentives (primarily recognition and honors) for posting to their news and comment feed, they created a crowd that was very participative and extremely keen to compete on new product idea generation.

In this bottom-up approach, the company can add its own posts and news to “indicate the way” to their crowd. By adding permissioning to their blog or newsfeed, they can allow employees to make comments that are not seen by nonemployees. Thus, internal and external contributors belong to the same cloud, even though there are different subcommunities within that cloud

Bottom-up innovation has both pros and cons.

By opening up, the company enhances its goodwill and reputation as an innovation leader in the industry. It can encourage external people to submit their product ideas and suggestions. By being more open and transparent to customers, it advertises that it wants to hear their voice and demonstrates their voice is really heard and put into practice. It can tap into the collective wisdom and creativity of the crowd to develop ways to respond to posted suggestions for products and product improvements.

On the contrary, opening up carries risks because the company is more exposed to external parties. Competitors could also use the discussion on its portal to develop better products that respond to consumer preferences.

What this discussion highlights is that open innovation cannot be practiced without thinking about the other activities and capabilities of the company. Rapid prototyping, agile manufacturing, and lean Six Sigma are examples of tools that provide means to rapidly identify and respond to emerging consumer trends and product suggestions. Rapid product development enables leveraging opportunities from open innovation before your competitors, providing the benefits of first mover advantages. The openness of the company and the potentials of this innovative exercise revealed that being open is not always a drawback. With some planning and coinvestment in product development, manufacturing, and sales, it can create more interest and enthusiasm in the crowd to work with, and buy from, your company instead of your competitors.

Create, Develop, and Sell

What the World Wide Web has done is create opportunities for asynchronous collaboration between people who will never meet face-to-face. What is fascinating for SMEs interested in open innovation is the affordability of the use of portals. Any company can use off the shelf software to set up their own open innovation portal to gather and improve on ideas from the crowd until they become winners.

The way these portals work is quite simple and reminiscent of the early years of software user group meetings. People interested in the topic register for access, or the portal provides open access to all. (We prefer registration as they also collect contact information for alpha and beta testers and lead customers.) A participant submits an idea. This idea is visible to the whole community subscribed to, or viewing, the portal. The community reviews the idea and proposes new further improvements to the idea, where needed. In this way, the idea is enhanced during its life on the portal. A similar dynamic is seen on Wikipedia; only there, it is articles being proposed and the content of those articles that is being improved.

To rank product ideas, voting can be introduced. People vote for the ideas they like. Reviews can also act as a surrogate for voting. In effect, the way ranking works is similar to some movie review portals, like Rotten Tomatoes (www.rottentomatoes.com), travel portals like Trip Advisor (www.TripAdvisor.com), or answer portals like Answers (www.answers.com/). Product idea portals can help identify which ideas have a good chance of finding market traction. Those ideas garnering the most interest are reviewed and improved. They are refined until they reach a definition that is implementable. At that time, the SME owning the portal can capture the ones it likes and productize them internally for sale. In short, collaboration portals provide a simple way to leverage a crowd so it supports product development.

There are now several examples of open portals for gathering product ideas from the crowd. Many of these go further than collaboration and add deal-making. The idea can either be posted with a given price for its sale (with implementation) or with an auction. We do not describe further how companies are doing this, because the literature is pretty copious and easy to get, but a few easy links are reported here for reference:

These three, as well as many others, are all examples for small companies interested in developing a winning crowdsourcing platform. It is good to mention, although more details emerge in the course of this chapter, that contributors who provide winning ideas should be able to benefit from them, maybe by getting a certain percentage of the sales, a royalty, or even an opportunity to comarket products of their own by giving a percentage of the sales price to the platform providers in a manner analogous to eBay (www.e-bay.com).

The Nuts and Bolts of Conducting Crowdsourcing

We now turn to the nuts and bolts of doing crowdsourcing. There are three main steps: defining the needs, conducting outreach, and assessing the solutions.

Defining the Needs

Let us start by stating this is the most difficult part of the process. It is notorious that many companies face problems in stating their problems. A nice pun, but it is actually true that defining a crowdsourcing problem is very difficult because the definition has to focus on what is an acceptable solution. The challenge is to focus on what is desired, not how it should be done.

It could seem trivial to write a need, but our experience actually shows the opposite. Most of the time, those who define a need in a company are typically the employees of the company. When people close to a problem define it, there is a degree of bias introduced into the description of the problem. Why? Simply because these people involved in the business are too close to the problem and too imbued with the internal company jargon and acronyms. On the one hand, they take things for granted that outsiders to the company may not know. On the other hand, their descriptions may reflect blinders that prevent them from seeing less obvious solutions. A quick test as to whether this insularity is occurring is to ask some of their colleagues on another floor or from another department how they understand the problem described. If it is different, there is a problem. A better test is to present the problem definition to a small group of outsiders and ask them to state it in their own words. If you agree that they correctly understand it, consider using their language for the description rather than your own. External facilitators can be helpful as well. The facilitator can be a consultant or a colleague from another team. He or she should be asked to participate in the problem definition with the mandate to ask questions when he or she does not understand what the other participants are discussing.

Having said that, what is desired has to be broken down into two elements. The first element is metrics such as engineering performance parameters and price. These have to be presented without the use of jargon since, as we discussed in the preceding, we cannot assume everyone reading the problem description will know the same lingo—or, for that matter, be a native speaker of the same language. The other element is the constraints on an acceptable solution. If a power meter is going to be used in a rural area subject to outages from trees falling on lines during storms, the meter has to be able to handle the anticipated fluctuations in the amount of power being transmitted and the harmonics in the line. The accuracy and target cost for the solution are not sufficient to define what is being sought.

