By Bill Matson, CrowdFundBeat Sr. contributor MBA, CFA, CPA (Retired), CFP, FLMI
The business school buzzword of “crowdcasting” aptly describes the casting of a figurative net for innovative ideas from a crowd of non-traditional sources. These sources might include employees acting beyond their job descriptions, suppliers, customers, and other stakeholders. And they might also include individuals with little or no connection to the organization, other than having an innovative idea of potential benefit.
Business historians often credit shipbuilder William Denny with implementing the first-ever suggestion box in 1882. Though suggestions can now be submitted by email, rather than on paper, few businesses’ systems for soliciting, motivating, evaluating, and implementing suggestions have changed much in other respects since the nineteenth century.
Generally speaking, organizations pay lip service to the importance of suggestions provided by employees when there is no clear link between the suggestion and the suggestion maker’s job description. And the reception given to suggestions from outsiders, with the exception of key customers, suppliers, or donors, is typically even more indifferent.
Successful crowdcasting initiatives are typically characterized by their attention to the psychological needs of the crowd. Quite often, a crowd of hundreds will work on a problem that only one member of that crowd will be paid for solving. If 100 people each work an average of 50 hours on a problem in hopes of earning a $10,000 payoff, they’re working for $2 an hour. Since rational people, and especially highly trained rational people, don’t normally work for $2 an hour, project sponsors must create intangible payoffs to make participation worth the crowd’s while. This is often accomplished through incorporation of the psychological payoffs inherent in games, such as competition, social interaction, and intellectual stimulation.
Crowdcasters Get What They Pay For
Crowdcasting may be considered an offshoot of crowdfunding, differing from the traditional crowdfunding model in that the organizations involved are seeking the “crowd’s” ideas and solutions, rather than its cash.
The traditional crowdfunding model entails raising cash from the crowd and using it to compensate employees and consultants on a salaried or hourly basis for ideas that may or not work. Crowdcasters, in contrast, gather ideas from the crowd and pay for them only after they have been proven effective. In most cases, the crowdcaster is a de facto arbitrageur, assured of a positive spread between a) the incremental profits associated with solutions acquired from the crowd and b) the payments due to crowd members.
The contingent payment feature of crowdcasting deals is what makes it feasible for organizations to pursue innovation originating from unorthodox sources. Even if these sources collectively spend thousands of hours working on a crowdcaster’s problem, no compensation will be due them until and unless the problem is solved.
As a result, crowdcasting can significantly mitigate the financial risks associated with projects having a high probability of failure – from the organization’s perspective, at any rate. In effect, this risk is transferred to the crowd, individuals who stand to receive little or no financial compensation for the time and expense they invest unless their efforts bear fruit for the crowdcaster.
Motivating The Crowd
Even when the crowd manages to solve the crowdcaster’s problem and payment is duly rendered, that payment normally goes to just one individual, however many others might have contributed valuable insights to the problem solving process. Though some crowdcasting platforms address this fairness issue, it is noteworthy that many who take up crowdcasters’ challenges are drawn by the competition, social interaction, and intellectual stimulation that the work involves.
Their motivations are, in fact, highly similar to those of fantasy sports participants, who invest significant amounts of time and thought in selecting players – usually with little hope of commensurate financial reward. To some extent, the act of calling upon underutilized skills appears to be its own reward.
This phenomenon is commonplace in a variety of arenas. Offensive linemen relish opportunities to show off their football carrying and pass receiving skills, just as major league baseball pitchers take great pride in their hitting abilities. Similarly, would-be physicists who become high school teachers often jump at the chance to apply their training in solving real world problems that challenge their expertise as researchers.
Relatively few holders of degrees in physics find employment as physicists. Less than half of those receiving doctorates in physics pursue this career path, typically due to shortage of jobs. And prospects in the field for physics majors with less advanced degrees are far bleaker. Thus, many highly trained physicists who aspire to apply their knowledge in meaningful ways may well find that crowdcasting offers the best shot they have at realizing this ambition.
Graduates in other technical fields who possess affinities for research face much the same challenges as physicists. American colleges and universities award over 7000 bachelor’s degrees in chemical engineering annually. The U.S. Bureau of Labor Statistics, however, expects employment of chemical engineers to rise by only 150 jobs per year, rising to a total of less than 35,000 jobs by 2022.
Consequently, opportunities abound for organizations to profitably tap the pools of underemployed technical talent that are already on their payrolls, as well as those languishing elsewhere. The economic advantages of employing a labor force compensated largely through the psychological satisfaction it derives from solving difficult problems are self-evident. Not to mention the advantages of dealing with workers who only expect to be paid when they are successful in achieving pre-specified outcomes.
Let us now consider two notable examples of crowdcasting success achieved in very different ways. Proctor & Gamble struck paydirt in sourcing innovative ideas from non-employees with fixed payments for solutions to specified problems. Rite-Solutions, on the other hand, has successfully used gamification to give its employees quasi-equity stakes in the ideas they propose and develop.
Crowdcasting With Non-Employees At Proctor & Gamble
In response to the stagnation of P&G’s growth and new product development, A.G. Lafley implemented the “Connect and Develop” program when he became the company’s CEO in 2000.
Connect and Develop described P&G’s product needs online and sought solutions from wherever they might come, offering awards of $10,000 to $100,000 to the first person who could develop these solutions. Though P&G employed only about 8500 researchers, Lafley estimated that roughly 1.5 million individuals outside the company had expertise relevant to P&G’s needs.
Whereas only 15% of the company’s innovations were being developed outside P&G at the outset of Lafley’s tenure, this figure reached 50% by 2007. Moreover, P&G tripled its net income during that time, achieving a compounded organic annual growth rate of 6% – two to three times that of its industry.
