In my previous post, I wondered why as efficient innovation tool as it is, crowdsourcing is still seldom used by organizations. I offered two answers to this question. First, formulating a question to crowdsource requires careful deconstruction of the underlying technological or business problem, a skill that many organizations simply don’t possess. Second, there are so many different commercially available crowdsourcing platforms that just navigating this marketplace makes your head spin. And make no mistake: choosing ‘wrong’ platform will almost certainly derail your crowdsourcing campaign.
A friend of mine, who read the post, made a shrewd comment. Before complaining that crowdsourcing is seldom used, he said, you should first prove that crowdsourcing is really efficient and, better yet, cost efficient enough for organizations to want using it.
My friend is right. I too strongly believe that crowdsourcing must prove its economic worth to become a mainstream innovation tool. In other words, we need a proof that crowdsourcing can solve problems in more cost-effective way than other innovation approaches. That turns out to be not as easy as it might seem: economic analyses of crowdsourcing campaigns, whether successful or not, are almost never publicly disclosed. That’s why it’s so important to review a couple of publicly available case studies.
A 2010 case study analyzed the return on investment (ROI) realized by a multinational agricultural company Syngenta when using a crowdsourcing platform provided by InnoCentive, an open innovation intermediary. The analysis identified a number of benefits gained by Syngenta from the cooperation with InnoCentive, including cost savings from finding solutions to R&D problems and reduction in intellectual property transfer time. The total value of these benefits was estimated at $11,861,688 over three years. Given that the total cost of using the InnoCentive services over the same period amounted to $4,200,567, a three-year, risk-adjusted ROI for Syngenta was 182%, with a payback period of fewer than two months. Not bad.
More recently, a showcase for the economic prowess of crowdsourcing came from Harvard Medical School. For one of their research projects, the HMS scientists used the MegaBLAST algorithm to process DNA sequencing information; the working capacity of the algorithm was 100,000 sequences processed in 4 hours and 20 minutes. In order to increase the speed of processing, HMS hired a full-time developer (with the annual salary of $120,000), who lowered the processing time to 47 minutes, a 5.5-fold improvement. Because this was still too slow, HMS launched a crowdsourcing campaign offering $6,000 in prize money for further improvements of the algorithm. The campaign that lasted only two weeks resulted in 122 submissions coming from 69 countries. The winning algorithm was capable of processing 100,000 sequences in 16 seconds, a 1,000-fold improvement over the original MegaBLAST algorithm and a 180-fold improvement over the algorithm developed in-house. Taken into account a 20-fold difference in labor expenses ($120,000 vs. $6,000), the HMS crowdsourcing campaign was overall 3,600-fold more cost-effective than the internal approach. Think about it: 3,600-fold more cost-effective than the internal approach.
There are at least two factors making crowdsourcing so cost-effective. First, every organization has limited resources to allocate to solving a particular problem. As a result, the problem is solved in a sequential manner, with only one or a few approaches being tried at the same time, which increase the total project time. In contrast, when crowdsourcing, you engage a large number of independent “teams,” all of them working in parallel. As a result, shorter time is needed to try a large number of solutions to identify the correct one.
Second, and much more importantly, organizations must pay for any attempt at solving a problem, whether successful or not, which drives the cost of the internal problem-solving. In contrast, when running a crowdsourcing campaigns, you pay only for the successful solution, ignoring the cost of unsuccessful attempts.
This combination of running in parallel a large number of problem-solving tries with paying only for the successful try makes crowdsourcing so cost-effective.
Image credit: “The Moneychanger and His Wife” by Marinus van Reymerswaele (https://themathematicaltourist.wordpress.com/tag/counting/page/3/)