Crowdsourcing & Open Innovation

Andrew King and Karim R. Lakhani. 2013. “Using Open Innovation to Identify the Best Ideas.” MIT Sloan Management Review 55 (1). Publisher's VersionAbstract

As innovation becomes more democratic, many of the best ideas for new products and services no longer originate in well-financed corporate and government laboratories. Instead, they come from almost anywhere and anyone.1 How can companies tap into this distributed knowledge and these diverse skills? Increasingly, organizations are considering using an open-innovation process, but many are finding that making open innovation work can be more complicated than it looks. PepsiCo, the food and beverage giant, for example, created controversy in 2011 when an open-sourced entry into its Super Bowl ad contest that was posted online featured Doritos tortilla chips being used in place of sacramental wafers during Holy Communion. Similarly, Kraft Foods Australia ran into challenges when it launched a new Vegemite-based cheese snack in conjunction with a public naming contest. The name Kraft initially chose from the submissions, iSnack 2.0, encountered widespread ridicule, and Kraft abandoned it. (The company instead asked consumers to choose among six other names. The company ultimately picked the most popular choice among those six, Vegemite Cheesybite.) Reports of such problems have fed uncertainty among managers about how and when to open their innovation processes. Managers tell us that they need a means of categorizing different types of open innovation and a list of key success factors and common problems for each type. Over the last decade, we have worked to create such a guide by studying and researching the emergence of open-innovation systems in numerous sectors of the economy, by working closely with many organizations that have launched open-innovation programs and by running our own experiments.2 This research has allowed us to gain a unique perspective on the opportunities and problems of implementing open-innovation programs. (See “About the Research.”) In every organization and industry, executives were faced with the same decisions. Specifically, they had to determine (1) whether to open the idea-generation process; (2) whether to open the idea-selection process; or (3) whether to open both. These choices led to a number of managerial challenges, and the practices the companies implemented were a major factor in whether the innovation efforts succeeded or failed.

Lars Bo Jeppesen and Karim R. Lakhani. 2010. “Marginality and Problem-Solving Effectiveness in Broadcast Search.” Organization Science, 21, 5, Pp. 1016-1033. Publisher's VersionAbstract

We examine who the winners are in science problem-solving contests characterized by open broadcast of problem information, self-selection of external solvers to discrete problems from the laboratories of large R&D intensive companies, and blind review of solution submissions. We find that technical and social marginality, being a source of different perspectives and heuristics, plays an important role in explaining individual success in problem solving. The provision of a winning solution was positively related to increasing distance between the solver's field of technical expertise and the focal field of the problem. Female solvers—known to be in the "outer circle" of the scientific establishment—performed significantly better than men in developing successful solutions. Our findings contribute to the emerging literature on open and distributed innovation by demonstrating the value of openness, at least narrowly defined by disclosing problems, in removing barriers to entry to non-obvious individuals. We also contribute to the knowledge-based theory of the firm by showing the effectiveness of a market mechanism to draw out knowledge from diverse external sources to solve internal problems.

Karim R. Lakhani, Wesley M. Cohen, Kynon Ingram, Tushar Kothalkar, Maxim Kuzemchenko, Santosh Malik, Cynthia Meyn, Greta Friar, and Stephanie Healy Pokrywa. 2014. Netflix: Designing the Netflix Prize (A). Harvard Business School Case. Harvard Business School. Publisher's VersionAbstract
In 2006, Reed Hastings, CEO of Netflix, was looking for a way to solve Netflix's customer churn problem. Netflix used Cinematch, its proprietary movie recommendation software, to promote individually determined best-fit movies to customers. Hastings determined that a 10% improvement to the Cinematch algorithm would decrease customer churn and increase annual revenue by up to $89 million. However, traditional options for improving the algorithm, such as hiring and training new employees, were time intensive and costly. Hastings decided to improve Netflix's software by crowdsourcing, and began planning the Netflix Prize, an open contest searching for a 10% improvement on Cinematch. The case examines the dilemmas Hastings faced as he planned the contest, such as whether to use an existing crowdsourcing platform or create his own, what company information to expose, how to protect customer privacy while making internal datasets public, how to allocate IP, and how to manage the crowd.
Kevin Boudreau and Andrei Hagiu. 2009. “Platform Rules: Multi-sided Platforms as Regulators.” In Platforms, Markets, and Innovation, edited by Annabelle Gawer. Northampton, MA: Edward Elgar Publishing, Inc. Publisher's VersionAbstract