We note that the downstream assessment of replies and selection of winners will be better and easier if the metrics for selection are well defined up-front. These criteria are strictly dependent on the needs of the company, so the likelihood of finding a solution for the needs will be improved if the metrics for selecting winners are determined as part of the solicitation development. It is vital they are aligned with the problem statement and specifications provided in the challenge or contest, which are then captured in the solicitation. Beware of using only general criteria, as these do not provide enough specificity to drive a selection process. At the same time, not all the specific criteria need to be disclosed as that may have adverse competitive ramifications since it tips your hand about the specifics of your future products. The balance between general and specific is as much a matter of art as of science.

For guidance on how to develop your metrics, we recommend using the same methods applied to create balanced scorecards. Essentially, you determine what is important to you, then you develop ways of measuring progress toward that. These individual metrics are then combined into more general categories, which also have measurement schema. For example, electricity meters provided by utilities have a kilowatt-per-hour measurement. When the meter is on a house that has a solar installation, there is a cost per kilowatt-hour measurement that can be positive or negative depending on how much power is used. Cost per kilowatt-hour is a general metric that combines metrics for consumption, production, and cost of electricity. The solicitation may only disclose that what is sought is a way to minimize cost per kilowatt-hour for the homeowner. Alternatively, it may disclose that what is sought is a way to increase production without affecting consumption. What metrics are used depend on what kinds of solutions are preferred from crowdsourcing and how much weeding of responses the company wants to engage in.

A Process for Defining the Needs

We recommend a four-step process to define the problem for crowdsourcing. This process should focus on filling in a form, such as the one presented in Figure 4.7.

A systematic process should be used to define the needs a company wants to address through crowdsourcing. We present one such process in Figure 4.8. It uses the form to guide four discrete sets of activities.

Step 1 (Problem): Organize a first meeting with three to five team members and quickly brainstorm the problem definition. The objective here is to gather the different points of view of the attendees. Brainstorming is focused on filling in part A of the form in Figure 4.9. It is vital to ensure all the required data are addressed during this exercise. This brainstorming should take no more than half an hour; otherwise, you tend to get caught in a loop where people say the same thing in different ways. All the points of view shall be captured using a whiteboard or flip chart so the comments are visible to everybody in the meeting. For this activity, we discourage the use of post-its since they are simply hard to read unless you are close to them. The outcome should be a verbal description of what is being sought.

Step 2 (Internal environment): Next, the meeting focuses on identifying the context, which defines constraints on what is an acceptable solution and the metrics used to identify a successful solution. The primary input to this step is the company’s strategic plan and any relevant roadmaps it has developed. The next input is the stakeholders, sponsors, and business unit(s) that will be involved and the product family and product line where the solution will fit or be applied. The final input is the sales goals, cost of goods sold to targets, and hurdle rate or cost parameters for the solution itself. (These are in part B of the template.)

Step 3 (Specifications): The last part of the meeting focuses on defining the engineering and other performance, ease-of-use, and price specifications that constitute an acceptable solution (part C).

Once the problem statement is drafted, circulate it to the whole team and to your “tester,” in order to collect remarks, additions, concerns, and improvements. Refine the problem statement and iterate as needed.

Step 4 (Resources and sources): With the problem statement pinned down, a second meeting is necessary to define the budget to be invested, plus the human resources and how much of their time will be allocated to this search. Also at this time, the communities to be targeted should be determined. The problem statement, budget, and communities to be targeted can be used to determine which approach to crowdsourcing to adopt: for example, directly to the crowd by internal scouts or intrapreneurs2 or via outsourcing by hiring an intermediary or consultancy firm (part D) and whether to rely solely on the web or to conduct other outreach as well.

The results of these four steps are used to prepare a second draft of the problem statement. It too is circulated through the team and assessed by the tester. As before, the feedback is captured and used to refine the completed form.

Following these four simple steps, sketched in the graphic as shown in Figure 4.9, will guarantee you and your team create a useful and effective problem statement for dissemination. We emphasize crowdsourcing is not cost-free. Resources have to be allocated to preparing for it if the problem statement has to be simple to understand, direct, clear, and effective.

Conducting Outreach in Ways That Keep the Focus of the Crowd

We have just seen that clarity is essential for writing a needs statement. The needs statement communicates to both your in-house team and the external world what your company is looking for.

In order to participate in your contests or challenges, the crowd needs to be clear about what they should look into and think about. The needs statement is necessary but not sufficient for an effective solicitation. The solicitation package should include

• • The problem statement;
• • The type of solutions sought;
• • The IP protection desired for solutions proposed, if any;
• • How they will be evaluated;
• • What is not sought (which includes any constraints that will eliminate any proposed solutions);
• • The confidentiality with which submittals will be treated;
• • The type of reward (if any);
• • What to include in submittals and how to submit them;
• • Any limitations on who can submit or what can be submitted (e.g., no export-controlled technology); and
• • A statement that an accepted submittal does not necessarily lead to a contract but may lead to additional discussions if there is interest.

The use of pictures, drawings, or examples when describing a problem can be advantageous, but they have to be well thought out. Graphics and examples can help attract potential contributions, but the visual material could be a double-edged sword since it may be misinterpreted and cause spurious submittals or limit the range of solutions proposed.

A hypothetical example of a challenge solicitation posted by a company in the sport garments and accessories sector is in Table 4.1.

The intrinsic dilemma in outreach is you want to encourage responses, but you do not want to receive useless “junk.” Considering the number of participants that could respond to your challenge or contest, the guidance on what to submit is critical. Useful things to request include:

• • Description of the solution, possibly with drawings;
• • Technical details clarifying how well it meets the company’s advertised decision criteria;
• • IP status;
• • Who invented the solution and where they were employed at the time;
• • Costs to build and to acquire – at least a rough “guesstimate”; and
• • Contact details, including the position of the proposer (employed, unemployed, self-employed, etc.).

