Making a successful shift to open innovation requires some behavioural and attitude changes and new technology adoption, but when done right the rewards can be enormous.

We’ve worked on and studied dozens of crowdsourcing initiatives, and while we, and everyone involved with crowdsourcing, continue to learn on a daily basis, there are some emerging guiding principals that seem to lead to crowdsourcing success. On the surface, crowdsourcing seems easy – shout a question out to the crowd, get their ideas and allow them to vote on the best. But we’ve found that for true performance and profit driving results, you need to pay attention to these principals:

#1 – Right Purpose
Call to the crowd for insight you will act on

A little bit of time up front in planning out your Crowdsource campaign can dramatically increase the value you will derive from it. Just like in the early days of e-commerce, the companies that truly benefited from the online business shift were those that well conceived the potential of the technology applied to their business problems, market and organizational behaviors. For high ROI crowdsourcing you need to be clear on: What issues or opportunities facing your organization can a crowd answer for you? Where can you improve product development, R&D, policy development, your brand positioning or market research by adopting open innovation? And as important, who are the leaders in your organization that will champion and commit to acting on the input from the crowd. There is no law that says you have to implement what the crowd decides, but you need to be ready to acknowledge the crowd’s input and broadcast the action you are taking and why.

Take heart, crowdsourcing is not new and the early adopters have already proven its value. Since 2002, British Telecom has used open innovation to source innovations externally from suppliers, partners and academia, which have contributed £500m in potential new product and services revenues. BT also uses crowdsourcing internally has reached out to employees for ideas on methods or products to improve service delivery and lower costs. BT rewards employees by sharing the value of the idea – paying out up to 10 per cent of the savings or additional income generated by the initiative to a maximum of £30,000.

#2 Right Call
Tell the crowd what you want from them

‘Find a new way to sweep floors.’ That was the call that led the crowd to suggest the Swiffer concept to Proctor and Gamble. Once you know the problem the crowd can help with, and pick the crowd to tap, you need to nail the question that is both provocative and specific to get people to contribute.

The calls need not be meaningful to the broad public. “Method to identify specific lactobacillus strains in clinical samples,” “Portable detector of specific DNA sequences” – These are just some of the dozens of calls put out to the research and scientists that make up the more than 100,000-member InnoCentive community.

At the same time, the call needs to provide context for the crowd. If the call is too vague, your results will also be vague. Give the crowd room to get creative, but at the same time, make sure the call leads in the direction you want to head. A lesson here can be learned from Heinz. In their original Top This TV challenge, they weren’t specific on what would and wouldn’t be acceptable in terms of profanity, brand values and so on for crowd contributed TV ad ideas. There will always be contributions from the crowd that are off the mark, but you can improve the quality of crowd input by offering clear submission requirements up front. And remember, you can always ask post further calls to the crowd, so don’t try to solve all of your problems in one call!

#3 Right Crowd
Crowd needs to be diverse and qualified

If you had access to every genius on any given topic, you would likely get very accurate answers to questions. The problem is, as Bill Joy Cofounder Sun Microsystems says, “No matter who you are, most of the smartest people work for someone else.” So is there a better way to get to genius results?

Crowdsourcing is built on the scientific premise that the most consistently accurate answers come from a crowd diverse enough to go at a question from different angles without the inherent bias of like-thinking people. This smart crowd outcome is referred to as “collective intelligence.” To achieve it, the crowd needs to be qualified. To solve a pharmaceutical problem for example you don’t necessarily need working scientists, but people with at least hobbyist knowledge in biochemistry. The basic rule of thumb is the crowd members should at least be somewhat knowledgeable about the topic of the call. What is the minimum membership for a crowd to deliver true intelligence? The jury is still out. Crowdsourcing guru Jeff Howe suggests 5000 people. Some say it could be fewer.

You need not be mega-consumer brand calling to the public to benefit from crowdsourcing. Private crowdsourcing where the crowd is made up of partners, an existing crowdsourcing community like ChallengePost, or your employees are just as successful. For its CoolSW (cool software) initiative, Intel tapped its 80,000 employees to help find “next to win” companies for Intel to get its chips inside and invest in. Employees across the company, from marketing to manufacturing, new interns to VPs, were invited to suggest and vote on who they thought were up-and-coming winners. Employees brought email provider Zimbra to the company’s attention. Intel invested in them and soon after Zimbra was acquired by Yahoo.

