Does labor regulation hurt innovation?

Those who believe that government regulations, including labor laws, hurt innovation, please, raise your hand. Wow, quite a few hands raised!

Indeed, the suspicion against regulations is fueled by common belief that they damage economic growth, with which innovation is intimately connected. For example, some scholars have expressed concerns that slower economic growth in Southern European and Latin America countries with heavy labor regulation could be due to reluctance to fund innovation programs because of the burden of labor laws (for references, see here). However, a point of view has been strongly articulated too that if applied effectively, regulation can foster a thriving, competitive marketplace where innovation and technological progress flourish. 

Interestingly, academic literature on the effects of regulation, in particular labor laws, on innovation seems to favor the second, more sanguine point of view.

For example, a 2010 study compared the innovation output in five countries—the U.S., U.K., France, Germany, and India–and found that stronger labor laws positively correlated with a country’s innovation output. Interestingly, this effect was more pronounced in innovation-intensive industries, such as medical devices, than in more traditional industries, such as textile. Equally importantly, the study found that the only dimension of labor laws that had a tangible impact on innovation was the “regulation of dismissal” component, i.e., the ease/difficulty with which employers could dismiss employees.

Another study published by the same authors in 2014 analyzed the impact on innovation of the U.S. wrongful discharge laws (WDL). These laws provide employees with greater protection than employment-at-will, where employees can be terminated with or without just cause. The staggered passage of WDL across the U.S. states created a natural experiment assessing their impact on the innovation output. The study found increase in the number and improved quality of patents issued in the states that adopted WDL, with the effect starting to emerge two years after the WDL passage. As in the previous work, the positive impact on innovation was significant only in highly innovation-intensive industries.

Taken together, both studies indicate that innovation is fostered by laws that limit firms’ ability to discharge their employees at will. The authors call this phenomenon an “insurance effect”: feeling increased protection from negative consequences of failure, employees are more committed to engaging in risky innovative projects.

These findings are fully consistent with a theoretical concept proposed by Berkeley’s Gustavo Manso in 2011. The concept postulates that the optimal incentives motivating employees to innovate must include a combination of tolerance for failures in the short term and reward for success in the long term. Tolerance for early failures allows the employees to take risks at the initial stages of the innovation process without incurring the negative consequences of failed projects. The reward for long-term success encourages the employees to explore risky ideas that may allow them to achieve innovation breakthroughs in more distant future.

In other words, the best way to encourage risk-taking and experimentation is not to “celebrate failures,” as often suggested, but to remove the proverbial Sword of Damocles of punishment for them, something that any firm can easily do by modifying its termination policies.

A recent study adds an additional layer of complexity to the relationship between innovation and regulation. An international team of economists analyzed innovation outputs in France where many labor regulations apply to firms with as few as 50 employees. The authors found that regulations do negatively affect innovation, but in an interesting twist they saw that this regulation negatively affected only incremental, but not radical innovation. Using a sports metaphor, they concluded that “[a] more regulated economy may have less innovation, but when firms do innovate, they tend to ‘swing for the fence’ with more radical…breakthroughs.”

On emotional level, I hate regulations (hey, I grew up in the Soviet Union!). But regulations are part of our lives. There is no point in crying that “structure stifles innovation.” We should instead constantly look for ways to create conditions favoring innovation. Through regulations and otherwise.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

Image credit: Paweł Czerwiński on Unsplash

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Are you bored to death and procrastinating? Good for you!

In my two previous posts (here and here), I argued that the wide-spread belief that we are swimming in an ocean of cheap innovative ideas–solidified in a popular slogan “ideas are a dime a dozen”–is a myth. Available evidence suggests that the U.S. is facing a growing shortage of novel ideas. Worse, the cost of getting these ideas is growing while their quality seems to be declining.

What’s going on? One thing is clear: the quantity and quality of novel ideas are declining because sources of new scientific discoveries are drying up. Although the total U.S. spending on R&D remains steady at 2.5% of GDP, only about 30% of the money comes from the federal government; 70% of it is contributed by the private sector. With its focus on rapid returns, will private sector spend money on fundamental and, therefore, potentially risky R&D projects? No. (Of note, 75% of U.S. venture capital goes to software and 5-10% to biotech. How is the rest of R&D supposed to be funded?). The industry still can generate incrementally innovative combinations of old ideas–which indeed may be plentiful and cheap–but it is unlikely to create breakthrough innovations.

There are hopeful signs that the newly minted Biden administration is going to pay more attention to basic science; yet it may take a while to repair the damage incurred by decades of neglect.

I also feel we must consider another explanation: we have become less creative as a nation.

This fanciful—and I suspect, offensive to many—idea came to me when I recently re-read a 2017 Wired article. The article described a study showing that bored individuals generated more creative ideas than a non-bored control group. The authors of the study argued that boredom might spark creativity because a bored mind craves for stimulation.

The problem is that the proliferation of social media channels eliminated this “bored” state of mind. We are always “busy” playing with our mobile devices, numbing our brains with the constant flow of mostly useless input. Being constantly artificially “on,” our brains refuse to get positively stimulated. By refusing to get and stay bored we become less creative.

There is another human trait that carries significant negative connotation in the workplace and society at large: procrastination. Procrastinating folks are considered inefficient, unproductive, and—oh, the horror!—bad team players.

However, a recent study shows that procrastination may foster creativity. The relationship between procrastination and creativity seems to be inversely U-shaped: test subjects who procrastinated moderately received higher creativity ratings than those who procrastinated less or more. The authors of the study speculate that moderate procrastination sets in motion a mechanism of problem restructuring, which results in the production of more creative ideas.