A quick comment on IP status is warranted. It is an important consideration to clarify whether the idea or the solution can be protected from use by others. A patent filed less than a year ago on a technology not discussed before filing is desirable as it can still be registered in any additional countries of interest to your company.

The reason for asking the position of the proposer is related to the IP status of the solution. Where solvers are employed, their employment contract, the law of the country of the invention, or the law of the country where the inventor lives and works may grant title to all inventions by that individual to the employer. The last thing you want is to get involved in a lawsuit over theft of IP.

Of course, it is not enough to just post your solicitation on your website or some intermediary’s portal. Proactive outreach is needed to make people aware that it is out there. No one can monitor everything of interest on the web. For this reason, it is important to post announcements in relevant LinkedIn groups, list servers, and discussion groups of relevant trade associations and professional societies, and send press releases to blogs and the relevant trade and business press. You may also want to send press releases to intermediaries in the technology transfer and commercialization business and to incubators, accelerators, and the like. Basically, you want a description of, and link to, your solicitation to be seen in any channel monitored by relevant communities. When sending out press releases, it is worthwhile considering using a service, such as Business Wire, PR Newswire, Marketwired, or another press release agency. The reason for using one of the services is your press release is more likely to be picked up. But as with any intermediary, there is a fee for the service. Be aware that not all agencies have the same presence in all industrial sectors or geographic regions.

Gathering and Assessing the Solutions

Once the need is defined and before bringing it to the attention of the crowd, you need to have in place mechanisms to collect and evaluate responses. There are two main ways, which are the same ones we saw when describing the top-down approach. One is to use a company website or Dropbox and company staff to conduct the evaluations. The other is to use external intermediaries (or consultancies).

SMEs should consider that the number of solutions that will be proposed is almost impossible to predict. It is affected by the saliency of the problem, the size of the relevant communities, and the outreach conducted. In our experience, solutions often come from many different sources, some of which did not seem obvious prior to getting hit with replies.

Clerical staff can do the basic collection and acknowledgment of submittals. We suggest having a shared drive, folder, or database where the solutions are stored. This repository should have permission-based access, since reviewers will need to enter and view the replies, prepare evaluations, and store those for use by decision makers.

As with preparing the solicitation, it is important to have a formal process for evaluation of the responses. Usually, at least some of the same people who prepared the solicitation are involved in this assessment, as they know what they were looking for. Regardless, it is important to train everyone in both the process for assessment and the metrics to be used to avoid interrater reliability problems.

As soon as the team is formally assigned and proposals start coming in, the team can begin gathering and evaluating the incoming solutions for basic compliance with the rules for submittal. More substantive review should wait, if possible, until after the submission closing date of the challenge or contest. By conducting all the evaluations over one time period, they are more likely to receive the same treatment and it is easier to compare and rank the replies against each other as they are fresher in the team’s memory. Of course, in case the challenge is still open, and solutions are submitted, it is possible to start the assessment before the closure, although it is not really cost-effective. In any case, it is beneficial to have a clear stepwise approach in place as well.

Step 1 (Clustering): Cluster the solutions by region of provenience, by technology domains, or by some other relevant criterion. It does not really matter what you use; the important thing is to have them clustered in order to facilitate conducting the assessment in a systematic manner.

Step 2 (List and rank): Catalog the responses in a suitable file format, such as a spreadsheet or database. The clerical staff logging the responses in can initially prepare the catalog. They can place the title of the proposed solution, the abstract, and the proposer, and give each one a unique identifier. The locus of review then shifts to the professionals on the team. Using the title and abstract, they can do a quick first assessment and rank solutions in terms of whether to take them to the next level of evaluation, to park them as potentially interesting if nothing better turns up, or to discard because they are not aligned with the problem statement. Note that at this point who submitted them is not important. The first cut has to be based on whether they solve the problem or challenge that leads to the crowdsourcing initiative. The ones making it through this funnel are put on the list for further review.

Step 3 (Review the top solutions): Once the list has been developed, it is time for the reviewers to read the entire submittals for the solutions on it and to assess them against the previously established metrics. After that has been done, a face-to-face or virtual meeting can be used to discuss and rank order the solutions. At this meeting, a further ranking exercise is usually beneficial. This ranking is based on which of the proposed solutions are easily feasible and implementable, which need further development and thus likely require higher expenditures, and which need more discussion and review to even determine if they are feasible. In other words, they are ranked in terms of likely risk and cost. The outcome of this evaluation is a short list. If the short list emerging from this funnel is not too long, all the ones that are feasible and implementable can be further evaluated. If the new list seems sparse, the ones needing further development or more discussion and review can be added to the short list. If the short list is still too long given available time and resources for the crowdsourcing, an additional down selection based on secondary criteria is appropriate in order to select which replies the team will follow up with.

Sept 4 (Follow up with the contributor): After the final short list is determined, it is time to follow up with the contributors. There are different possibilities on how to do this. Visits can be made to the contributor, the contributors can be invited to the company, or a web conference conducted. (We prefer web to telephone conferences as you can see the contributor’s face and often a prototype or something else enhancing the credibility that the solution actually exists or can exist.) Regardless of how it is conducted, the company’s review team probes all the solutions on the short list to make a decision on whether to continue exploring acquisition of the solution or not. In the case of continuation, at least in business-driven crowdsourcing, at this point there is usually a shift from nonconfidential discussions to confidential ones held under nondisclosure agreements. The team now assesses both the technical and financial viability of the proposed solution. Questions are asked, demos requested and conducted, and a rough acquisition and adoption plan developed. Also clarified are the economic terms of any deal to acquire the solution. This exploration and discussion should be conducted as transparently and collaboratively as possible, since if a deal moves forward, both parties will have to work together to ensure success. Honest and frank discussions and feedback in both directions are very important as it serves to establish the trust essential for implementing any deal and to maintain the will of the contributors not selected to participate in your crowdsourcing initiatives in the future.