This paper provides a basic conceptual framework for interpreting non-price instruments used by multi-sided platforms (MSPs) by analogizing MSPs as "private regulators" who regulate access to and interactions around the platform. We present evidence on Facebook, TopCoder, Roppongi Hills and Harvard Business School to document the "regulatory" role played by MSPs. We find MSPs use nuanced combinations of legal, technological, informational and other instruments (including price-setting) to implement desired outcomes. Non-price instruments were very much at the core of MSP strategies.

Andrea Blasco, Olivia S. Jung, Karim R. Lakhani, and Michael Menietti. 2016. Motivating Effort in Contributing to Public Goods Inside Organizations: Field Experimental Evidence. National Bureau of Economic Research. Publisher's VersionAbstract

We investigate the factors driving workers’ decisions to generate public goods inside an organization through a randomized solicitation of workplace improvement proposals in a medical center with 1200 employees. We find that pecuniary incentives, such as winning a prize, generate a threefold increase in participation compared to non-pecuniary incentives alone, such as prestige or recognition. Participation is also increased by a solicitation appealing to improving the workplace. However, emphasizing the patient mission of the organization led to countervailing effects on participation. Overall, these results are consistent with workers having multiple underlying motivations to contribute to public goods inside the organization consisting of a combination of pecuniary and altruistic incentives associated with the mission of the organization.

Karim R. Lakhani, Eric Lonstein, and Stephanie Pokrywa. 2011. TopCoder (B). Harvard Business School Case Supplement. Harvard Business School. Publisher's VersionAbstract

Metrology plays a key role in the manufacture of mechanical components. Traditionally it is used extensively in a pre-process stage where a manufacturer does process planning, design, and ramp-up, and in post-process off-line inspection to establish proof of quality. The area that is seeing a lot of growth is the in-process stage of volume manufacturing, where feedback control can help ensure that parts are made to specification. The Industrial Metrology Group at Carl Zeiss AG had its traditional strength in high precision coordinate measuring machines, a universal measuring tool that had been widely used since its introduction in the mid-1970s. The market faced a complex diversification of competition as metrology manufacturers introduced new sensor and measurement technologies, and as some of their customers moved towards a different style of measurement mandating speed and integration with production systems. The case discusses the threat of new in-line metrology systems to the core business as well as the arising new opportunities.

Karim R. Lakhani and Greta Friar. 2015. Prodigy Network: Democratizing Real Estate Design and Financing. Harvard Business School Teaching Notes. Harvard Business School. Publisher's VersionAbstract

Teaching Note for HBS Case 614-064.

This case follows Rodrigo Nino, founder and CEO of commercial real estate development company Prodigy Network, as he develops an equity-based crowdfunding model for small investors to access commercial real estate in Colombia, then tries out the model in the U.S. U.S. regulations, starting with the Securities Act of 1933, effectively barred sponsors from soliciting small investors for large commercial real estate. However, the JOBS Act of 2013 loosened U.S. restrictions on equity crowdfunding. Nino believes that crowdfunding will democratize real estate development by providing a new asset class for small investors, revolutionizing the industry. The case also follows Nino's development of an online platform to crowdsource design for his crowdfunded buildings, maximizing shared value throughout the development process. Nino faces many challenges as he attempts to crowdfund an extended stay hotel in Manhattan, New York. For example, crowdfunded real estate faces resistance from industry leaders, especially in regards to the concern of fraud, and SEC regulations on crowdfunding remain undetermined at the time of the case.