According to statistical data, the U.S. is the most overworked developed nation in the world. The average productivity per American worker has increased 400% since 1950; yet we’re working the same 40-hour workweek, at least on paper. Of course, we have no time to procrastinate! But what was the price for this spectacular gain in productivity? What if we paid for that by the loss of our creativity?

Now, I’m not saying that in order to become more creative, we have to trash your mobile gadgets and delete time management software from your laptops. What I’m saying is we have to respect our own brain by treating it with occasional spells of a quiet, unrushed deliberation.

Especially, of course, if after a shower, we went out to the garden and sat under an apple tree.

Image credit: on Unsplash

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

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U.S. innovation: a perennial half-full/half-empty glass

In my previous post, I argued that a wide-spread belief that we are swimming in an ocean of cheap innovative ideas – solidified in a popular slogan “ideas are a dime a dozen” — is no more than a myth. Available empirical evidence strongly suggests that we are facing a growing shortage of novel ideas. Worse, the cost of getting these ideas is growing while their quality seems to be declining. Left unchanged, this trend may seriously damage American innovation.

Some folks believe we are already there. In the latest issue of Harvard Business Review, Curtis Carlson sets alarm bells ringing:

Innovation in the United States is highly inefficient. The per capita rate of job creation from new companies has declined for decades, and only 3% of patents are ever commercialized. Most university tech-transfer and start-up incubators lose money…Most venture capital firms…lose money. All this despite the efforts of some 220 university entrepreneurial programs, 6,000 professors and instructors teaching entrepreneurship, 1,400 venture incubators, and billions of dollars a year in government investments.”  

In addition to impeding economic growth, the decline in innovation capabilities may have profound negative consequences for U.S. national security, as highlighted in a recent report, “Innovation and Security. Keeping Our Edge,” composed by the Council on Foreign Relations.

Those who think that Carlson is way too pessimistic have ammunition of their own, however. They may point to the recently released Global Innovation Index 2020, an annual ranking of the world’s innovation capacities. In this year’s list, the United States occupies a respected 3rd place (after Switzerland and Sweden). This is the same spot the U.S. held last year and even a slight improvement over the 6th place in 2018, 4th in 2017, 4th in 2016, and 5th in 2015. Where is evidence of decline?

(As someone obsessed with indexes, I immediately remembered another ranking, the 2019 Global Health Security Index, an assessment of the health security capabilities across 195 nations. The Index specifically focused on nations’ preparedness for infectious disease outbreaks that can lead to pandemics. In an estimate that sounds like a bad joke today, the United States led the world in the overall preparedness score. It also scored the highest in a few specific categories, including Early Detection & Reporting of Epidemics.)

Folks who prefer to believe that the glass of U.S. innovation is at least half-full could refer to an unprecedented speed with which RNA-based anti-COVID-19 vaccines have been developed – along with an impressive list of fast and “frugal” innovations developed in response to the pandemic.

Their opponents take a longer-term view. They argue that virtual working environment, a necessary consequence of the increasingly popular working-from-home approach, damages social networks established in large organizations, which will inevitably have a strong negative effect on corporate innovation. (Another potential danger is the so-called “covidization” of academic research, but this topic deserves a special consideration.)  

I personally see one more troubling aspect: the lack of a strong public U.S. innovation policy. Previously, I found that there is a strong correlation between a country’s innovation potential and the level of democratic developments in this country (as assessed by the Democracy Index 2019). Although all five individual components of the Democracy Index positively correlate with innovation, the strongest correlation occurs for Functioning of Government. And yet, the above-mentioned Council on Foreign Relations’ report specifically criticized current administration for the weak role it plays in shaping the U.S. innovation policy.

One hopes that the incoming Biden administration will start paying appropriate attention to science, technology, and innovation. In the meantime, we must stop fancy ourselves with the chimera of “plentiful and cheap innovation ideas.” Quality ideas are rare and expensive, and it takes a lot of valuable resources to generate a potentially breakthrough idea. No efforts should be spared to understand how to make this process more effective and more efficient.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

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Ideas are a dime a dozen. Are they really?

Any seasoned innovation practitioner would tell you that idea generation is the most straightforward part of the innovation process. Generating ideas is easy, the thinking goes; it is at the stage of testing these ideas and deciding which one to scale into a new venture that the innovation process begins to choke.

Taken to extremes, this mindset feeds the perception that novel ideas are plentiful and cheap. “Ideas are a dime a dozen,” we can often hear. Are they really?

A joint team of researchers from Stanford and MIT has challenged the “plentiful and cheap idea” dogma. They  presented empirical evidence showing that research productivity, a scientific term for a layman’s “idea,” is actually declining. According to the authors’ calculations, research productivity across the whole US economy declines at an average rate of 5.3% per year. More specifically, in semiconductors (the playground of the famous Moore’s Law), research productivity is declining at a rate of 6.8% per year; in agribusiness and pharmaceutical research, the annual decline is about 5.0%.

In other words, contrary to a popular belief, ideas are not plentiful. We are experiencing a growing shortage of ideas instead.

If research productivity is on decline, how then has steady economic growth been sustained? The answer is simple: by rising what economists call research effort, which in layman’s terms means the number of researchers. Indeed, the number of researchers required to achieve the famous doubling, every two years, of the density of computer chips (Moore’s Law) is more than 18 times larger today than it was in the early 1970s.

In some areas of agricultural research, the number of scientists has risen 23-fold between 1969 and 2009. And while research productivity responsible for the drugs approved by the FDA between 1970 and 2015 has been declining at an annual rate of 3.5%, this decline was offset by the 6.0% annual growth in the number of involved researchers.

Now, if the number of ideas is declining while the number of people generating them is growing, how can these ideas be cheap? They cannot. The ideas are becoming more, not less, expensive.

