Posted on Harvard Business Review: September 23, 2010 10:54 AM
The women had gathered where the market's largest sugar distributor was giving generous bulk discounts. It was a typical African open market, where people bring their goods for sale and afterwards take the remainders home. Late in the evening, the distributor observed that one of his trucks had broken down. He couldn't bring everything home. He quickly started a promotion with even deeper discounts on bulk purchases.
The women formed themselves into a crowd and pooled their meager individual resources. They bought a large quantity and shared the inexpensive goods among themselves. It was a magical experience: a crowd of like-minded people, congregating to get a bargain, on the spot.
Such energy of the crowd is not new. Companies have always looked at ways to tap the imaginations of the masses and profit from them. However, the astonishing advances in social networking and communication technologies have provided a high level of interactivity and connectivity, making it possible for people to connect more easily. And brands are finding that the crowd offers great opportunities for business innovation.
Last year, Netflix awarded $1 million to a team that improved its prediction accuracy to link people to the movies they want. General Electric, in partnership with four venture capital firms, is awarding $200 million to the best clean-technology ideas entered in its GE Ecomagination Challenge.
The Netflix and GE contests are examples of programs sponsored by companies casting wider net for new business ideas. These programs involve outsourcing activities traditionally done by staff or contractors to a large group of people through open contests. The contests bring fresh ideas and help firms improve their business processes and tools.
As the global economy recovers from recession, the concept of tapping into the crowd for insights will become even more attractive. Netflix and GE are not alone: L'Oreal turned to Current TV, a cable outlet that dedicates much of its airtime to user-generated content. By tapping the crowd, L'Oreal paid $1,000 for a 30-second ad that would have cost $150,000 if produced in-house.
To become a vital business innovation tool, providing quality ideas, a crowdsourcing campaign should follow the following guidelines:
Be specific: In clear, simple terms, define what the problem is. Netflix wanted an algorithm that beat its current one by 10%. If the problem definition is vague, the answers will be, too.
Target the right crowd: To get the best out of crowdsourcing, firms must know where the right crowd is. A campaign on nanotechnology will better seek technical universities, not the masses across Facebook.
Define the IP rights: To avoid legal problems on solutions provided by the crowd, unambiguously state ownership of all ideas submitted to the contest. This will save you intellectual property-related lawsuits in the future.
Nurture the network: Besides the cash, think about other ways to motivate the crowd. The L'Oreal campaign was structured in a way that got most participants interested due to their passion for the brand. Brand loyalists contributed so they could shape the products they already use. Point redemption for products, invitations to corporate events, among others, could appeal to many people in the crowd.
Promote the campaign: Posting the problem on the web is only a step in the campaign. To make it successful, promote the campaign to alert scientists, hobbyists, universities, and even the unemployed.
Engage the solution providers: Many solution providers exist to help firms get the best out of crowdsourcing. Companies like InnoCentive and IdeaConnection provide services that help firms reach top talents in the crowd. They do this by entering into partnerships with universities and trade associations, through which expand access to the right crowd.
Have an in-house plan: The crowd will not save your business every time.
Garnering business ideas from the crowd is not simple. It carries risks. Companies can unknowingly provide leads to their competitors on product development strategy. There is also the challenge of intellectual property leakage as data is shared with the crowd. (Netflix provided data for the campaign it sponsored.) Despite the intellectual property risks, for many, tapping into the wisdom of the masses could provide invaluable insights on a brand.