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New sourcing strategies such as crowdsourcing enable organizations to take advantage of collective social intelligence to foster innovation. Read on to learn how crowdsourcing – the application of Open Source principles to fields outside of software – will continue to develop as a viable business model.

Carl Esposti, principal, Everest Group

Tell me about your background and your company, massolution, a division of Crowdsourcing Corporation.

I’ve spent 20 years in the sourcing advisory space. That’s a collective term for different types of sourcing models and includes things like outsourcing, offshoring, and captives (i.e. company owned operations). Ten years were spent working on the supply side of the industry and the last ten have been on the advisory side, predominantly helping Fortune 500 companies look at the options for sourcing and identify target candidates and parts of their businesses that they could source in different manners.

At the moment, I wear two hats. I’m a Principal at the Everest Group, one of the premier global sourcing advisory firms. About a year ago I started Crowdsourcing Corporation, doing business as a company called masssolution. That is a business focused specifically on the area of crowdsourcing. It’s looking at the viability of crowdsourcing and trying to understand how the crowdsourcing business model is being embraced both by enterprises and the general population.

What do you see as the fundamental difference between outsourcing and crowdsourcing?

Outsourcing is more at a process and function level where crowdsourcing is at a task level. Instead of sourcing business functions or business processes to a single entity, as is typically the case with outsourcing, crowdsourcing involves the sourcing of discreet tasks or work packages, to a community of people – a crowd – and the best performing or most qualified individuals within that crowd are selected to perform the work.

Crowdsourcing properties tend to organize around different types of expertise and applications. For example, a major application of crowdsourcing is in the area innovation, which splits down into research and development, and into the area of idea generation, product design and optimization. Another is the area of engagement. For example, companies like Starbucks are using it to engage their community to build relationships with consumers. There is a whole set of crowdsourcing applications around the world of creativity. That breaks down to things like photography, journalism, travel, and graphic design. There are also social applications of crowdsourcing where people are participating in projects such as green initiatives. There’s another group of crowdsourcing applications around the category of knowledge – Q&A, market intelligence, and prediction markets. There’s also crowdfunding which are communities of good causes or entrepreneurs seeking to reach a community of potential investors using crowdsourcing as a method of fundraising. They are all publicly accessible applications and within each of those applications are a large number of companies that have communities and technology or functionality within their sites that enable people that have requirements and needs to connect with people that have the ability to fulfill those needs.

Crowdsourcing has gone from the fringe to the mainstream seemingly overnight with many experts saying that this is the year of crowdsourcing. What’s driving the trend? 

If you look at crowdsourcing, Jeff Howe refers to it as crowdsourcing “in captive” and “in the wild”. When he talks about crowdsourcing in captive, he talks about it being used for focused applications, sometimes around a commercial business model and often at an enterprise level regarding their internal and external stakeholders. When he talks about in the wild, he’s referring to a more open application where the crowd is formed from the global population of Internet connected individuals. The majority of use at the moment is the explosion in the wild. That’s being driven largely by the prevalence of technology that supports it and allows it to happen. Individuals are realizing interactive capability through Web 2.0 and are able to form communities and interact in a way like they’ve never been able to before.

There are some great examples of crowdsourcing dating back 350 years. In the 18th century there was a competition in the U.K. called The Longitude Prize. It was a reward offered by the British government to somebody who could invent a simple and practical method for the precise determination of a ship’s longitude. An individual was awarded a prize of over 14 thousand pounds for inventing this instrument.

So Crowdsourcing as a phenomenon isn’t new. What’s different this time is that we have a mobile and disaggregated workforce. The relationship individuals have with companies now is very different. Instead of it being a static workforce where you are physically located within your company and have a job for many years, people are much more akin to working for many companies, on a flexible or contract basis, working from home, working off-shore in different locations etc. With that type of workforce, combined with the fact that this technology is now not only available but is pervasive, somebody in Manila or Budapest or wherever, can participate in a project that is being executed on a global basis. It’s enabling organizations and entities to determine that it’s very easy to connect individuals and form these communities on a basis that isn’t constrained by traditional physical boundaries.

A recent Business Week article asked if crowdsourcing represents the beginning of the end of creative organizations or if it heralds the beginning of something bigger and transformational for business in general. What’s your take?