One can hope that at least the quality of novel ideas remains high. Alas, there is little evidence supporting this intellectual refuge. Consider this: by the end of 2019, the venture capital industry had accumulated a whopping $121 billion in so-called “dry powder,” the money for which venture capitalists failed to find ideas to invest in. So much for plentiful and cheap innovative ideas! 

Let’s ponder for a minute over this fundamental question: where should novel ideas come from in the first place? The answer looks obvious: from R&D, where else?

Exactly, and here is the root of the problem. In the decades that followed World War II, entirely new sectors of the U.S. economy have been created, such as jet aircraft, modern-day pharmaceuticals, microelectronics, satellites, and digital computers. All these developments happened thanks to a heavy infusion of public money, with the federal government contributing more than 50% of R&D expenses.

Although the total US spending on R&D has remained steady for the past years, at 2.5% of GDP, only about 30% of the money now comes from the federal government; 70% of it is contributed by the private sector. With its focus on rapid ROI and the competition, will private sector spend money on fundamental – and, therefore, inevitably long-term and potentially risky – R&D projects? No.

The quality of novel ideas is declining because sources of new scientific discoveries in the United States are gradually drying up. Yes, the industry can still generate incrementally innovative combinations of old ideas – which indeed may already be plentiful and cheap – but it will fail to create breakthrough innovations.

We need a renewed focus on idea generation. We need to highlight current gaps in our scientific knowledge and to draw a step-by-step roadmap to bridging these gaps – with sources of funding clearly identified. We need to resume spending public money on R&D at the level that ensured the U.S. domination in innovation in the past.

It is time to bring “idea” back to innovation.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

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Why I Don’t Like the Term “Innovator’s DNA”

And just as each person’s physical DNA is unique, each individual we studied had a unique innovator’s DNA for generating breakthrough business ideas.”

This is a line from the influential HBR article written by Jeffrey Dyer, Hal Gregersen, and the late Clayton Christensen back in 2009. The inspiring image created by article has gone viral, and the term “innovator’s DNA” has become an innovation management buzzword. Google “innovation is in our DNA” and you would be surprised how many people and organizations have more than just adenine, guanine, cytosine, and thymine in their DNA.

Sure, I know that every popular business term immediately becomes a powerful magnet for clichés. Innovation is hardly an exception, and yet I think that mixing innovation with DNA is a bad idea and that “innovator’s DNA” is an awkward term.

To begin with, ascribing innovative (or any other) abilities of a person to her DNA implies that DNA is the sole determinant of who this person is. This simply is not true: our features are the result of a combined action of two major factors: our genetic material (represented by DNA) and our environment.

The relative importance of each factor varies for a particular feature. For example, the color of our eyes or the curliness of our hair are almost exclusively determined by our DNA. But other features, such as our behavior or predisposition to diseases, are greatly influenced by external factors, such as a lifestyle. A general rule is that the more complex the human trait, the more it is influenced by environmental factors.

There is, therefore, every reason to believe that our ability to innovate, a complex cognitive and behavioral feature, is predominantly determined by our environment. You’re an innovator not because you were born with innovator’s DNA. You’re an innovator because you’ve been exposed to innovation environment.

Second, it is fair to say that innovation is about change. Innovators must rapidly respond to changing business conditions, promptly adapt to shifting consumer preferences, and closely follow technology developments. It is also fair to say that innovation is about trying and failing. The only other cliché that comes close in popularity to innovator’s DNA is our obsession with failures (which we love to celebrate but hate to commit). 

At the same time, by virtue of it being the guardian of our genetic code, DNA is extremely stable molecule. Do you know that there are only 0.3 errors produced every time the whole human genome is reproduced – and the human genome consists of more than 3 billion elements? Sure, I can see why holders of Six Sigma Black Belts would worship DNA, but I do feel that innovation practitioners should be looking for inspiration somewhere else.

By the way, my sincere congratulations to Jennifer Doudna and Emmanuelle Charpentier for winning this year’s Nobel Prize in Chemistry for CRISP gene editing tool. You are true innovators, ladies! And you work with DNA.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

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Crowdsourcing: An Innovation Tool to Overcome the Limits of Remote Work

(A version of this article was originally posted to the Qmarkets blog)

The unprecedented shock caused by the COVID-19 pandemic has forced many organizations to change the ways they do business. Almost every business operation has been affected: from the manner firms talk to their customers to the logistics of product delivery to maintaining channels of communication between employees.

Corporate Innovation: A Victim of Remote Work?

Corporate innovation will not be spared the troubles of adjusting to the “new normal.”

One danger corporate innovation teams may be already facing is quite trivial: reduced R&D/innovation budgets, a measure that myopic managers routinely resort to in times of economic hardship. Another danger might not be as evident yet, could turn to be much more damaging long-term: the sharp increase in remote work.

Initial reports painted quite a rosy picture of the remote work experiment. According to data presented by Upwork back in April, more than half of the American workers were working from home, with almost 60% of managers saying that “the shift to remote work has gone better than expected.” Some big tech companies went as far as to allow willing employees to work from home either permanently or for a foreseeable future.

But voices of caution and concern are getting louder, too. To begin with, not every job, however “digitized,” can be done from home. Adding to that, remote work dramatically reduces the level of interaction between employees. As a result, personal relationships suffer, internal networks shrink, and the whole organization becomes less interconnected. Experts warn that less connected networks reduce employees’ sense of their commitment to one another and to the organization. They also suggest that extended online communication may foster more self-serving behavior and even dishonesty. Besides, less information is known to be shared in online communication, increasing the likelihood of poor decision-making.

It’s highly unlikely that the hastily written Upwork report was capable – or even attempting – to consider the long-term effects of massive and prolonged remote work on organizational performance and wellbeing.