#4 Right Incentives
Glory, ego, altruism, greed – feed the crowd’s needs

The right incentives have been proven to attract and keep participation high.
Cash prize based crowdsourcing, like the $10 million+ X Prize award given to the first team to achieve a specific goal which has the potential to benefit humanity, are gaining popularity and are conveniently valuable anywhere in the world. However, prizes need not be this big, or even in cash. There are many other forms of incentives to consider such as including a partner relationship with a reseller, an introduction to a hard to reach government agency or corporation, financing for an idea, or exposure at an industry-shaping event or in the media. Ask any entrepreneur who successfully competed for investment on The Dragon’s Den and they are likely to share that even without the investment, the exposure on national television was a boon.

Beware focusing too much on picking the right prize or reward is a wise caution offered by most crowdsourcing experts. The prize alone won’t make your open innovation successful. But it’s still a vital to get right as a component in your crowdsourcing effort. To pick the right reward for your crowdsourcing initiative, start by doing some math on the value of the answer that you are seeking to your organization, add in the value of the new relationships or market knowledge that the crowdsourcing will deliver. On the other side of the equation, consider the crowd contributors that you will need to attract and ask what’s required to motivate them. It’s worth noting the finding of The McKinsey & Company Report. And the winner is… “One of prizes’ great strengths is their ability to attract investments from competitors many times greater than the cost of delivering and awarding a prize.”

Not everyone is going to win. How do you get people to participate and stay contributing through the process? Beyond the reward that goes to the one winner, and perhaps two or three runners up, there need to be perks along the way for participating and contributing high value. Motivational incentives can take the form of badges, points (a currency unique to your community), spotlighting or heightened profile in your promotions and in the community. Pace the distribution and variety of these perks based on a keen x-ray of the fame, fortune, glory and altruism characteristics of your crowd members.

#5 Right Model
Identify the output needed from the crowd

The models proven for crowdsourcing include harnessing crowd wisdom, crowd production and crowd funding. What you need from the crowd – ideas, something solved, or funds – determine which model is the best fit for your business.

Perhaps like American Idol or NY1 – you have a short list of options and you want the crowd to take the risk out of picking the right one. This crowd contribution of ideas and most importantly filtering to the winner is often called wisdom of the crowd. Sony uses it with American Idol to have music buyers tell them in advance which artist they want to listen to. This has contributed multi-millions to Sony’s bottom line from sure to go platinum albums. New York television news program NY1, posts possible news headlines for the day on their website and asks viewers what they most want see on the news that night. Both NY1 and Sony are seeking to take the risk out of appealing to consumers. They let the crowd preview products without the full cash outlaying of going to market. A twist on this is the MyStarbucks Idea website. Starbucks doesn’t pre-create the ideas for rank, but it knows the areas of innovation that drive its success and ask the crowd for input on those topics.

Open innovation can result in more than ideas; it can provide solutions to problems otherwise impossible or too time or cost consuming to tackle. Research breakthroughs, scientific advancement, product innovation methods, and process and service improvement solutions have all been achieved by world-leading organizations calling to the crowd. An example underway is the contest to improve the movie recommendation system of U.S. online movie rental giant, Netflix. Their ability to suggest great movies to members is a major contributor to their market success. With the Netflix Prize they called to the crowd to improve the accuracy of their system’s predictions by 10 per cent plus. They are blunt in stating that the challenge is hard (or else they would have solved it themselves!) and offer competing teams a $1 million grand prize plus $50,000 Progress Prize each year the contest runs to keep contestants motivated. At the time of publishing this article, Netflix has received 44,014 valid submissions from 5,169 different teams and has registered contestants from 186 different countries.

What if it’s not ideas or solutions that are an obstacle for your organization but capital? Perhaps the least prolific and some would stay yet-to-mature, crowdsourcing model focuses on crowdfunding. The idea is to re-invent traditional models of investment that are often elitist, exclusive, bias power on the side of the investor, and shut out people with desire to fund but without major cash on hand or expertise in the process. Passionate advocates see crowdfunding as having the potential to profoundly renovate models of venture capital, non-profit fundraising and entirely cutting out the need for power and profit hording funders in arenas like music and film.