Once the likely winning solution or solutions are identified, a final assessment, sometimes called an impact assessment, should be done. This assessment is to understand whether the solution or solutions are actually feasible to adopt and implement or not. Many companies neglect to do such assessments. There are several reasons why companies do not want to invest their employees’ time in such assessment. For example, the utility of the solution may appear obvious, and, thus, further review is seen as a waste of time and money. We stress that this attitude is dangerous, as without an impact assessment, it is difficult to determine the discount rate and all the expenses to apply when doing a net discounted cash flow analysis of the solution prior to making the final decision to go forward and announce a winner. Without such a cash flow analysis, however, there is no way of making a truly educated guess as to whether investments in the product development will have a high or a low probability of financial success.

Impact analysis requires active involvement of internal company experts as well as the contributor of the proposed solution. In them, the company examines the impact that the proposed solution will have on the product, on the product line and family, and on the business. As risks and problems are identified, the contributor is brought in to discuss how these risks and problems can be mitigated or avoided. Depending on the complexity of adopting and implementing a solution, the content of impact assessment is tailored accordingly.

Some common elements apply to any impact assessment. The assessment must examine the impact of the proposed solution on design, manufacturing, sales, customer support, and all the processes captured in Michael Porter’s value chain. Earlier, we looked at the adoption and development process for the solution. Here we look at what, if any, impacts that process has on ongoing and future company activities. Where impacts may delay other activities or cause increases in their costs, risks exist. These risks, and how easy it is to avoid or mitigate them, must be added to the discount rate previously used to conduct the cash flow analysis for the solution’s adoption, since that previous rate only captured the risks in the immediate adoption and use of the solution. Further, these risks may not all kick in at the same time. So the impact analysis may have to enable the development of discount rates that vary over time.

Step 5 (Rewarding): Once a final selection is made, it should be communicated to the winning contributors and the reward provided in the shortest term possible. As we said previously, this reward could be money, further collaboration, or even a job for the submitter. In any case, the winner, or winners, should be disclosed to the public and to all other contributors in recognition of the good work.

The assessment process is sketched in the next graphic, Figure 4.10.

One suggestion is that the assessing team should be very clear from the beginning on the level of maturity and the ease of implementing the solution. We have seen some companies select very interesting solutions based on the potential added value to the product. Unfortunately, they rejected using a balanced scorecard that included ease of implementation and integration into the product. In these cases, we have noticed that the company struggled quite a lot in further development of the technology, since it was not that easy to implement, and thus the burn rate during product development destroyed the anticipated value add since too much money was spent getting to market to enable hitting the anticipated return on investment.

Assessing the Feasibility

Even after a solution is selected, it may not be useable. A feasibility study is useful for understanding if the solution is indeed feasible, reproducible, and industrially scalable. Usually as part of this assessment, a prototype is made in order to physically determine whether the solution adapts and embeds correctly and then works as expected. The making of a prototype could be also important for the so-called alpha testing, since it could be used to check several different preset parameters to verify if the product is working according to the one as originally designed. Sometimes the solution’s adaptation and embedment is modeled in software during the alpha phase and then physically implemented in order to enable beta testing by likely lead customers.

Once the feasibility of the solution is checked and validated, it is time to enter the real product development phase, which will basically bring the product to the market in a definite time lapse.

Choosing Intermediaries

Intermediaries have proliferated ever since people started licensing and selling inventions. In a very interesting survey, Diener and Piller defined a class of intermediaries called Open Innovation Accelerators (OIAs).3 In their survey, they analyze the different kinds of intermediaries offering services to companies that are now part of the ecosystem of innovation. We do not discuss here intermediaries offering software, tools for innovation, or intellectual asset and IP management, since they are not in the scope of this chapter. We do, however, discuss how to determine if an intermediary offering crowdsourcing services is worth hiring.

Network

In our experience, what is most important for a crowdsourcing intermediary is the network of solution providers. The network of solution providers is usually a self-developing entity. The more interesting the challenges posed by the intermediary and the better the rewards offered, the more likely the intermediary will attract solution providers to its network. These networks are like the tip of an iceberg. Those in the networks, in turn, work and collaborate with others, which means word of mouth de facto extends the network beyond those formally registered as part of it. The members of the network often connect via other channels to other people who can provide part or all of the solutions being sought. Some of the people in the extended “hidden” network team up the registered members to submit solutions. Of course, the best networks and extensions consist of people with the right experience, education, and creativity to provide plausible solutions with high regularity.

For an SME interested in conducting crowdsourcing through an intermediary, the first question has to be, who participates in the intermediary’s network? That determines if the likely inflow of contributions will be good or poor. Asking a few simple questions helps determine if the intermediary is worth retaining.

• • How big is the network: the real and the virtual? (The real one is the one that the intermediary effectively reaches, and the virtual is the one it claims to potentially reach by word of mouth).
• • Which types of challenges, or contests, are posted on the portal? (Specific technology domains, various, scientific, engineering, ideas, etc.)
• • What is the success rate of the challenges and contests in general and in areas closely related to your problem? (Are they matched, are there any winners, and how many? These are all questions that will indicate to you the real level of contribution.)
• • What are the average profiles of contributors? (PhDs, graduates, common people, inventors, consultants, etc.)

Support and Services

Another aspect to probe when considering retaining an intermediary is the support and services offered. Some intermediaries simply provide a portal where you can post challenges. Others help companies to define their needs, develop their solicitation documents, conduct outreach, and collect and evaluate the replies. They may do these tasks as contract labor or they may train employees of the SME in how to do these for themselves. Coaching and mentoring may be offered alongside the training.