The Power of Serendipity

And then, there is a feature of innovation that sets it aside from some other corporate activities: its unique dependence on face-to-face interaction.

Remember Marissa Mayer, who, shortly after becoming the CEO of Yahoo, banned Yahoo’s employees from working from home? Amid the storm of condemnation that followed Mayer’s move, an important line in the memo announcing the ban has been completely overlooked:

“Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings.”

As a former Googler, Mayer knew that innovation requires collaboration, and both thrive on serendipity.

The role that serendipity – generally understood as the process of making an important discovery while looking for something else – plays in innovation is complex, nuanced, and obviously lies outside the scope of this article.

Yet, it’s important to remember that the so-called serendipitous encountersunplanned interactions between employees working in close proximity to each other, represent one of the driving forces of innovation. They are believed to play a central role in the development of new collaborative partnerships that are crucial for the sustained corporate innovation process.

With so many employees working remotely – and the remote work itself becoming a permanent fixture, not a temporary fix – how can the occurrence of serendipitous encounters be preserved? How can you occasionally “bump” into someone in a hallway when all your meetings are scheduled in advance on Zoom?

Technology, of course, can help. Two promising approaches could be considered:

1. Creating a virtual reality office that employees could visit via realistic, high-quality avatars. Spatial, an NYC-based startup, allows its clients to share a virtual room using just a web link so that users can “drop-in” with just a web browser and even without a special headset.

2. Enterprise-wide adoption of networking apps allowing the random matching of the firms’ employees.

Besides, as organizations begin to return to the office space and adopt “hybrid’ approaches of mixing in-office and remote work arrangements, some face-to-face communications will gradually resume easing the pain of extreme isolation.

In addition, firms should not neglect a time-tested approach that by its very nature is designed to let large groups of people innovate together without facing each other – crowdsourcing.

Crowdsourcing Challenges and Opportunities

Crowdsourcing is a process of assigning internal jobs to external crowds of people in the form of an open call. Over the past 10-15 years, numerous organizations – including corporations, governmental agencies, and nonprofits – have adopted crowdsourcing as an open innovation tool to help them address their most pressing technical and business challenges.

By the virtue of using online platforms, crowdsourcing lets organizations bring together large groups of remotely working people around a single innovation project. Not only does this minimize costs – and in times of pandemics, complications – of in-person interactions; outsourcing the problem-solving process to a diverse crowd of external solvers, often results in highly original, often completely unorthodox, solutions.

In times of uncertainty, crowdsourcing should become an indispensable ideation tool allowing organizations to define the contours of their “new normal.” Two major crowdsourcing approaches can be used depending on specific objectives:

Internal crowdsourcing, an approach engaging the “internal crowd” of the organization’s own employees (and, perhaps, a close circle of academic and business partners, suppliers, lead users, etc.). This approach has been proven effective in finding new ways of optimizing operations and cutting costs. Many firms can also benefit from internal crowdsourcing to perfect their remote work processes. These benefits of crowdsourcing may be especially in demand today that the organizations cut their commitments to innovation and focus instead on short-term issues related to their core business.

External crowdsourcing, the more traditional form of crowdsourcing is still an excellent tool to facilitate new product development. In addition, crowdsourcing can be used to spot the so-called weak signals, early signs of shifting customer demand and newly emerging consumer needs. Later, these weak signals can serve as input to scenario planning, a disciplined process of discovering new opportunities and updating strategic plans.

Of course, crowdsourcing will never fully replicate real human interaction and those serendipitous moments. But if working from home is to become a permanent fixture for many businesses across the globe, strategies must be put in place to rectify this. And crowdsourcing is one of these strategies.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

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What Will Crowdsourcing Look Like in 10 Years?

(This piece was originally posted to the HeroX blog)

There is a popular joke (attributed to Niels Bohr): “It is difficult to make predictions, especially about the future.” And at times of uncertainty that we’re all living through, predicting the future is even more daunting. But guessing about what will come tomorrow is human nature. Besides, businesses use predictions to plan their next steps and foresee new opportunities and threats. As Gideon Litchfield wrote in a recent issue of MIT Technology Review, “…the point of futurism isn’t to guess the future; it’s to challenge your assumptions about the present so the future doesn’t catch you off guards.”  

Back in July, I reviewed the past decade of crowdsourcing, a tool that numerous organizations around the world, including corporations, governmental agencies, and not-for-profit foundations, use to address complex technical and business problems. In this post, I’ll attempt to predict what crowdsourcing will look like in 10 years.

Crowdsourcing Will Become an Essential Component of the Future of Work

In a recent Gallup study of U.S. workers published by the New York Times, 34 percent of respondents held multiple jobs or had income from one or more self-employment arrangements. What used to be considered an “alternative” employment is rapidly becoming a norm. We’re witnessing the dawn of the future of work in which open talent strategies and horizontal cross-functional teams will be replacing traditional vertical hierarchies and siloed organizational models. 

Crowdsourcing will become an essential component of this structure. Organizations will be using their own employees to perform the “core” activities. But for the tasks they lack internal resources or expertise crowds of independent on-demand contributors will be assembled. Many organizations will start nurturing their own crowds which will be repeatedly used for similar projects and tasks. The future competition will become competition for the quality of the crowds each organization can rapidly assemble to perform an urgent job. 

Crowdsourcing Will Finally Become a Mainstream Open Innovation Tool

In recent years, crowdsourcing has become a popular topic in business publications and social media. Yet, its acceptance as a practical problem-solving tool has been slow. One of the major factors slowing down the acceptance of crowdsourcing is widespread, often completely paralyzing, uncertainty over which technical or business problem can (or can’t) be solved by this approach. In addition, the expansive use of the term “crowdsourcing” has blurred the borders between it and other problem-solving techniques, such as brainstorming. As a result, crowdsourcing is often used in the wrong way, and when the outcome proves disappointing, it is crowdsourcing itself that gets the blame for being “ineffective.”

