Below is Chapter 3 from my book Getting Results From Crowds 2nd Edition, provided as a resource for those looking at using crowdsourcing in their organization or tasked with building an internal business case.

The business value of using crowds

Through history, companies have been limited in what they can achieve through the scope of their internal resources and how well they can draw on external resources. Crowdsourcing has the potential to create enormous value for businesses by giving easy access to an essentially unlimited pool of talent and capabilities. Those organizations that have the skills and competences to draw on external crowds, as well as in tapping the best ideas from their ‘internal crowds’, have an immense advantage over those companies that rely solely on their internal resources and traditional service firms.

While there are many potential benefits of using crowds, there are five primary outcomes that create the most value for organizations.

1. Increase flexibility

A major benefit of using crowd work is that it is available on demand, and so is fully scalable from nothing to extremely high levels as required. Particularly for smaller organizations, this means they do not need to hire people into specific roles when they do not need a full-time person in that function, or can’t anticipate their future need for that role.

This is particularly important for startups or when companies are trying new ventures that may or may not succeed. They can draw on resources as needed to establish the project. If it doesn’t work, they can easily close it down, whereas if it does work, they can very quickly scale up the operations.

2. Access talent and ideas

Even the largest organizations in the world recognize they do not have all the talent they require internally. Drawing on crowds gives access to a vast global pool of talent, some of which will be perfectly suited to your requirements. That talent may not always be as inexpensive as some newcomers to crowdsourcing expect, but it is available to companies as never before.

One of the principles of crowdsourcing is that market mechanisms can help match needs and solutions. In distributed innovation, where companies are looking for highly specific insights and solutions, a large proportion of the winning ideas come from people who already had a good idea of the answer. The ideas you need probably already exist; now you have the mechanisms to access them.

3. Reduce costs

There are a variety of ways in which using crowds can reduce costs, including substituting expensive professional service firms with lower cost service providers, ensuring simple, low-level tasks are not being done by high-cost internal staff, and lowering the costs involved in innovation and product development.

In some cases these cost savings can be substantial. As noted below it is important to note that there can also be costs associated with tapping crowds. And as emphasized throughout this book, focusing solely on cost reduction is unlikely to lead to the best outcomes.

4. Increase capabilities

In many cases companies can build capabilities and undertake initiatives that simply would not have been possible without access to external crowds. For example, services that require a pool of specialists or need to be rapidly scaled can only be delivered by large companies, or those with flexible access to crowds. Microtasks enable tasks and service that simply would not have been possible previously.

In addition, crowdfunding can support a wide range of ventures that would not have been feasible through traditional fundraising mechanisms.

5. Reduce time to market

As the pressure increases on companies to bring new products and services to market faster, crowdsourcing provides valuable support in bringing to bear whatever resources are required. These can be applied to both product development work and project management functions, as well as the myriad administrative and marketing tasks that are required.

While the transaction costs of dealing with crowds limit how quickly resources can be brought in to projects, those companies with experience using crowds and established relationships can often support substantially faster project delivery.

Building a business case for using crowds

In most cases organizations will start to use crowds for specific instances, and expand from that narrow starting point once the value has become evident. As such there is usually no significant investment required, and no detailed business case is required.

However in some cases an internal business case needs to be made for new vendors to be used, and for more significant projects, for example prize-based distributed innovation initiatives or new systems that require using vendors APIs to integrate into internal business processes, sufficient investment may be involved to warrant a business case. In any case, it is usually worth carefully considering potential costs or risks as well as the possible value creation before making major shifts in business activities, even if quantification or a formal case is not needed.

A business case always needs to assess potential benefits, potential costs or risks, and also the potential cost of not taking action. In many cases, including implementing crowdsourcing, it is a mistake to focus solely on quantifiable financial costs and outcomes.

Potential costs and risks of using crowds

While there are potentially many benefits of tapping crowds in business, recognize that there are potential costs compared with other approaches, as well as risks. Below is a list of the primary potential costs and risks you should be aware of in using crowds in your business.