Some intermediaries also offer additional related services such as portal creation and maintenance. Intermediaries may own these portals or they may create one specifically for your company. Such portals are usually a one-way submission platforms. A person or company can submit ideas and solutions responding to a specific challenge or contest. These submissions are then reviewed by the intermediary for compliance or forwarded directly to the company placing the solicitation. Where the intermediary owns portals, a fee is charged for use and support activities.

Another set of services are provided “offline” as synchronous “live” activities. Examples include cocreation sessions, hackathons, lead user contests, or any similar activity that aims at bringing “crowdsourced” professionals together to work on a common challenge or contest. Such real-time live services are important where a solution is needed right away.

Of course, the more support or services used, the higher the price charged by the intermediary. That makes service modules attractive as you only need to buy what you need. The quality of service usually also will affect the fees charged.

As when hiring any vendor, an SME should approach an intermediary with a clear understanding of what it wants to get out of an engagement and what it can afford to pay. The SME should negotiate the price rather than take whatever is offered. In many cases, intermediaries offer discounts depending on how much is bought, whether the SME is a repeat customer, whether business is slow for the intermediary, and the like.

Solutions

The only reason to use an intermediary is that is likely to get you better solutions less expensively than you could yourself. Sometimes what makes a solution more affordable is that the intermediary will do the work on commission (on a success fee) or a combination of a modest up-front fee or retainer plus a commission on your adoption of the solution.

There are a myriad of alternatives found in market. Some intermediaries offer co-ownership of solutions under which the patent remains with the current IP owner, and the SME conducting open innovation receives a license restricted to specific fields of use, geographic regions, time frames, and so on. Some intermediaries may even coinvest in acquiring or implementing the solution in exchange for a piece of the downstream revenues from product sales. Others may already own portfolios of IP that they have bundled together in anticipation of market needs. Such bundling is more common in industries like biotech and information technology, where patent stacking occurs. Patent stacking means multiple patents are licensed and “stacked” on top of each other in order to assemble the IP portfolio needed to make a product without infringing the rights of others. The intermediary makes money by bundling the stacks and then offering nonexclusive licenses to the bundle. Buying a bundle reduces IP transaction costs for companies seeking licenses, enabling them to make and sell products.

Again, it is essential that your company approaches an intermediary as you would any other vendor. Be very clear about what you are looking for and what you are willing to pay to get it. Then you can compare intermediaries based on their offerings, track records, and customer references.

Profiling the Crowd to Source

When using crowdsourcing, as said previously, it is important to be clear on the community to approach and the type of individuals that a company is aiming to involve in the activities. Defining the “profile” for your primary target is essential, because it is clear that how you approach a community of engineers will be different from how you approach a community of chefs. Although crowdsourcing is based on the premise that solutions can come from anywhere, and nonobvious solutions may come from unobvious sources, it still helps to develop a profile for your ideal contributors. We tend to think about contributor profiles in three ways—by industry or economic sector, by profession or occupation, and by role. Roles are archetypes in open innovation. Some typical profiles in crowdsourcing are shown in Figure 4.11.

As Figure 4.11 makes clear, roles in crowdsourcing are defined in terms of their proactiveness or reactiveness to a company’s needs. In targeting roles, the emphasis should be on reaching those profiles that are willing and able to provide solutions.

Doers are the people a company should definitely target. These are the people who want to solve the problems posed and will engage in the challenge or contest. Doers are mainly professionals, such as inventors and experts, lead users, and, in some cases, consultants. The people filling this role are driven by many different motivations, but they are the active contributors of solutions.

Inventors are usually persons who like to create something new that is outside the box of convention. Inventors are visionaries. They are extremely creative persons with excellent technical skills. As out-of-the-box thinkers, they exhibit a special knack or instinct for seeing solutions to problems. In many cases, this knack makes them seem to be very eclectic professionals. Inventors are usually innovators as well, as they want to see their inventions deployed for practical purposes.

This archetype is very much sought after in crowdsourcing because they are real problem solvers. They actively seek to provide solutions to whatever need is present. These proactive individuals enjoy participating in ideas and crowdsourcing portals both for the enjoyment of invention and for the monetary rewards and honor it can bring. Inventors and lead users are the critical roles to target if you want to succeed at crowdsourcing new products and technologies.

Experts are people who have a specific field of expertise, usually gained through education and life or professional experience in a specific domain. There is a body of research that suggests experts are better at short-term predictions and incremental innovation as they become captives of their own expertise—which acts as blinders to seeing unconventional solution paths. They can be found via intermediaries, through companies providing connections to experts, or simply by scanning the names commonly appearing as presenters and keynoters of relevant meetings and conferences, by doing citation analysis of scholarly journals and the trade press to see who often publishes and who is often cited, and by contacting the committee chairs at trade associations and professional societies. They are useful as commentators on crowdsourcing portals, but where experts really shine is in one-to-one discussions and activities. Retaining experts can be expensive, but by being able to quickly put their finger on the solution to a problem, what they cost per hour is offset by the shorter time it takes to reach a solution. They are particularly useful when they provide expertise that is lacking in a company and insights that never occurred to a project team.

Lead users4 perform a role that has been studied extensively by academics. They are sometimes called innovators following the practice of Everett Rogers in his seminal book Diffusion of Innovations. They are the first to adopt a new technology and have a combination of technical and inventive skills. They are different from inventors, since their focus is on bringing the inventions of others into practical use. They are demanding, but simply because they want the next greatest thing.

Rogers studied innovation adoption across a number of fields. He found that around 2.5 percent of the total addressable market of users5 would adopt a new product before it is established in the market. (See the darker curve in Figure 4.12.) They are tinkerers, practitioners of what used to be called Yankee ingenuity, making them both proactive and reactive at the same time. They may proactively improve a specific product or service or they may reactively wait until a company introduces some new “gadget” or “toy” that they can play with.