I predict that in 10 years, academics, business writers, and crowdsourcing practitioners will have finally found efficient ways to educate corporate innovation leaders on the very basics of crowdsourcing (“Crowdsourcing101,” so to speak): definition, typology, infrastructure, processes, success metrics, and incentives for the crowds. Crowdsourcing will become “simple” so that organizations will be capable of practicing it in an intuitive and sustainable way. 

Crowdsourcing Will Be Streamlined by AI/ML Algorithms 

Crowdsourcing of the future will be assisted by advancements in technology, of which using AI/ML tools will be the most obvious development. First, large datasets will be available on both successful and failed crowdsourcing campaigns. Analyzing the data will help identify types of problems most amenable to solving by applying the wisdom of crowds. Moreover, it’ll be possible to design algorithms allowing users to translate their technical or business challenges into specific problem statements with the highest expected levels of success. The same algorithms will tell the users which kind of information they should be ready to provide to the crowd to maximize the odds for the problem to be solved.

Second, algorithms will exist allowing to match a specific problem to a “perfect” crowdsourcing platform. By analyzing a set of problems each platform has dealt with in the past, the reported solution rate, and the size and the composition of the crowd behind the platform, it’ll be eventually possible to automatically generate a list of the most promising platforms to tackle any particular problem. Finally, AI/ML tools allowing rapid creation of sufficiently large and diverse crowds (“crowds-on-demand”) are expected to be developed, too.

Crowdsourcing Will “Invade” Medicine and Law

Although crowdsourcing has been successfully used in many disciplines and professional areas, there are some “islands of resistance” where the progress in the adoption of crowdsourcing has been especially slow. Two such areas are medicine and law, the professional fields dominated by highly educated and trained experts, who are often scornful of the thought that a “bunch of amateurs” can solve a problem that they couldn’t. 

Some positive signs of change have already been spotted in the form of crowdsourcing platforms providing medical help and legal information. Examples are CrowdMed, a crowdsourcing platform providing patients with the online medical diagnosis, and Casetext, a crowdsourced online database of legal information.

I expect this trend to continue. However, the “invasion” of crowdsourcing into medicine and law will require a deep cultural shift on the part of doctors and lawyers. They will have to understand that like any tool, crowdsourcing is not going to “replace” them. Instead, it will make their work more meaningful by taking away routine and repeatable tasks.

The Marketplace of Crowdsourcing Platforms Will Be Consolidated

Complicating the efforts of many organizations to run effective crowdsourcing campaigns is a huge number of different crowdsourcing platforms available in the marketplace, with some experts putting this number at 1,000 worldwide. Obviously, navigating such an ocean of different options is challenging, to say the very least, especially for the organizations new to crowdsourcing. Mistakes are quite often in matching problems organizations want to crowdsource to platforms best suited to deal with each specific problem.

And yet, there has been almost no M&A activity in this space. Fortunately, we’re seeing signs of improvements in this area, too. Last year, HeroX signed a strategic partnership agreement with Ideanco to launch two challenges focused on climate change and food security. In July, the UK idea management company Wazoku bought the crowdsourcing platform InnoCentive.

The trend of consolidating available crowdsourcing services looks promising. I expect that in 10 years, a few large crowdsourcing platforms will emerge, each specializing in solving different types of technical and business problems. At the same time, I have no doubts that new entrants to the crowdsourcing space will keep appearing.

New Forms of Assembling Crowds Will Emerge

As any experienced crowdsourcing practitioner would tell you, crowdsourcing is at its best when it’s applied to a limited-scope problem or task, usually being handled by a single individual or a small team. But in this simplicity lies one of the crowdsourcing’s major limitations: its inability to tackle problems or tasks requiring larger groups of workers, especially if the task on hand cannot be completely defined in advance. 

A few years ago, a group of researchers at Stanford proposed a concept of a “flash organization,” an approach and software to structure crowds like organizations, which allows them to achieve complex and open-ended goals. As far as I know, there are no published examples of organizations using the concept of “flash organizations” to run real-life crowdsourcing projects. I have no doubt that such examples will appear within the next 10 years. No do I have any doubts that new ways of making crowds more agile and effective will emerge.

Crowdsourcing is here to stay. I’d like to finish this piece with another quote (attributed to both Abraham Lincoln and Peter Drucker): “The best way to predict the future is to create it.” By perfecting the way crowdsourcing is being used by organizations, we can help shape the future of this powerful open innovation tool. 

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

Image credit: Drew Beamer on Unsplash

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Innovation in Legacy Companies: Can You Be Big and Nimble at the Same Time?

(This piece was originally posted to the HeroX blog)

Complaints that large legacy companies can’t innovate abound. Some folks go as far as to say that corporate innovation “is broken.”

This is, perhaps, an exaggeration. Large companies are still quite good at what is commonly known as incremental innovation, which is an improvement of already existing products or services; they’re also doing a decent job in streamlining operations and cutting costs. 

However, it’s definitely true that many corporations are much less successful in breakthrough innovation, which is the creation of new products and businesses. Consider this: of 11,000 consumer product launches in North America in 2008-2010, only six had maintained at least 90% percent of sales volume the following year and produced cumulative two-year sales that exceeded $200 million. Only six, which is 0.05%.  

