Can Internal Crowdfunding Help Companies Surface Their Best Ideas?

Crowdfunding platforms like Kickstarter and Indiegogo have proven adept at channeling funding –millions of dollars in cases like the Pebble watch – to innovative new products and projects, often by previously unknown inventors and designers. Can larger companies employ the same type of system to find and fund internal innovation?

IBM has been experimenting with such “enterprise crowdfunding,” where the company gives its employees a small budget and encourages them to commit it to each others’ proposed projects. The experiments are the subject of an academic paper by IBM researchers, and the results have been promising, with a few surprises – crowdfunding may help improve morale, for instance. I spoke with one of the authors, Michael Muller about what he and his team have discovered. Following is an edited version of our conversation.

Tell us a bit about the experiments with crowdfunding at IBM.

IBM has been interested in finding different ways to support innovation inside of companies — inside of IBM and inside of clients companies — for a long time. When we bring it inside the enterprise, what we call enterprise crowdfunding, several things are different.

Number one, we don’t have people use their own money An executive allocates a budget to the participants in the experiment. In our first case, a vice president in research allocated $100 to each of the 500 people in his organization. There was a website that was inspired by Internet crowdfunding websites, where members of the organization could propose projects, and members of the organization could take their $100 and spend it on each others’ projects. The trial lasted about a month and the funds where available on a use-it-or-lose-it basis, meaning you could only spend it on somebody else, not on yourself. And at the end of the trial, if you didn’t spend the money you didn’t get to keep it. A second trial in research was at IBM’s Almaden research center [in San Jose, California]. The third trial was in a relatively large IT part of IBM, roughly 5500 people strong.

What kinds of projects were funded?

Many addressed a bunch of technical challenges that we have been having. I don’t think they were new inventions here so much as they were making technology available so that people could have new thoughts around the technology which would then lead to inventions, we hoped. In the first research project people had said that they needed access to a micro-tasking site — an example of this would be Mechanical Turk — and it was hard to negotiate how to do those payments through the standard IBM channels. It was funded and the vice president moved heaven and earth to get that through the IBM purchasing organization. And I have seen conference papers based on the data that were collected through the use of that particular set up. In that case, not only did the project go through, but it’s enabling useful research.

There were also some other projects that addressed morale issues and the culture.

Several of the proposals had to do with things that people would have to do together in order to participate in it.  One was “afternoon beverages”. It was at a standard time and if you came for afternoon beverages you are going to talk to you peers and network.  Another was simple small-scale pieces of athletic equipment, generally speaking for shared use.  The theme seemed to be over and over again, ‘We’ll do this together, we’ll use this together, we’ll talk to each other, we’ll meet each other.’

What was participation like?

We ran this really not knowing what to expect. We knew the standard figures for social media, where about 10% of the people would be pretty active, or at least somewhat active.  Then the 90% of the people would maybe occasionally contribute or mostly look around to see what was going on. We had those kinds of expectations in mind, and what happened really surprised us: we had well over 45% participation.

We had thought, well maybe it’s going to be the case that the higher you are in the organization — the more influential you are — the more likely you are to get funding. We found the reverse, actually. People as high as IBM fellows were making proposals that did not get funded; it was really grassroots.  Since then we have done two other trials and in one of them the effect of rank in the organization was a complete wash, no statistical effect at all.

You found considerable participation across geographies, correct?

Unlike the two research groups, the IT group from the third experiment was geographically distributed across 29 countries and a bunch of different divisions. We thought maybe geography will get in the way, and we found that people collaborated pretty easily across geographical boundaries.  For a proposal that was successfully funded, it was well over eight countries among the various investors.

We felt maybe even though geography didn’t get in the way, maybe people sharing a common geography might still give an extra oomph, and it turned out that [it] did.  If you share the country you are a bit more likely to invest. A few other “things-in-common” worked similarly. If you share the division you are more likely to invest. If you are on the same large-scale international working group or team you are a bit more likely to invest. But none of these stopped people, they just gave people an additional encouragement.

What can you say about the motivation of the participants?

Especially on sites like Kickstarter and Indiegogo, people often invest in order to get something. Many of the product-oriented projects are actually kind of a pre-order, like the famous Pebble watch. We made available to people the ability to specify that if you invest $10 of the money that the vice president gave you, than you’ll get this, if you invest $50 you’ll get that. It turned out very little of that seems to matter to people.  What matters to people is that they can see shared utility amongst themselves, or for clients, or for IBM, or for customers. When we did this project with the IT department, everybody we interviewed knew exactly who is going to benefit from the project; it was almost uncanny the way that they had worked it out. Within the research organization people said things like, ‘There are projects here that can benefit all of us’; ‘I need access to these resources and I am not the only one.’ The individualistic model based on Internet experiences was transformed, behind the firewall, in to a series of community projects.

What about follow-through on the projects? And how did you deal with the allotment of staff time toward funded projects?

Not everything is completed — I think more than 50% is — but we don’t have as accurate a tracking on that as I wish we did. In the Research crowdfunding trials, if people got their funding, then they had to run the projects while they still did the rest of their jobs.

The IT department was again different. By allowing you to propose the project they were making a commitment that they could spare you for some percentage of your time, if the project was approved.

So what do we know about where this will work?

If the individual budget for a person is $100 or is $2,000, it works. If the domain of the projects you can propose is wide open, or if it is limited to software technology innovation projects, it works.  It works if there is no limit on how much or how little a budget can be, or if there are strict rules.  It seems to be very flexible.

What don’t we yet know?

We don’t know how big is too big, how little is too little.  We don’t really have a sense yet of what correct amount of money to allocate per person in order to get a budget spent.  I think we want to do more work on your question, which was a follow-through question. Are there projects that are doomed at the outset and shouldn’t be allowed in?  We don’t know that yet. We think that enterprise crowdfunding increases employee engagement, but we don’t really have the numbers to prove that.

What advice would you give companies who want to try this?

It’s important for the sponsor to say what kind of innovation he or she wants to see, and what is out of bounds.  Also, organizations should actively campaign to get everybody involved, otherwise money doesn’t get spent, which can at least be fixed by over allocating the money. People should be considering not why the project would be good for them or for a narrow little slice of people, but what the community value of the project is.

We also need active campaigns by the project proposer, and people were extremely ingenious. One of my favorite examples was that the people promoting a 3D printer put up signs next to all of the regular printers, saying: ‘Don’t you wish you were printing on a 3D printer right now?’ They got funded. There was a project in the Almaden research centers in which, because there are some remote members of that organization, people wanted to set up social robotics, a robot on wheels that could run around the corridors and be the social presence of the remote researcher.  They went out and borrowed one, and it went up and down in the corridors and advertised the project. And they got funded.

It was definitely the wisdom of the crowd speaking here. One of our old IBM mantras goes: ‘None of us is as smart as all of us.’ We really need all of our brains engaged on these things.

Source: Harvard Business Review