Michael L. Tushman, Hila Lifshitz-Assaf, and Kerry Herman. 2014. Houston, We Have a Problem: NASA and Open Innovation (B). Harvard Business School Case. Harvard Business School. Publisher's VersionAbstract
Jeff Davis, director of Space Life Sciences Directorate at NASA, has been working for several years to raise awareness amongst scientists and researchers in his organizations of the benefits of open innovation as a successful and efficient way to collaborate on difficult research problems regarding health and space travel. Despite a number of initiatives, SLSD members have been skeptical about incorporating the approach into their day-to-day research and work, and have resisted Davis's and his strategy team's efforts. The (A) case outlines these efforts and the organization members' reactions. The (B) case details what Davis and the SLSD strategy team learned, and how they adapted their efforts to successfully incorporate open innovation as one of many tools used in collaborative research at NASA.
Karim R. Lakhani, David A. Garvin, and Eric Lonstein. 2010. TopCoder (A): Developing Software through Crowdsourcing. Harvard Business School Case. Harvard Business School. Publisher's VersionAbstract

TopCoder's crowdsourcing-based business model, in which software is developed through online tournaments, is presented. The case highlights how TopCoder has created a unique two-sided innovation platform consisting of a global community of over 225,000 developers who compete to write software modules for its over 40 clients. Provides details of a unique innovation platform where complex software is developed through ongoing online competitions. By outlining the company's evolution, the challenges of building a community and refining a web-based competition platform are illustrated. Experiences and perspectives from TopCoder community members and clients help show what it means to work from within or in cooperation with an online community. In the case, the use of distributed innovation and its potential merits as a corporate problem solving mechanism is discussed. Issues related to TopCoder's scalability, profitability, and growth are also explored.

Karim R. Lakhani and Michael L. Tushman. 2014. Victors & Spoils: 'Born Open'. Harvard Business School Multimedia/Video Case. Harvard Business School. Publisher's VersionAbstract

Victors & Spoils (V&S), located in Boulder, Colorado, was the first advertising agency built on open innovation and crowdsourcing principles from the ground-up. V&S was co-founded in 2009 by John Winsor, Claudia Batten and Evan Fry, all former members of the advertising agency Crispin Porter + Bogusky (CP+B). V&S crowdsourced creative ideas for its ad campaigns through Agency Machine, its proprietary online platform. CEO John Winsor wanted to change the way that advertising was done, a difficult task in an industry entrenched in traditional models. The case follows Winsor as he prepares to scale his business and must determine the best way to do so. He has an offer from Havas, a leading global advertising company interested in acquiring V&S, which would give V&S access to unprecedented resources. However, Winsor and the V&S team have concerns about how their innovative processes may be affected by partnering with a large, traditional company.

Kevin J. Boudreau, Nicola Lacetera, and Karim R. Lakhani. 2011. “Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis.” Management Science, 57, 5, Pp. 843-863. Publisher's VersionAbstract

Contests are a historically important and increasingly popular mechanism for encouraging innovation. A central concern in designing innovation contests is how many competitors to admit. Using a unique data set of 9,661 software contests, we provide evidence of two coexisting and opposing forces that operate when the number of competitors increases. Greater rivalry reduces the incentives of all competitors in a contest to exert effort and make investments. At the same time, adding competitors increases the likelihood that at least one competitor will find an extreme-value solution. We show that the effort-reducing effect of greater rivalry dominates for less uncertain problems, whereas the effect on the extreme value prevails for more uncertain problems. Adding competitors thus systematically increases overall contest performance for high-uncertainty problems. We also find that higher uncertainty reduces the negative effect of added competitors on incentives. Thus, uncertainty and the nature of the problem should be explicitly considered in the design of innovation tournaments. We explore the implications of our findings for the theory and practice of innovation contests.

Olivia Jung, Andrea Blasco, and Karim R. Lakhani. 2017. “Perceived Organizational Support For Learning and Contribution to Improvement by Frontline Staff.” Academy of Management Proceedings, 2017, 1. Publisher's VersionAbstract