The major reason for this lack of breakthrough innovation abilities seems to be obvious: a hallmark of any successful modern corporation is flawless, impeccable execution. Unfortunately, while perfecting execution and establishing the culture of predictability and control, corporations lose the culture of entrepreneurship, the habit of experimenting and taking risky bets. That’s why breakthrough innovation, with its high rates of uncertainty and failure, struggles to take root in the corporate soil.

The question, therefore, is how large legacy companies can start innovating big again?

Can Large Companies Innovate Like Startups?

Ten years ago, the business world was taken by storm by a concept called “Lean Startup.” Proposed by entrepreneur Eric Ries, the Lean Startup methodology postulated that every startup was in fact an experiment attempting to answer a question. But the question was not “Can this product be built?” but, instead, “Should this product be built?” 

Central to the lean startup methodology was the assumption that by addressing the needs of early customers and building their products and services iteratively, startups could dramatically reduce market risks and sidestep the need for large amounts of initial funding (hence “lean” startup).

So popular the Lean Startup methodology has become that calls started soon for large companies to adopt it, too. Indeed, a number of legacy companies (General Electric, Qualcomm, and Intuit) have responded to these calls by implementing the lean startup methodology.

Unfortunately, the very hallmarks of the Lean Startup methodology – rapid experimentation, iterative testing-learning cycles, and rapid failure – don’t come naturally to many large companies. They excel at executing known business models, not creating them. And “rapid failure” is still an anathema to many corporations, despite loud calls to “celebrate” them 

Of course, some specific Lean Startup techniques – rapid experimentation being, perhaps, the most notable – can and should be adopted by large organizations. But to expect that many of them will be capable of innovating like startups is unrealistic.

It’s All About Ecosystems

Many academics and business practitioners correctly point out that the Lean Startup methodology was created in large part to help startups overcome a paucity of assets. But the paucity of assets is not a problem for big companies. On the contrary, they have plenty of available resources. So instead of trying to imitate startups, the thinking goes, large companies should instead work with them.

A notable proponent of this idea, Michael Docherty, suggests (in his book “Collective Disruption”) that corporations should support breakthrough innovation by creating innovation ecosystems including startups. In this innovation symbiosis of sorts, startups will provide large companies with disruptive ideas along with a playground for testing and early prototyping, whereas large organizations will use their resources to scale up the most viable ideas.

Creating innovation ecosystems or even simply participating in them, doesn’t come naturally to many large corporations, either. And yet, innovation ecosystems are gradually becoming popular both in academic literature and among business practitioners.

It is important to note that the very concept of the innovation ecosystem idea is changing. The current thinking is that innovation ecosystems should include not only large companies and startups, but other interconnected actors, including governments, civil society, small- and medium-sized companies, and universities. Recently, it has become apparent that innovation ecosystems may include even competing enterprises.  A special term “coopetition” has been coined to describe innovation involving competitors.  

Much will have to be learned to make innovation ecosystems a viable approach for large companies to innovate. But a consensus is emerging that this type of corporate innovation will become mainstream.

The Best of Both Worlds: Being “Ambidextrous”

And yet, the idea that large companies can and should engage in breakthrough innovation, in addition to incremental, is far from dead. In 2004, Charles O’Reilly and Michael Tushman wrote an influential paper for the Harvard Business Review titled “The Ambidextrous Organization.” O’Reilly and Tushman argued that corporations don’t have to choose between investing in existing (core) and creating new businesses; they can do both (be “ambidextrous”) by establishing corporate structures supporting both incremental and breakthrough innovation.

To achieve that, companies should learn how to simultaneously “exploit,” i.e., fully utilize its existing capabilities and portfolios (incremental, cost-cutting, and efficiency-focused innovation), and “explore,” i.e., engage in defining goals and targets outside of the scope of their current products, services, and business models (breakthrough innovation).

Appreciating the difficulty of the “exploration” part of the ambidexterity, O’Reilly and Tushman argue that while pretty much every company understands the importance of the ideation part of the innovation process, they routinely fall short in their ability to incubate and scale these ideas. While startups, too, can do a great job in generating novel ideas and incubating them, it is the scaling part of the innovation process – the part that utilizes the company’s sizable assets – that distinguishes the ambidextrous organization from a startup. Putting this simply, ambidextrous organizations can generate and incubate ideas as efficiently as startups, but they can also use their size to successfully scale them up into viable new businesses.

A list of organizations achieving the ambidexterity status is still quite short, but it is growing. A recent publication mentioned a data analytics company LexisNexis; UNIQA, a subsidiary of Austria’s largest insurance company; and the retail giant Walmart as three successful examples of truly ambidextrous organizations.

Being part of an innovation ecosystem and being ambidextrous share a few fundamental features. Both models require openness to external sources of innovation; both require flexibility in relationships with outside partners; and both require the creation of some corporate structures to facilitate the innovation process. It is therefore up to any particular large company to choose the model that best fits its strategy, objectives, and corporate culture. Or, perhaps, a new, “hybrid,” model can be invented combining the best features of the two original concepts.

The one thing is clear regardless: large size should not stop large legacy companies from aspiring to innovate like nimble startups. 

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

Image credit: Annie Spratt on Unsplash 

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Want a Big Idea? Take a Shower and Sit Under the Apple Tree

(This piece was originally posted to the HeroX blog)

I’m really amused by how many people claim that their best creative ideas come to them in the shower. What is so special about the shower being a cradle of creative ideas?

Jokes aside, the issue of creativity lies at the very core of innovation management. Innovation is impossible without ideas. Of course, the whole process only starts with ideas, and many additional steps (idea selection, testing, incubation, scaling up, etc.) are required to convert a “naked” idea into a marketable product or service. But while the implementation part of the innovation has a solid footing in the corporate product development process, it’s the ideation part of it that looks uncertain and unpredictable.

