Purchasing Innovation VI: CrowdSourcing

Crowdsourcing is the New Outsourcing …
but what does it have to do with Sourcing?

That is a Very Good Question … but first we need to defining what Crowdsourcing is. However, I am going to first summarize yesterday’s blog entry on Sourcing the New Organization and the definitions it gives for “organisation man” and “networked person“.

The blog entry, which included a summary of a great piece in the Economist from earlier this year entitled The New Organisation (which in turn referenced an article by William Whyte entitled “The Organisation Man” published 50 years earlier in Fortune magazine), defined “organisation man” using Whyte’s classical definition of an employee who had “taken the vows of organisation life”. “Organisation man“, who lived in a highly structured world where lines of authority were clearly drawn on charts and decisions made on high, went to the office every day for his 9-5 job, acted very cautiously, especially with regards to networking, and protected his knowledge, which he believed was his power. In contrast, “networked person“, a new species observed in airport lounges, fast inner-city trains, and wi-fi Starbucks, lives in a connected world, is always on the move (with laptop, mobile phone, and blackberry), feeds off information exchange and constant communication, and makes her own decisions, guided by the knowledge base she has access to.

Now we can define outsourcing as the process of delegating non-core operations or organisation man jobs from internal production within a typical organisation to an external organisation that specializes in that operation or organisation-man job. (For more information on outsourcing, see Wikipedia’s definition.)
Then crowdsourcing becomes the process of delegating various tasks for which you do not have the manpower or expertise from internal production to external entities or affiliations of networked persons with the expertise, access to, or raw capabilities that you require.

A very interesting introduction to Crowdsourcing can be found in a recent article in Wired entitled “The Rise of Crowdsourcing”, which is also accompanied by “5 Rules of the New Labor Pool” and “Look Who’s Crowdsourcing”. It describes Crowdsourcing as “the new pool of cheap labor: everyday people using their spare cycles to create content, solve problems, [and] even do corporate R & D” and provides examples of tasks, once exclusively the domain of professionals, that are suitable to crowdsourcing. The four examples it elaborates on in detail are stock photography, content packaging, challenge-driven R&D, and technical repair flows. Other examples listed in the companion article are videography, online virtual-world generation, news, (fashion) design, and even financial services.

The first example elaborated on in detail in the article is stock photography. Once the domain of professional photographers who would charge $500 and above for professionally produced photographs, today they are being hedged out by internet stock photo sites that bring together large bodies of work produced by hobbyists and aspiring amateurs who, with the recent decline in equipment and software costs, can produce photographs of the same quality as those produced by the pros. Furthermore, since they are not dependent upon photography as a source of income, they can sell licenses for a fraction of the price of the pros, often for only a few dollars. For example, on sites such as iStockphoto, ShutterStock, Dreamstime, and Getty Images, you can license photographs for as little as $1 and high quality images for as little as $5 a shot – a far cry from the $500 often charged by a pro.

The second example is one in content packaging – with in depth material on VH1’s Web Junk 20 which was the first regular program to repackage the Internet’s funniest home videos and features the 20 most popular (viral) videos making the rounds online in any given week. The costs to produce the show are minimal, in the mid five figures, since all you really need is an editing / production team and a(n optional) host. Compare this to the average cost of a half-hour TV comedy these days, which now costs nearly $1M to produce (or more if you have superstars pulling that down for a single episode).

The third example, which really is the charm of the article, focuses on how crowdsourcing can be used to solve R&D challenges and how giants like Eli Lilly, Colgate-Palmolive, Boeing, DuPont, and P&G are using it to reduce R&D costs while propelling innovation forward. Back in 2001, pharmaceutical Eli-Lilly funded a new endeavor by the name of InnoCentive as a way to connect with brainpower outside the company – specifically, people who could develop drugs and speed them to market – and threw open the doors to other firms eager to access the network of ad-hoc experts. These companies post their most ornery (scientific) problems on InnoCentive’s Web site and anyone interested on the network can take a shot at cracking them, for a prize that ranges from $10,000 to $100,000 per solution. To date, more then 30% of the problems on the site have been cracked, which is 30% more problems than would have been solved using a traditional in-house approach (since these companies typically post the problems only after their internal R&D team has taken a shot and failed). And it’s extremely cost-effective – take the quoted Colgate-Palmolive example where they paid an InnoCentive member who found a solution to a fluoride powder injection problem a mere $25,000, a fraction of what it could have cost Colgate-Palmolive to dedicate their R&D team to the problem until it was solved internally.