Companies benefit when lead users frequent their crowdsourcing portal. In addition to providing solutions themselves, they often are catalysts on the portal or when attending cocreation workshops or ideation events. They encourage others to invent what they cannot themselves.

Consultants are mainly active as professionals who create a link between the company posting a need and a potential solver. The role of consultants is clearly defined, but they are not always taken into account in the proposal of solutions, because they are seen as another intermediary. A consultant is usually also an expert, but this depends really on the type of tasks required of them. Essentially, consultants are outsourced staff who, by working for a number of different entities, gather a bag of best practices and tricks of the trade to offer to their customers. In crowdsourcing, they often function as facilitators and catalysts.

Opinion leaders, as the name implies, are the people others turn to for advice. They are part of Rogers’s early adopters group in Figure 4.12. There are many studies on who they usually are and how central this profile is for successful product innovation. Opinion leaders influence others because they are respected. Because of their stature in a community, even though they only occasionally propose solutions to crowdsource problems, their interest in a problem can drive certain discussions, inventions, and innovations by others.

Companies will definitely involve them in crowdsourcing, as they are nodal points in communication channels relying on word of mouth. As such, they are great resources for outreach and bringing the voice of the customer into open innovation. A smart company provides them with new products to review and comment on. Their critiques and suggestions for improvement can make or break a product launch, since others will defer to their judgment about a new product.

Advisors consist of key users and hobbyists. They provide perspective, insights, and a sounding board for companies engaged in crowdsourcing. When advisors are hired to give advice, they become experts or consultants. In those roles, the financial business relationship skews the impartiality of the insights being offered, making it qualitatively different than advice.

Key users are just that, the intended customers for the results of open innovation once they have been productized and brought to market. As advisors, they are the oft-sought “voice of the customer.” They are common users of specific kinds of products or services relevant for the problem statement. We like to distinguish them from lead users on the basis of being proactive consumers. They are the more vocal members of one of the customer segments of the company. Usually they become key users when they have been disappointed by a company’s product, when a product has some missing features, or when the product is not providing the functionality they were looking for. In the most of cases, they are complainants, but they are also proactive enough to care about the brand they use, or choose, and for this reason, they turn to be real advisors. It is rare to see them participating in challenges or contests, but they sometimes step into doer behavior and then try to solve a problem by becoming lead users. Most of the time, however, they are visiting crowdsourcing portals to ask for a new product or a new product feature or functionality without necessarily thinking about how to develop that product, feature, or functionality. They make good targets for market research activities like focus groups or product testing.

Hobbyists are people with relevant technical capabilities who, for whatever reason, do not want to or are not capable of submitting their own complete solutions. They are helpful for proposing improvements on other solutions and for suggesting solution pathways. What they do not provide is actual complete solutions due to time constraints, limited relevant technical capabilities, contractual obligations to others, and the like.

A hobbyist is in a role that has aspects of the tourist and the advisory. Usually a hobbyist is a person who has interests that intersect with the needs posted by the soliciting company. As the name implies, hobbyists are on the portal because of an avocation rather than a vocation. Accordingly, they may propose a solution if it pops into their head. They are unlikely to “work” at it in order to win the reward. They may also comment on solutions or help other solvers by suggesting potential improvements to the solutions of others. They are “latent” contributors, by which we mean they have the full potential and capability to propose solutions to the problem statement. They just do not have an economic motivation that drives them to work at it. Despite their low contribution level, they are good sources of insights and advice. They contribute a brainstorming perspective and suggestions that can trigger solutions by others.

Tourists are individuals who are mainly curious (tourists indeed). Tourists are persons who like to be informed about the challenges and contests that are posted. They are usually not active in presenting solutions and are minimally involved in the discussions. They tend to surf through the portals or visit the platforms where companies place their posts and have a look at what is going on. Their aim is, in most cases, simply to be informed, in order to have a quick overview of the needs of companies. Tourists may be employees of competitors, journalists, consultants, (trend or business) analysts, or professionals trolling for work. Although curious and attracted by the possibility of contributing, more often than not, tourists leave “useless” comments on the portal.

Most tourists are just curious about the state of the art in a field and enjoy seeing creative minds at work. The category also includes hobbyists who are there to gather new ideas for their own purposes and have little interest in submitting solutions to the posted solicitation. Sometimes, tourists have more sinister motivations. They may be checking in and reviewing crowdsourcing solicitations as a way of conducting competitive intelligence on companies.

Tourists are not useful to a company seeking to solve a problem today, but they could be useful in the future if a future challenge or contest triggers them to develop a solution. Monitoring tourists can be useful for “counterintelligence” on competitors. The posting company can also mine tourists to find participants for focus groups, advisers, new customers, and the like.

Tourists are always a way to stimulate word of mouth about a crowdsourcing initiative. Indeed, since they usually try to be informed, they are also very willing to share what they have seen with others. They may discuss a solicitation on social media, tell colleagues or friends, or write about a solicitation in their blog.

Motivations and Rewards

Working with a crowd requires taking into account many different behavioral aspects. Here we focus on the expectations of the crowd in terms of rewards. Paraphrasing George Bernard Shaw: “If you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.” To get ideas, crowdsourcing relies on the levers of motivation and rewards.

For companies interested in repeatedly using crowdsourcing, it is vital to remember that sourcing from the crowd has a price. Just what a fair price is depends on what others are offering for crowdsourced solutions and what potential contributors will see as a fair exchange for their ideas, concepts, designs, technology, and solutions in general. Depending on the type of contributor that a company wants to involve, the motivating prize will vary.

In general, recognition is the best reward, because many solvers are willing to share their ideas simply to have the recognition and honor that comes when the idea is acknowledged as an important innovation worthy of being launched in the market. Of course, recognition motivates even better when it is accompanied by significant financial rewards. People like to be rewarded with monetary prizes. After all, since the company posting the crowdsourcing solicitation is going to use it to make money, it seems fair that the person or people who contributed the idea should get a piece of the action.