Can we control the creative process? Can we ensure a steady flow of creative ideas at will (or, as they like to say these days, “on-demand”)?

The Myth of “Serendipitous” Discovery

Popular literature is full of stories about crazy geniuses making their great discoveries “by chance,” serendipitously, apparently without even realizing the consequences of their actions.

The most canonic is the one about the great Isaac Newton. One day, the story goes, a young Isaac was sitting beneath an apple tree in his stepfather’s garden. Suddenly, a falling apple hit him on the head. “Eureka!,” cried Newton (or was it another genius on another occasion?) and immediately understood that the very same force that brought the apple toward the ground also kept the moon falling toward the Earth: gravity.

Another story describes a Scottish biologist, Alexander Fleming, who, in 1928, was experimenting with staphylococcal bacteria. One day, Fleming left an uncovered Petri dish infected with bacteria sitting next to an open window (a serious violation of the lab safety protocol, if you ask me). When the dish became contaminated with mold spores, Fleming observed that the bacteria in proximity to the mold colonies were dying. He was able to identify the mold as a member of the Penicillium genus. The door to the invention of the first antibiotic drug was made wide open.

 Closer to modern times is a narrative about Percy Spencer, an engineer at Raytheon. In 1945, Spencer, while fiddling with a microwave-emitting magnetron, found that a chocolate bar in his pocket had melted. Realizing that the microwave radiation of the magnetron was to blame, Spencer invented the microwave oven.

Some folks would interpret these stories as evidence that discoveries happen as a pure piece of good luck. What if it was raining that day and Newton stayed at home instead of stepping out into the garden? What if the apple had missed his head? What if Fleming was not a reckless person and did not leave open a Petri dish with potentially dangerous bacteria? What if Spencer did not like chocolate and carried something else – say, an apple – in his pocket?

These questions, while fueling public interest in science – which is actually a good thing – do not make much sense to any scholar of scientific discoveries. By the time the fateful apple supposedly hit Newton’s head, he, despite his young age, had spent years contemplating the laws governing planet movements. Fleming was a prominent scientist studying factors affecting staphylococcal bacteria growth and wellbeing. And Spencer had a solid experience in working with devices emitting microwaves.

They invented what they invented not because they were lucky, but because they were prepared. Their discoveries could not be predicted in advance; yet, they were inevitable.

The Power of Prepared Minds

True, a discovery may look serendipitous if made by someone with no immediate experience in a particular scientific field. However, academic research finds no compelling evidence that effective problem solving requires precise expertise in a specific topic. Moreover, as shown by Prof. Karim Lakhani of Harvard Business School, a contributor’s likelihood of solving a problem increases with the distance between his or her own field of technical expertise and the problem’s domain.

Take, for example, the story of John Davis, who solved a complex technical challenge proposed by the Oil Spill Recovery Institute. The challenge was to find a method to separate oil that had solidified into a viscous mass with frozen water in recovery barges. John had no background whatsoever in the oil industry but he had one in working with concrete. He remembered a tool that used vibration to keep cement in liquid form during mass cement pours. John realized that by attaching a long pole and inserting the tool into the oil recovery barges, it would keep the oil from freezing into a viscous state and allow the oil to be easily pumped from the barge.

Even more fascinating is the story of Jorge Odon, a middle-aged car mechanic who ran an automobile service center in Lanus, Argentina. One day, Jorge watched a YouTube video showing how to get a loose cork out of the bottom of a wine bottle. Inspired by what he saw, Jorge designed a medical device that could facilitate childbirth during a difficult delivery.

Amazingly enough, Odon had no background in medicine, save for obstetrics in particular; nor did he have any prior exposure to the issue of childbirth complications. But he had a prepared mind and a vivid imagination. And that was enough to make one of the most exciting medical discoveries of our times!

Does Innovation Need ”Structure”?

Talks about serendipitous discoveries might be fun when they are confined to discussing historic figures like Newton and Fleming. Unfortunately, some folks (and organizations) make a step further to claim that because of its serendipitous nature, the whole creative process must remain “unstructured.” Why? Because, they argue, “structure kills creativity.”

I cannot disagree more. The creative process can and should be structured as any other process involving humans. In his excellent book, “Borrowing Brilliance,” David Murray separated the creative thinking process into six steps. Each step has its peculiar set of features and rules, understanding and following which will make you more creative – and your ideas much better. I’d also like to point out the tremendous practical success of the design thinking approach, a formal methodology for creative problem-solving.

I will finish this post by quoting the advertising genius David Ogilvy who, in my opinion, gave the best description of how creativity and structure are connected: “Give me the freedom of a tight brief.”

This is how I interpret what Ogilvy said: Here is a problem we’re trying to solve. Here are the requirements any successful solution must meet. Here are the criteria we’ll apply to select the best solution. And that’s it. Now, go and find this solution. And while so doing, feel free to be creative, innovative, unexpected, unpredictable, unprecedented, uncontrolled, bold, wild, out-of-the-box, and out of mind. And serendipitous too, of course.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

Image credit: Leana Mikah on Unsplash

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Crowdsourcing: Going Above and Beyond Consumer Products

(This piece was originally posted to the HeroX blog)

In the past few years, crowdsourcing has finally come of age as a powerful open innovation tool allowing organizations – including corporations, government agencies, and non-profits – to use external crowds to performs microtasks, generate ideas, and solve complex technical and business problems.

The attention of social media has predictably focused on crowdsourcing campaigns that attracted a lot of publicity. Many folks remember the 2013 Super Bowl Halftime Show featuring Beyoncé. The introduction to the show used more than 500 high-quality images that PepsiCo, the sponsor of the show, crowdsourced from its (and Beyoncé’s) fans. More than 100 million viewers enjoyed the presentation.