And if this isn’t eye-opening enough to get your interest, note the quote from Karim Lakhani, a lecturer in technology and innovation at MIT who has studied InnoCentive. “The strength of a network like InnoCentive’s is exactly the diversity of intellectual background.” Lakhani and three coauthors surveyed 166 problems on Innocentive and “actually found [that] the odds of a solver’s success increased in fields in which they had no formal expertise“. Why? He believes it is due to a central tenet of network theory, “the strength of weak ties”. The most efficient networks are those that link to the broadest range of information, knowledge, and experience.

Another explanation not referenced in the article is the general applicability of methods and solutions to similar problems across many scientific and technological domains. If you remember our recent post on TRIZ, Teoriya Resheniya Izobretatelskikh Zadatch or the Theory of Inventive Problem Solving, the central step was the translation of a specific problem into a general problem since this allows standard solutions and processes to be reused across disciplines. Thus, solving an ornery problem in silicon chip manufacturing may not require access to the world’s foremost expert on silicon chip manufacturing processes, but merely access to an experimental physicist who has solved similar problems in research component fabrication. And a network of such specialists only increases your chances of finding the right individual and claiming success. Furthermore, a pay-per-solution scenario costs you next to nothing – merely the time required to define the problem in detail and analyze the presented solutions. And even if the presented solutions aren’t appropriate, if they are from an expert, chances are you’ll learn something just the same! So check out InnoCentive and similar sites such as YourEncore, and NineSigma when you get the chance.

There were other examples, but I’ll leave it to you, dear reader, to review the article if I’ve aroused your interest. For now it’s time to take up our question – what does crowdsourcing, the new outsourcing, have to do with sourcing?

Nothing. And Everything. Simultaneously. The answer, which can only be understood from a holistic Zen perspective, relates back to our previous post on Sourcing the New Organization where we stated that world class sourcing organizations will drive corporate transformation into this millennia and Jason Busch’s soon-to-be revolutionary presentation on the Future of Supply Management where he stated, among other insightful observations, that “Procurement will have a dotted line to all areas of the business“.

True Strategic Sourcing, built on sound principles of Total Value Management
tightly aligned with your supply chain strategy, is about to become the cornerstone of efficient business operations around the globe. What other function impacts each and every unit of the business with such criticality? What other function requires input from key stakeholders and experts in each area of the business to truly be successful? What other function, when optimized, can have such a dramatic positive impact to the top and bottom lines of the business? The answer to all of these functions is “none”. Furthermore, When you consider that, in an average business, sales and marketing will have to increase sales 500% to 1000% to have the same impact that a single dollar of up-front savings generates, the role of sourcing is only amplified.

As sourcing matures and becomes the center of the business, the view of sourcing will slowly shift from that of a reactive business unit that aggregates needs and demands into a proactive business unit that is looked upon as an enabler, problem solver, and even forecaster of future trends and consulted by the other units of the business. Thus, understanding new sourcing methodologies to reach out and find sources of innovative solutions, like crowdsourcing, will help you in your quest to become the “heart” of the organization, a role sourcing truly deserves!

For more ideas on how to innovate your purchasing – and your sourcing – see the Next Generation Sourcing wiki-paper over on the e-Sourcing Wiki.

4 Responses to Purchasing Innovation VI: CrowdSourcing

  1. For another take on Crowdsourcing, you can check out Mike Yamamoto’s post on CNet’s Web 2.0 Blog here.

  2. Hi Michael,

    Great article summary. I think you nailed in your last paragraph:

    ‘the view of sourcing will slowly shift from that of a reactive business unit that aggregates needs and demands into a proactive business unit that is looked upon as an enabler, problem solver, and even forecaster of future trends and consulted by the other units of the business’

    That proactive point you make is often lost in the noise and under emphasized.

    We are certainly banking on crowdsourcing to help our business commercialize peoples software ideas at fierce speeds.

    Would love to hear your thoughts and comments about our crowd sourced software company:


    All the best – JR

  3. JR,

    For my take, visit the Sourcing Innovation blog and read “Cambrian House: Crowdsourced Software” posted on July 28, 2006.


  4. Hello, I’m the founder of a new crowdsourcing company which aims to design new innovative electronic products. This can be a revolution on the manufacturing industry. A well experienced team is already working on that project which is getting a lot of sponsor. Look at the blog to get further details : http://cecrowdsourcing.blogspot.com/. Bookmark this address as we have scheduled to launch an official website by the mid of october for joining this promising community.

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