The prize money should be set to be significant but not too high. Think in terms of orders of magnitude and hop one or more orders higher than the anticipated contributors normally see. For a person whose hourly wage is $10, $100 or $1,000 is a lot of money. For a person who earns $10,000 a week, $100 is pocket change and $1,000 is real money but not a lot of it.

In general, people feel that what is fair to pay for an idea is also tied to how much money the idea could make and how wealthy the buyer is. Solution providers often suspect that behind an anonymous challenge on an intermediary’s portal is a big company that can afford to spend money to get the right idea to solve its problem. We also have learned that in some cases, contrary to what seems intuitive, people tend to be scared away by very high prizes because they believe “this is out of my capabilities.” For instance, in cases where students are targeted, if the prize is too high, participation is typically lower because the students are discouraged by their own perception that the challenge requires very skilled professionals to solve it.

While important, money and recognition are not the only useful motivations. Also important is the chance to make a difference. Many people do not just want to provide an idea or a technology; they also want to be instrumental in bringing their innovation into use by participating as a codeveloper of the new product.

For companies, entering a supply chain brings financial and reputational benefits and personal satisfaction for those involved. Potential new suppliers can work hard to provide a very thorough solution, with a detailed idea, drawings, and a working prototype as a proof of their concept and the value of bringing them into a firm’s supply chain.

Offering some resources for developing the submitted solution is a way for companies to attract talents from the crowd and to engage with them. Some companies would really like to help the solver and provide a means for implementing the solution. They could make available some budget, expert personnel for supporting, laboratories, and any other means that could help in creating a fully functioning product. In some cases, those talents are hired, and in this way, they could be fully involved in the project for developing their own idea.

Last but not least, a company could also reward a contributor with shares (or royalties) on the income they earn after the product has been launched on the market. This case is being discussed last because it is typical of those collaborations that ask for the provision of specific creative inputs such as idea contests and design contests. For completeness, we include equity and royalties, even though they are less common in “crowdsolving.”

Whatever the type of reward the company is willing to offer, we would like to stress once again that it is important they determine it based on the type of crowd being targeted. Different types of crowds are driven by different motivations, and therefore, they will engage in the challenge, or contest, with different behaviors depending on how interested they are and the rewards being offered. Recognition, monetary prizes, collaboration, and business opportunities are all motivational aspects that have to be considered well in advance, when needs are discussed and the challenge or contest solicitation drafted.

A company should also be attentive in linking the motivation and reward to the complexity of the challenge or contest. It is clear that if the request is very complex and the solution sought is indeed quite challenging, the reward shall be set accordingly. In some cases, solvers do not participate in a challenge because they think the need is complex and the reward is too low.

At the same time, another aspect to take into account is transparency. Increasingly nowadays, the name of the company conducting crowdsourcing is being revealed so that a solver knows which company she or he is providing a solution to. This aspect is also very important because it sets financial expectations as well as sends a message to the crowd that the company is really open and ready for new innovations. Of course, the practice of open innovation needs to be guided by the strategies of the company.

IP Protection

IP is a very sensitive subject whenever a challenge or a contest is posted for crowdsourcing. Many companies, especially the big corporations, have very strict terms and conditions, and in most cases, they ask to retain any IP that might result from implementing a submission. How important IP protection is for SMEs depends on the nature of the product and the market it will enter. IP is less important where products have very short life cycles, such as in software apps. There, first mover advantage may affect market success far more than IP protection. What is needed is freedom to operate rather than freedom to exclude others.

One of the most common mistakes of SMEs is to not think thoroughly about IP protection. We have seen many SMEs without protection or a strong nondisclosure agreement in place beforehand. This is wrong because IP generation and protection can be a value enhancer on both the income statement and the balance sheet of both solicitor and solver.

As a general rule, where solutions are being transferred as part of crowdsourcing, there is at least the trade secret involved. Trade secrets protect the know-how developed with respect to how to use a technology. Depending on what the solution is, patent, copyright, or mask may also be involved. Unless there is an explicit transfer of IP rights, each party will retain the IP it created before collaboration. IP created during collaboration will be jointly owned. Knowing what kind of IP protection to seek and how to protect your intellectual assets from leakage is a constant challenge when practicing open innovation.

Smart companies will use everyday language in the terms and conditions that must be agreed to before access to the portal is granted. These terms should appear in an end user license agreement (EULA), which must be agreed to before accesses to the portal is granted. The EULA should include a statement in big black letters that declares that whatever is submitted via the portal will be property of the company. Alternatively, it can state that a royalty-free license to use in any field of use of interest to the company is granted. Such statements can discourage solution submittals. A fallback is to state that the IP stays with the person who files the idea or solution, but the company has a first right of refusal to negotiate a license if the submittal is selected.

Risks of Crowdsourcing

As a conclusion to this chapter, we tackle those less beneficial aspects of crowdsourcing. Everything has its own drawbacks and crowdsourcing is no exception.

Tell the World

Telling the world what you are looking for, for some companies, may not be beneficial. To mitigate this risk, a company can use an intermediary and stay anonymous.

Trust

Presently, many companies are revealing their identity, even when using intermediaries. Contributors relate this shift to the need to build trust between the company and open innovation contributors in order to promote the sharing of innovations. It also enhances the company’s goodwill as a firm interested in innovation. Indeed, in a manner analogous to the naming of sports stadiums, companies can use “branding” their challenges to build their own brand’s value. Transparency increases the chances of becoming “the partner of choice” for outside inventors and innovators.

Where is the risk then? It is in the fact that building trust is a long process, and it takes very little to break down. Trust is a double-edged sword in the sense that it restricts the behaviors a company can use to compete. Actions that destroy trust have larger adverse consequences for firms focused on building trust than others.