Another darling of social media is consumer good products that were created by using crowdsourcing – and there are numerous examples of them. However, crowdsourcing has proven effective in many areas of business of social activities besides consumer products.

Below, I’ll describe some of the consumer products created by crowdsourcing as well as other examples of using crowdsourcing to help people and create value.

Crowdsourcing Can Come in Different Flavors

In 2012, the already-mentioned PepsiCo launched the “Do Us A Flavor” campaign. The goal of the campaign was to crowdsource novel flavors for its flagship Lay’s potato chip brand. Submitted proposals were reviewed by a panel of judges including a couple of celebrities.

The overall ten-month campaign has resulted in 3.8 million submissions. After a few rounds of judging, three flavors were selected as the finalists: Cheesy Garlic Bread, Chicken & Waffles, and Sriracha.

The eventual commercial success of this crowdsourcing campaign has been moderate, if not outright questionable: after an initial spike in sales of chips with new flavors, their sales soon declined; some of the winning chip flavors in various countries have since been discontinued due to weak or inconsistent sales. What can’t be underestimated, though, is that the crowdsourcing campaign had allowed PepsiCo’s to gain valuable insights into consumer preference and behaviors at a reasonably low cost. The company has also generated positive brand awareness – specifically with the millennial population that it was originally struggling to attract. Even more importantly, PepsiCo was able to substantially shorten the product development life cycle: from usual 15-20 months to only 10.

Crowdsourcing Castles, One Brick At a Time

LEGO is, perhaps, the most known non-food brand that employs crowdsourcing to create new products.

To achieve that, LEGO has created an online community of nearly one million members. Users can submit their design ideas (usually consisting of a picture and a short description); they can also vote for ideas submitted by other community members.  If an idea collects 10,000 supporters, it is assessed by the Lego Review Board and may be produced into a real Lego set to be sold to the public.  In this case, the creator receives a 1% royalty on worldwide sales. In a typical year, four new LEGO products originate from the community.

An additional benefit that LEGO enjoys using the crowdsourcing community includes a substantial amount of data on sales trends and consumer sentiments. Moreover, LEGO can spend substantially less money on marketing new products because a lot of excitement has been already generated in the process of their design.

Crowdsourcing on Quirky: What Went Wrong?

Consumer product companies using crowdsourcing to create new products are not always as successful as LEGO. Consider Quirky, a crowdsourcing-driven platform that connects creative individuals with consumer product manufacturers. Launched in 2009 and hailed as a new frontier in product development, Quirky gradually flew into a zone of turbulence and went bankrupt in 2015. Some academics hastened to call Quirky “a case study of crowdsourcing gone wrong.”

Quirky’s business model was very similar to that of LEGO. Members of the community would submit new product ideas, and the community would discuss and rate them. Once Quirky selected the best idea to work on, it broke down the actual product development work into a number of mini-contests on concept designs, naming possibilities, etc.

Unfortunately, Quirky’s management made a number of strategic mistakes. First, Quirky spread too thin: in 2014, it was selling products in over 26 different product categories, which made quality control almost impossible. Second, Quirky offered products across a broad range of categories with a high product turnover. This made it difficult to establish a Quirky brand, which in turn complicated selling Quirky’s products to large retailers.

Finally, by fostering a close relationship with its member community, Quirky has dramatically democratized its decision-making process. While not necessarily bad when it comes to product development, such a decision-by-committee turned to be too cumbersome when the company needed to comply with the demanding requirements of its manufacturing partners.

Those who blame crowdsourcing for Quirky’s downfall should remember that crowdsourcing is not a business model; it’s a front-end-innovation tool, which must not be held responsible for downstream operational mistakes. It is not crowdsourcing that has gone wrong; Quirky has. And, by the way, Quirky was back in business in 2016 and is alive and well today.

Crowdsourcing: from Ebola to COVID-19

When reviewing, a couple of months ago, the past 10 years of crowdsourcing, I mentioned one crowdsourcing campaign that I personally consider one of the most exemplary, both in purpose and design. It is the 2014 Grand Challenge launched by the U.S. Agency for International Development to crowdsource the safe and comfortable protective equipment for healthcare workers battling Ebola.

The hallmark of this campaign has been the precise identification and proper formulation of the question to ask the crowd. Fighting the Ebola pandemic was happening on so many different fronts that it was easy to lose focus and fall in chasing goals that are too broadly defined to be handled by crowdsourcing (like “fighting world hunger”).

So one can only applaud the USAID officials for choosing a perfect target for their anti-Ebola hit. It goes without saying that containing the Ebola outbreak could only succeed if the medical personnel treating Ebola patients were fully protected. However, the personal protective equipment (PPE) available at the time was not suited for the extreme heat and humidity of West Africa, the hotspot of the Ebola pandemic. Very appropriately, the USAID Grand Challenge was seeking “novel PPE or modifications to current PPE that address issues of heat stress and comfort for healthcare workers.” The problem was defined in such a way that even people without any experience in infectious diseases could productively contribute to its solution. No wonder the Challenge has been such a tremendous success.

The Ebola Grand Challenge was and still is a sound example of the ability to successfully use crowdsourcing not only to create novel and attractive consumer products but also to address the most challenging social problems facing humanity at the geopolitical and macroeconomic levels.

Fast-forward to the present. Crowdsourcing has been one of the first and most effective innovation tools to be rapidly deployed to respond to the consequences of the ongoing COVID-19 pandemic. The effect of the solutions generated during these pandemic-related campaigns will be long felt in the future.

Check out my eBook, “We the People of the Crowd…,” a collection of stories about crowdsourcing reflecting my personal experience in working with corporate and nonprofit clients.

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