Nonprofit microfinance organization Kiva.org gives donors the means to help finance micro-loans to small business entrepreneurs throughout the developing world. Kiva proven immensely popular with online donors looking for an alternative to traditional charity asks. Kiva raised $1m in its first year, $10m in year two and $40m by the end of its third year in October 2008. In the music world, Sellaband.com invites fans to contribute in $10 increments to raise the $50k required for their band to record a first album. If the bands prove successful, fan investors can earn their investment back through subsequent music revenues. Stephen Colbert, DonorsChoose.org and the Gates Foundation announced in April 2009 the “Double Your Impact” challenge inviting citizen philanthropists to join them in donating to school projects to assist students in readying for college. Through DonorsChoose.org the crowd picks what they want to fund and for how much, with a 50 percent match from Bill & Melinda and friends.

#6 Right Promotion
Get people in & get them spreading the word

It’s common for people to understand marketing but overlook the importance of direct community recruitment in making crowdsourcing successful.

Naturally, you need to put together an appealing pitch on your crowdsourcing call and use multiple means to get the word out: PR, website, email promo, blog, social media like Twitter and so on. Successful crowdsourcing leaders go beyond promotion though, and directly reach out to recruit crowd members from other existing communities and online social networks. Be clear on the mix of people you need to make your community productive and lively then do a live outreach to other like-minded communities and social networks like LinkedIn, Facebook and MySpace to build relationships with people and share the word about your new community. Make sure your crowdsourcing platform gives your participants easy ways to reach to their crowds and invite them in. Seek out connectors and mavens to join early and tip others into your crowd. Reward them amply and arm them with exciting notifications that get them talking about you.

#7 Right Community Management
Nurture crowd participation and know when to chime in

Successful community management is about the give and take between the crowd host and the community. When Dell put a call out to their crowd for product suggestions they faced passionate agitators that went on a Linux integration rampage. Rather than fight to keep their community quiet, or force them in another direction, Dell started shipping Linux on their computers and earned more than $3 million in direct sales while converting dedicated antagonists into evangelists.

Your community manager (or group of them!) is the human glue of your community. They need to greet all new members, moderate discussions, resolve conflict, be an agent of productivity keeping tasks on track, as well as pose provocative questions to enliven the community and stewarding successful crowdsourcing outcomes (read data mining). Select this person carefully and beware the temptation of thinking someone can do this “on the side.” Community management is both an art and a science and a lot can be taught by people who have done it before. If you don’t have anyone in house with community management experience, think about bringing someone in to train your people, or even hiring outsourced community management.

#8 Right Technology
Features vary, beware one size fits all

You can get everything else right, but without the right crowdsourcing technology your open innovation may flop. One size doesn’t fit all. If you want to run a one-time contest, or do a sophisticated poll with comments, there are quick tools that you can spin up. If you are looking to attract and maintain a crowd for multiple calls over time, or are very serious about data validity and mining it, you need more robust technology.

Things to consider when investigating crowdsourcing products: Do you need anti-bias mechanisms that protect against vote stacking and other crowd activity that can void results? Do you need features that let contributors to reach out via other social media like Twitter and to social networks like Facebook to foster participation and crowd growth? Does your community manager need an instant view into crowd activity that makes it easy to moderate conversations, resolve any conflict and keep members constructively participating? Do you need to be able to apply incentive programs including badges or points, along with cash awards? And if you are seeking to keep a crowd engaged over time, pay serious attention to community features including rich profiling, follow and friend features.

Over time you will learn what is and what isn’t working in your crowdsourcing. Consider The Guardian’s call to the crowd to review 458,832 pages of public records to find MP expenses worthy of investigation. They built a quickie crowdsourcing site using Django and EC2 at little cost, but two months into the crowdsourcing effort, only 45 per cent of the documents are reviewed and the crowd seems to be losing interest. Unfortunately, the technology they used lacks the richness and flexibility for mid-stream re-tuning. If they had chosen higher-powered technology they could now add new incentives, perhaps batch the remaining documents for review in a couple deadline-driven tournaments to reinvigorate the crowdsourcing effort, getting the document review completed and proving they are responsive and dedicated to readers – a wise move for print media these days.

Making the shift

How does an organization get started with open innovation? These principles of crowdsourcing are guidelines to help you set up and run a high impact open innovation initiative. Getting started takes a clear business purpose.

To identify the most valuable opportunities for crowdsourcing within your organization consider:

• Which challenges facing your business is a crowd qualified to answer for you?
• Which crowd has most to contribute to you – perhaps your employees, external partners or the broad public?
• Where can you reduce current organizational costs or improve innovation?
• Who, in your organization, is best to champion calling for and implementing answers from the crowd?

We made a really pretty downloadable PDF version for you too.