Quantity Versus Quality

Quantity versus quality is another aspect that sometimes is not taken properly into account. Unless well planned and executed, a company can be overwhelmed by the number of responses to a crowdsourcing initiative. Large volumes of responses mean higher costs to separate the wheat from the chaff. On the other hand, poorly designed initiatives can result in too few responses to generate anything useful. That also means a waste of money. A successful challenge or contest requires a well-thought-out solicitation and a well-executed outreach plan.

The quality issue is sometimes seen where companies use social media to promote their crowdsourcing initiative. If the social media outreach goes viral, the company can be deluged with potential solutions from around the world. A careful evaluation of the utility of social media in outreach is required, especially where the solution being sought is likely complex and requires a specific set of expertise and capabilities to pull off.

Binding Terms and Conditions

Working with crowds requires being flexible enough to negotiate in order to acquire the best possible solution. Yet if the context or challenge rules require certain things, such as royalty-free right to use the winning submission, it may be hard to acquire the best technology. Its owners may insist on negotiating changes to the terms and conditions found in the crowdsourcing solicitation. Unfortunately, changing the terms and conditions to accommodate the winner can lead to cries of foul play. Yet if that is not done, an opportunity may be lost. Alternatively, the terms and conditions can be so restrictive that no one wants to float a solution. The entire initiative can be derailed if your company is perceived to be pandering.

Cultural Differences

Last but not least, there is the risk involved in cultural differences. Usually reaching a vast crowd spread across a myriad of different locations will involve also managing cultural differences. Different cultures approach challenges and contests in different ways. The cultural variations need not be driven by nationality. The pace of work is different in small rural communities than in large metropolitans. Words that mean one thing in one language can be mistranslated and end up meaning something else.

Takeaways

Crowdsolving is a way for SMEs to access a number of solutions to their problems. By posting a challenge or creating a contest, a company having, or facing, a product, manufacturing, or other issues can hold a contest and use the best submittal. Almost always, this approach is less expensive than if the solution is developed in-house. But crowdsourcing almost always requires a well-planned and executed initiative. It is an intriguing dance of seemingly infinite possibilities.

There are four key takeaways from this chapter we want to highlight:

1. 1. Be clear on your needs: a company should be very clear on their needs and be able to write them in a consistent and understandable way. Using the right language to address the right crowd is essential for avoiding bad surprises and for getting solutions going straight to the core of the problem. Writing a need proposal is a kind of art and is a continuous learning; the more precise the proposal, the clearer the problem to be solved is to the company and to the crowd. Guidelines have been provided, but practice is the key for improving the way a company describes their needs, the metrics that will be used to assess submittals, and the constraints that limit what can be a successful solution.
2. 2. Choose the right crowd: the “crowd” has many different faces, since different individuals participate with different levels of involvement and move in and out of the crowd in accordance with their own interests, expertise, experience, health, and knowledge. Crowds change constantly and to keep the focus of those individuals is a must for successful crowdsourcing. Identifying which of the crowds are mostly relevant for a company’s search is a matter of the strategic approach to crowdsourcing but is also related to what a company is asking for. Each challenge or contest attracts different types of contributors, with their behavior fostered by specific motivation(s).
3. 3. Structure your approach: a widely defined structure is the starting point for approaching any crowd and sourcing acceptable solutions from there. Step by step, your approach should guide the practitioners of this problem-solving methodology in running an effective campaign. At the heart of this structure is risk mitigation and elimination.
4. 4. Pencil it: when it comes to solving problems, a company always has two choices, make them or buy them. Crowdsourcing is a variant of buying them. Making it pencil requires developing a rough baseline depicting the cost of internally developing a solution. If the right people or capacities are not in-house, this baseline has to include hiring new staff and buying new production machinery, test facilities, and the like. This baseline is compared with the costs of a crowdsourcing campaign. The argument in this chapter is that crowdsourcing can cost less. It is also useful to estimate revenues to see if crowdsourcing pencils. There is some product opportunity or problem driving the product development of which crowdsourcing is a part. The quicker the product development can be completed, the sooner revenues can be generated. Of course, there are risks associated with both revenues and expenses. If the risks can be identified and quantified, we can use discounted cash flow analysis to compare internal development with crowdsourcing. Of course, the key risk in both approaches is that no viable new product or process will be found.

Crowdsourcing is most attractive where disruptive or radical new solutions are being sought. Incremental innovations require a thorough understanding of the current product and its manufacturing method. Next generation products and those of the generation after are less well defined and there is time to bring in and adopt new, “out-of-the-box” solutions.

The way crowdsourcing plays out on an SME’s income statement is seen in the costs of goods sold. With crowdsourcing, these go down so long as the cost of labor to evaluate the submittals plus any product development required is less than the cost of an all-internal development effort. Where the internal folks are stumped about what to do next, crowdsourcing also has a big impact on the revenue side—so long as a solution does emerge.

The really challenging part is to figure out the discount rate to use when calculating the net discounted cash flow for the two methods. The trick here is to use the impact analysis to ground your suspicions. Risk is simply a function of delay in getting a product to market or of the necessity of spending additional money beyond what was anticipated. Assuming the time to market is shorter and the cost of R&D and product development is the same, crowdsourcing wins so long as the same discount rate is applied to both.

On the balance sheet, the calculations are even easier. Any new technology acquired is an asset. Similarly, the greater the positive buzz on the crowdsourcing campaign, the greater the rise in goodwill as well as IP intangible assets.

Of course, if nothing is found through crowdsourcing, all intangible asset accounts might nosedive in the light of dwindling gross revenues. The process becomes a loss on the income statement and a reduction of retained earnings on the balance sheet. The discount rate goes up. It is a mess. That is why planning and focus are so important. When crowdsourcing works, it can give a company a big bump. When it fails, there simply is no return on the investment required to do it.