Utilizing suggestions from clinicians and administrative staff is associated with process and quality improvement, organizational climate that promotes patient safety, and added capacity for learning. However, realizing improvement through innovative ideas from staff depends on their ability and decision to contribute. We hypothesized that staff perception of whether the organization promotes learning is positively associated with their likelihood to engage in problem solving and speaking up. We conducted our study in a cardiology unit in an academic hospital that hosted an ideation contest that solicited frontline staff to suggest ideas to resolve issues encountered at work. Our primary dependent variable was staff participation in ideation. The independent variables measuring perception of support for learning were collected using the validated 27-item Learning Organization Survey (LOS). To examine the relationships between these variables, we used analysis of variance, logistic regression, and predicted probabilities. We also interviewed 16 contest participants to explain our quantitative results. The study sample consisted of 30% of cardiology unit staff (n=354) that completed the LOS. In total, 72 staff submitted 138 ideas, addressing a range of issues including patient experience, cost of care, workflow, utilization, and access. Figuring out the cost of procedures in the catheterization laboratory and creating a smartphone application that aids patients to navigate through appointments and connect with providers were two of the ideas that won the most number of votes and funding to be implemented in the following year. Participation in ideation was positively associated with staff perception of supportive learning environment. For example, one standard deviation increase in perceived welcome for differences in opinions was associated with a 43% increase in the odds of participating in ideation (OR=1.43, p=0.04) and 55% increase in the odds of suggesting more than one idea (OR=1.55, p=0.09). Experimentation, a practice that supports learning, was negatively associated with ideation (OR=0.36, p=0.02), and leadership that reinforces learning was not associated with ideation. The perception that new ideas are not sufficiently considered or experimented could have motivated staff to participate, as the ideation contest enables experimentation and learning. Interviews with ideation participants revealed that the contest enabled systematic bottom-up contribution to quality improvement, promoted a sense of community, facilitated organizational exchange of ideas, and spread a problem-solving oriented mindset. Enabling frontline staff to feel that their ideas are welcome and that making mistakes is permissible may increase their likelihood to engage in problem solving and speaking up, contributing to organizational improvement.

Karim R. Lakhani, Anne-Laure Fayard, Natalia Levina, and Stephanie Healy Pokrywa. 2012. OpenIDEO. Harvard Business School Case. Harvard Business School. Publisher's VersionAbstract

The case describes OpenIDEO, an online offshoot of IDEO, one of the world's leading product design firms. OpenIDEO leverages IDEO's innovative design process and an online community to create solutions for social issues. Emphasis is placed on comparing the IDEO and OpenIDEO processes using real-world project examples. For IDEO this includes the redesign of Air New Zealand's long haul flights. For OpenIDEO this includes increasing bone marrow donor registrations and improving personal sanitation in Ghana. In addition, the importance of fostering a collaborative online environment is explored.

Karim R. Lakhani and Paul R. Carlile. 2010. Myelin Repair Foundation: Accelerating Drug Discovery Through Collaboration. Harvard Business School Case. Harvard Business School. Publisher's VersionAbstract

This case presents the Myelin Repair Foundation's accelerated research collaboration model for drug discovery. It highlights the challenges of building a multi-disciplinary and multi-institutional research collaboration that is attempting to create a treatment for multiple sclerosis based on a novel scientific approach. The case provides details on how norms of academic research and intellectual property had to be updated to enable collaboration. The current dilemma facing the CEO and COO of the foundation relates to setting strategic priorities for research so that a treatment for MS can be ready in the next ten years. The strategic choices need to account for the complexities of drug discovery, the uncertainty of commercial partners' interest in the therapeutic approach and the constrained donor-based fundraising environment.

Kevin J. Boudreau and Karim R. Lakhani. 2015. “'Open' Disclosure of Innovations, Incentives and Follow-on Reuse: Theory on Processes of Cumulative Innovation and a Field Experiment in Computational Biology.” Research Policy, 44, 1, Pp. 4-19. Publisher's VersionAbstract

Most of society's innovation systems – academic science, the patent system, open source, etc. – are “open” in the sense that they are designed to facilitate knowledge disclosure among innovators. An essential difference across innovation systems is whether disclosure is of intermediate progress and solutions or of completed innovations. We theorize and present experimental evidence linking intermediate versus final disclosure to an ‘incentives-versus-reuse’ tradeoff and to a transformation of the innovation search process. We find intermediate disclosure has the advantage of efficiently steering development towards improving existing solution approaches, but also has the effect of limiting experimentation and narrowing technological search. We discuss the comparative advantages of intermediate versus final disclosure policies in fostering innovation.

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