Crowdsourcing, which represents an open call to a large networked group of individuals, is a unique form of outsourcing. Why though should firms consider conducting crowdsourcing instead of tried and true techniques such as outsourcing?
Multinational corporations throughout the 1990s and 2000s, guided by the tenants of strategic management, such as focusing on sustainable competitive advantages, pursued opportunities to outsource non-core aspects of their business. Companies sought to divest themselves of operations, and their associated facilities, that weren’t
contributing to the bottom line, or were unrelated to the central focus on the company (Gonzales, Dorwin, Gupta, Kalyan, & Schimler, 2004; Porter, 2008). In order to understand why we might crowdsource, we must first understand why we might outsource.
To act strategically a company must align its resources and operations not only to the current state of the external environment (within the business group, the wider industry, and the overall economy), but optimally to the future state of the external environment. Realigning a company’s operations is not an easy task. It is even more difficult when a company attempts to reorganize itself in order to capitalize on a disruptive innovation (Christensen, 1997; Danneels, 2004, 2011). It is expected that a hotel chain like Marriott or Hilton will be able to adjust overtime (through renovations and new builds) to an incremental innovation such as an enclosed pool area, or curved shower rods, but can a company survive a disruptive innovation such as the shift from horse and buggy to automobiles or typewriters to computers? One factor that is crucial in reorienting (and surviving) in an ever-changing environment is a company’s ability to manage its resources (Barney, 1991; Barney & Arikan, 2001). Company’s often lack a rigorous understanding of their own resources and capabilities (Schreyogg & Kliesch-Eberl, 2007). This is especially troubling since a company that doesn’t understand its resources in its present state, will undoubtedly have difficulties in understanding how these same resources can be used in a changed environment. Ultimately the better a company understands its resources, and its ability to manipulate and redeploy them, the more adaptable that company will be. The more adaptable a company is, the more likely it will be able to capitalize on the future state of the market (Hansen &
Wernerfelt, 1989).
One way in which a company can ensure it is more adaptable is to outsource those functions of the business that aren’t contributing to its competitive advantage. Simply put, a competitive advantage is a company’s ability to outperform all of its competitors in one or more of its value-chain activities, where a value-chain consists of those activities that are performed in order to deliver a product or service (Porter, 1985, 2008). Those aspects of the business that are less profitable, can be outsourced to
external partners, who are able to provide the product or service faster, better and/or cheaper than the focal company could. Reduced costs, higher quality deliverables, access to new technology and increased organizational flexibility are all outcomes anticipated by firms that decide to outsource (McFarlan & Nolan, 1995). Outsourcing has been shown to have a positive indirect effect on the profitability of firms.
Specifically, firm strategy has been found to moderate the relationship between outsourcing intensity and financial and innovation performance (Gilley & Rasheed, 2000).
If outsourcing can be an effective solution to the challenge of focusing on
competitive advantage and simultaneously making the company more adaptable, then why consider crowdsourcing? The concept of outsourcing can be effective if an activity is not contributing to a competitive advantage. Under these circumstances it is
appropriate to consider if an external partner exists that can provide the product or service to the company. Crowdsourcing doesn’t seek to supplant this model, merely improve upon it. Many large companies have found themselves in the role of a disappointed outsourcer. Common risks encountered in outsourcing an activity to a supplier include: encountering cost overruns, disputes and litigations, project delays, and a diminished or variable quality of the product or services provided (Aubert, Dussault, Patry, & Rivard, 1999; Bahli & Rivard, 2003). These risks represent an inherent weakness in the outsourcing process.
If outsourcing is a preferred solution, but has inherent risks, how can we seek to mitigate the potential pitfalls of engaging in outsourcing? Crowdsourcing is the act of outsourcing, not just to one party, but instead to a networked group of individuals, each invited to help solve the firm’s problems, and each motivated to participate in the work effort for a multitude of motivations. Crowdsourcing takes advantage of intrinsic
participant motivations, the diversity of the crowd, Web 2.0 technology and an engaged community in order to overcome the challenges of outsourcing (Richard, 2013).
4.2 What Are the Benefits of Crowdsourcing?
The term crowdsourcing originated in an article written by Jeff Howe in the June, 2006 issue of Wired Magazine. Howe defined the phenomenon as:
Simply defined, crowdsourcing represents the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call. This can take the form of peer-production (when the job is performed collaboratively), but is also often undertaken by sole individuals. The crucial prerequisite is the use of the open call format and the large network of potential laborer (2006, p. 5).
In other words, a company is making the decision to outsource a problem, but instead of engaging in the traditional outsourcing process (an RFP to a limited number
of established suppliers), the company has decided to make the request open to the wider community of interested parties.
