Allan Afuah - Creating and Capturing Value Through Crowdsourcing

Figure 1. Percentage of R&D performed by companies of different sizes, 19812011

Sources: National Science Foundation, Science Resource Studies, Survey of Industrial Research Development 1999, 2001, 2003, 2006, 2008, 2011.

This chart shows that large firms with more than 25,000 employees were responsible for 70% of the industrial R&D spending done in the US in 1981. But their share of R&D spending shrank by half to 35% in 2007. In contrast, small firms with less than 1,000 employees increased their share of R&D spending from 4% to 24% during that period. Note that large firms are still important in industrial R&D because their share is still very big (35%). The amount of R&D spending in large firms increased from $21.2 billion in 1981 to $94.8 billion in 2011, a factor of 4.

However, the increase in R&D expenditures of small firms is even more impressive. Firms with less than 1,000 employees spent $64.7 billion on R&D in 2011 compared to $1.3 billion in 198150 times as much spending! Another way to look at this is smaller firm R&D spending overall has grown 10 times as fast as large company spending over these 26 years. Clearly, the world of innovation has changed.

You can see this new, deeper division of innovation labor in practice, as well as in the statistics. IBM now makes more money from its services business (where it supports the hardware and software of many other companies, including its competitors) than it does from its traditional product businesses. Cell phone manufacturers strive to attract applications developers to their platforms to boost the range and quality of services that customers can install on their phones. The pharmaceutical industry now licenses in most of its compounds in its product pipeline from external sources such as universities and young biotech firms, rather than carrying projects from the laboratory bench all the way through to market. Auto makers now rely primarily upon their suppliers and their suppliers suppliers for new innovations.

Within this overall shift toward more open innovation, crowdsourcing is also growing in importance. The fundamental insight underlying crowdsourcingwhich is shared by open innovationis that useful knowledge is widely distributed around the world. No one has a monopoly on that knowledge. Once you accept that, you must face the question of how best to access the wealth of knowledge around the globe.

Crowdsourcing is a powerful answer to that question. Done right, it taps into the knowledge, creativity, insight, and skill of the world around you. It can find solutions to previously intractable problems. It can help you predict next months sales, or next seasons fashions. It can improve the management of your supply chain. It can enhance your customers experience of your products and services. It even frequently outperforms polling in predicting the winners of elections. And often these improved outcomes can be created with surprisingly modest investments.

You will read about many crowdsourcing examples in this book, so I will confine myself here to one, the company Innocentive. Innocentive has built an online network of more than 200,000 people around the world who go to its website to consider challenges that companies have posted prizes to have solved. These problems are usually technical in nature, and quite difficult to solve, which is why leading companies that have not found answers internally have reached out to the Innocentive community for solutions.