Crowdcasting And Gamification With Employees At Rite-Solutions
When Jim Lavoie co-founded Rhode Island-based software developer Rite-Solutions in 2000, he sought to build the company upon two of his most fundamental beliefs. According to Lavoie, “No one is as smart as everyone. Good ideas are not bounded by organizational structure, but can come from anyone, in any place.” In addition, he maintains that “the Hierarchal Pyramid as an organizational business structure is an enigma in the 21st century knowledge economy. An enigma more suited to controlling information flow than fostering innovation.”
In 2005, he and Co-Founder Joe Marino devised Mutual Fun, a game that enables Rite-Solutions employees to earn serious money for suggesting and developing innovative business ideas. Every Rite-Solutions employee is eligible to participate, through proposing ideas, as well as by investing virtual dollars that can become very real when ideas result in cost savings or otherwise become profitable.
Lavoie emphasizes that “The first step is to complete a profile that details your work experience, your expertise and capabilities, your interests and curiosities. This may seem like an obvious step, but it’s a crucial one. This is how players establish what they bring to the game table – and ultimately allows other players to search for people who might be able to assist them in various areas of their innovative ideas based on profile information.”
Every employee starts out with $10,000 in “opinion money” that is invested in the ideas of their choice through a virtual stock market that employs an algorithm to dynamically assign prices based upon investor demand. A leader board tracks the performance of individual employee portfolios, thereby adding a competitive dimension to the game.
The ideas attracting the most investment are often funded and developed by Rite-Solutions. Employees who propose ideas that result in positive bottom line impact share in the real money profits generated by those ideas, along with those who invest their opinion money in them.
Critical to the success of Mutual Fun is a company culture that not only encourages the improvement of suggestions that aren’t ready for prime time, but is also non-threatening to employees who might otherwise be too shy or lack the confidence to share their ideas. Says Lavoie, “The best thing for an idea is air and the more air you give it and the more people that breathe that idea, the better it will become.”
The benefits accruing to Rite-Solutions from its use of Mutual Fun include:
a) More potentially profitable innovations to consider,
b) Improved chances that potentially profitable ideas will be recognized as such,
c) Increased employee motivation to assure success of the ideas they back with their opinion dollars,
d) Improved ability of employees to function as a team,
e) Greater ability to attract and retain quality employees, and
f) A useful way to recognize employees with valuable skills and develop their careers appropriately.
The value of these benefits is confirmed by the numbers. Lavoie points out that “Rite-Solutions innovation games have generated more than 50 innovative product, services and process ideas, 15 of which have been successfully launched and account for 20% of the company’s total revenue. We have filed for 15 patents for innovations produced through our games.”
Explains Lavoie, “Most companies say ‘this is what we do.’ We say ‘what can we do with what we know or what we’ve done before that will be of value?’ My assistant was helping her daughter with a school project when she came up with an educational game idea – using a bingo algorithm that we had originally developed for a casino client. A major gaming company ended up paying us $1,000,000 to use it.”
Though Mutual Fun was originally developed for internal use, Rite-Solutions has made it available to other businesses as a cloud-based app. Says Mike Callahan, the company’s VP of Commercial Solutions “We charge between $2500 and $5000 on average for the setup, which includes our Community Managers consulting on the use cases, and then configuring the workflow and games to meet our client’s specific business needs. Ongoing Community Manager services are available to our clients if they need help scaling or expanding the application.”
Continues Callahan, “Our goal is for clients to derive long term value and ROI. We want them to renew their subscriptions and evangelize the product internally. Monthly fees start at $7.50 per user, and prices go down from there, based on number of users and length of agreement. We anticipate releasing a ‘Freemium’ edition later this year for organizations that want to try the application out on a limited use basis. And we are evaluating a version geared for academic institutions and non-profits.”
Despite its merits, crowdcasting has yet to become a commonplace business practice. Its failure to catch on seems particularly puzzling when one considers the successes enjoyed by many of the organizations who have embraced it.
The glacial rate of its proliferation is more easily understood when viewed from the perspective of managers who perceive unfavorable asymmetries of personal risk versus personal reward. If the reward for a successful crowdcasting implementation is a pat on the back, while failure brings lasting impairment to one’s career, few managers will accept this bargain.
Moreover, taking control of events is generally considered a central feature of managerial job descriptions. Crowdcasting projects, on the other hand, necessarily call for surrendering of control to individuals at liberty to work on them however and whenever they see fit. To the extent that the crowd may be controlled, this may only be done with carrots rather than sticks, an approach requiring skills that managers don’t always possess.
Every employee, regardless of job description, is a potential source of valuable ideas. Everyone possesses a unique combination of knowledge, skills, and experiences that can lead to unique and profitable insights.
Accessing these insights, however, can be challenging. Games and company cultures structured to incentivize the sharing and development of innovative ideas have proven effective in accomplishing this.
Individuals unable to find challenging employment in the fields for which they have been trained can be a valuable and highly cost-effective resource for solving difficult problems. They often view the pleasure derived from performing crowdcasting assignments as a form of compensation. In addition, they are normally paid a pre-specified amount, but only if their efforts prove successful, thereby limiting the crowdcaster’s financial risk.
There will always be a place for research and development departments and other groups formally tasked with the responsibility for innovation. To an increasing extent, however, important innovations are emanating from non-traditional channels. The organizations able to harness this trend most effectively in the future will enjoy significant competitive advantages.
Bill Matson is the CEO of INTERKEX, the International Karma Exchange division of BrainFutures.com, Inc., a community that monetizes the exchange of favors through crowdcasting, gamification, and innovative financial arrangements. It is scheduled to launch in early 2015. Bill is the co-author of Data Driven Investing and may be reached at BillMatson@interkex.com.