Costs	Comment
Learning	Building capabilities in using crowdsourcing effectively requires time and effort.
Quality assurance	Sometimes additional resources need to be allocated to checking quality of external work.
Process implementation	More sophisticated approaches where crowdsourcing platforms and approaches are integrated into existing internal business processes require work and possibly technology development.
Risks
Reduced quality	There is the potential that internal or client-facing work and projects will not meet existing standards.
Project overruns	It is easier for projects to overrun in costs or time if there is less control over the resources on the project.
Loss of intellectual property	There may be greater exposure of intellectual property to theft or loss.
Reduced staff motivation	If the adoption of crowdsourcing is mismanaged then employees could feel their contributions are not valued.
Loss of capabilities	If inappropriate functions are passed over to crowd work then core competences of the organization could erode over time.

Using pilots

In most cases it is very difficult to assess either likely benefits or potential costs of using crowds without having had any practical experience. As such, the best way to build or assess the case for using crowdsourcing is to run pilots with a limited scope, that are designed to identify and capture insights into the value for the business.

As in any pilot project, the usual issues apply of selecting the right projects to start with, involving enthusiastic people who will try to make it work, designing to achieve specific business benefits and generate useful lessons, encouraging experimentation, and creating visibility. A clear timeframe should be set after which a decision is made to cut, continue, redefine, or expand.

Using crowds in small business and big business

Over the last decade, crowdsourcing in various guises has had a substantial impact on how business is conducted across companies large and small. However current and future approaches to crowdsourcing are quite different depending on the size of the company.

More recently uptake has been significantly stronger within small organizations than larger companies. The visibility of crowdsourced services has dramatically increased over the last few years. The very obvious benefits of drawing on crowds has attracted those companies that are most easily able to change their work processes.

Small business use of crowds

Service marketplaces and competition platforms are the two types of crowdsourcing most used by small and mid-sized business. There are minimal barriers to using these services, with immediate benefits in terms of broadening access to providers and achieving competitive costs.

In smaller organizations business owners can readily drive change and adopt new ways of working, which makes the adoption of crowdsourcing easier.

Creative individuals and groups in domains such as film, music, and design usually have significant financial constraints, though also often have access to broad communities, sometimes of keen fans. This supports both crowdsourcing the creative process, as well as the use of crowdfunding, which to date has been largely of creative ventures.

Moving forward, it is likely that small and mid-sized businesses will start use other types of crowdsourcing to a greater degree, supported by the emergence of platforms designed for that market. Microtasks and distributed innovation are both areas likely to experience strong growth in the smaller business market.

Big business use of crowds

The most prominent early examples of large companies tapping crowds has been in distributed innovation, often described as ‘open innovation’. Procter & Gamble, IBM, Eli Lilly, and Boeing are some of the companies that for over a decade have been tapping large numbers of external scientists and researchers to drive their new product and innovation pipelines. These have included both internally driven initiatives such as Procter & Gamble’s R&D Connect program or IBM’s alphaWorks, and establishing and using open platforms such as Innocentive.

Public competitions in which significant prizes are offered have long been part of the business landscape. Increasingly these will shift onto competition platforms to become part of a broader landscape of competitions and competitors that are used to drive business value.

Idea platforms that help to identify, filter, and action ideas from within and sometimes beyond an organization’s employees have been used for well over a decade, however are gradually becoming more commonplace. Alongside these, prediction markets are well-suited to use within large companies as they need a significant minimum threshold of participation to achieve meaningful results.

Crowdsourcing aggregators are often ideal for large organizations, as they usually include the associated professional services needed to design and run larger crowd tasks. More generally the use of microtasks is rapidly rising as a way to contain costs and expand capabilities in a variety of arenas.

While so far larger organizations have tended to quite specific use of crowd approaches focused on innovation, we are seeing an increasing number of big companies start to use service marketplaces to assist work processes. Moving forward, we believe many large organizations will place a high priority on creating value from internal and external crowds.