Crowdsourcing augments the possibilities of how corporations currently source ideas and source work. Instead of relying on the thoughts, ideas and capabilities of a limited workforce, it enables organizations to remove restrictions and see what other ideas can come out of that.

I spoke to a client recently, a creative agency that had a limited bench of about eight people – a creative director, some graphic designers, and a couple of account managers. That traditional type of business model is constrained from a cost point of view and it’s also very limited by its bandwidth. They started engaging crowdsourcing as a way of generating ideas for their own creative team. Instead of a creative person having to sit down for a given project and spend eight hours coming up with a number of options, they can very cost effectively crowdsource a lot of input through a much larger community at a very low cost very quickly.

I can see organizations over time developing a set of competencies that enables them to capitalize on crowdsourcing vehicles. Instead of it diminishing the value of an internal function, whether it’s a research function or a creative function or whatever, it can be a vehicle and option to leverage and provide additional value, changing the remit of internal functions within these corporations.

It can be seen as transformational, even if it’s not significant in terms of the volume of work that might get sourced externally through companies. Think about it from the perspective of saying instead of 20 researchers coming up with my new ideas I can now use 100,000 researchers to come up with my new ideas. Simply in that aspect it’s not going to change the necessity for internal functions to be able to mange this stuff and still own the R&D function. What it is going to do is it’s going to take the lid off the ideas and options and possibilities relative to the ability for a broader community to be able to think about how to move a business forward.

For companies making the shift to open innovation, what technologies and best practices should they have in place? How can they ensure the biggest business return?

There are a large number of established platforms with existing communities that have established brands. Any organization first and foremost should look at those platforms and should consider experimenting and taking a step into the world of crowdsourcing as a result of something that is tried and tested. There are a number of other branded or white label applications that are ready built and externally supported that companies can use on a usage or license fee basis. That’s another significant opportunity for companies that want to take a step in this direction without taking the investment risk or technical risk of building their own platforms.

A lot of companies have an external online presence, but their presence is really a silent audience because in some instances they don’t invite or enable participation. It’s been proven that the community actually appreciates having a vehicle where they can interact within their own peer group as opposed to just the representative of the company itself. Different types of functionality enable communities to interact and participate, share ideas, upload content and interact with other community members. That is something that typically is a more rewarding experience for these consumers or community members.

However, you don’t build community just by providing technical functionality that enables participation. You have to nurture communities. A lot of work is being done now to look at the best practices relative to the development and nurturing and building communities. It doesn’t just happen; participants need to feel that they are part of something of value and they need to believe they’re not being exploited or taken advantage of. They need the benefits of community interaction in order to be able to fulfill some of their development or altruistic needs. The whole area of community development management is an absolute specialty and a key area if not more important than the investment in the technology itself.

Tell me about your personal experience with crowdsourcing or relevant examples in the public domain.

My personal experience with using crowdsourcing has been primarily in the areas of branding and graphic design. I was building another business and started using crowdsourcing as a way of building our graphics, materials and identity. I suddenly thought the process of crowdsourcing was far more interesting than the business I was building, so I decided to abandon the business plans I had and started investing in crowdsourcing itself.

In terms of how crowdsourcing is being used, companies that have used it successfully include Threadless, Netflix, Gold Corp, and Proctor and Gamble. Crowdsourcing is in is infancy and it’s being experimented with by a few corporations but it’s not even common vernacular at the moment. If I ask 10 people and one person has heard of it it’s a surprise. In order for crowdsourcing as a business model to be better understood and ultimately be better adopted, people are going to need to know more about it in terms of who’s using it, how is it working, what are the lessons and best practices where is the capability and expertise relative to the people that understand how to put it in place and deliver it.

Crowdsourcing.org is going to be an authoritative portal on this as a business model as opposed to a site you crowdsource through. We’ll build this site and a community and other analysts will realize it is part of a broader sourcing set of possibilities. By that time we’ll have our environment and best practices and our community established. Crowdsourcing.org is under development. For more information, email carl@massolution.com.

Posted on November 30th, 2009 under Industry Experts • Tags: associations, crowdsourcing, outsourcing. • RSS 2.0 feed • Leave a response, or trackback