Crowdsourcing has established itself as an effective method for outsourcing based on a confluence of several, only recently developed, facilitating factors.
Crowdsourcing relies on the ability of a company to tap into an online community of individuals that are both capable and willing to spend their (mostly discretionary) time in order to develop solutions to the company’s problems (Richard, 2013). This
“crowd” is fuelled in part by a surplus of underemployed and educated talent that are seeking out opportunities to utilize their accumulated talent and skills in their
discretionary time (Benkler, 2006). With the proliferation of the internet, the World Wide Web and consumer technology to access it, there has been a growing commitment to online communities, where individuals with discretionary time and a common
interest congregate (Howe, 2008). This has produced a critical mass of participants willing to invest a nominal amount of their discretionary time in crowdsourced efforts (Heylighen, 2007).
In 2009, Fischer surveyed 100 top marketing executives on the subject of
crowdsourcing in order to determine their familiarity with the concept and its potential applications. At the time over 70 % of respondents acknowledged familiarity with the term. Fischer reported amongst others two significant findings,
(1) Senior executives rated crowdsourcing and consumer collaboration groups as effective as internal R&D staff for developing ideas for new product/services; (2) one-half of the executives believed crowdsourcing would produce cost
efficiencies ranging from 10 % to 30 % over either traditional in-house approaches or external professional services. Fully 90 % of the executives indicated that crowdsourcing is attractive based on these findings (2009, p. 2).
Crowdsourcing represents a potentially lower cost, faster method for obtaining solutions to an organizations problems as opposed to more traditional methods of outsourcing (Lakhani, Garvin, & Lonstein, 2010). Crowdsourcing relies on mass-collaboration to generate, organize and deliver a vast repository of knowledge to the organization in the form of a practical solution. The problem can require the
participants to work together or against each other to develop a specific solution, or by merely contributing produce an immense amount of information that collectively
becomes the solution. Social media sites are examples of this form of crowdsourcing, in which the users themselves use the collaboration platform to generate the product itself. Kazman and Chen (2009: 1) note that “the importance of this form of production is undeniable; as of May 2009 five of the 10 most popular Web sites—Myspace.com, YouTube.com, Facebook.com, Wikipedia.com and Blogger.com—were produced this way, according to Alexia.com; with the exception of Wikipedia, all are for-profit enterprises.”
Crowdsourcing allows firms the ability to substantially reduce the amount of time it takes to bring new products or services to the market. Unlike traditional outsourcing arrangements, in crowdsourcing, it is the crowd that is being managed, not individuals, and in certain situations the crowd has been shown to be more efficient and provide better solutions than traditional service providers (Dawson & Bynghall, 2011). While this might sound more complex, the crowd is in fact managed primarily by an online collaboration platform. The greater the number of individuals within the crowd working to solve the firm’s problem, the greater the variation will be in ideas and solutions generated. This increased variation in ideas is a result of the uniqueness in background and experiences of each one of the participants contributing solutions
(Kozinets, Hemetsberger, & Schau, 2008). This phenomenon, in which diversity trumps ability, is explained by Howe (2008) in the field of crowdsourcing, by referencing Page’s work (2007) in the area of collective intelligence. Page seeks to better understand why a random collection of problems solvers can outperform a group of higher ability individuals. The proposition? That those groups made up of individuals from the highest echelons of society are in actuality a relatively homogenous group, and that it is the inherent lack of diversity in this group that impedes their efforts to generate the most valuable solutions to problems. Is their average level of solutions higher than that of the random group of individuals? Yes. But remember, it’s not the likelihood of meeting the threshold of average that is important, it’s who can create the best possible solution that is crucial.
4.3 Why Crowdsourcing for the Lodging Industry?
Why is crowdsourcing the appropriate innovation tool for the lodging industry? Perhaps most importantly it is a low-cost solution relative to more traditional forms of
outsourcing. Cost can’t be the only justification though, solutions have to be a good fit for the problems that exist within the lodging industry and have the potential to deliver effective, implementable results. Afuah and Tucci (2012) suggest that crowdsourcing is a better mechanism for solving problems than other available alternatives. They
propose that some problems lend themselves to crowdsourced solutions, problems that:
(1) are easy to delineate, (2) require knowledge not available to the firm, (3) can attract a large, motivated, and knowledgeable crowd, and (4) have solutions that are easily implementable.
Does the lodging industry align with these criteria? The crowd the industry has the potential to attract and motivate is in the tens of millions, including business and leisure travellers across all demographics, representing individuals who possess extensive experience and understanding of the product and services hotels provide. The solutions themselves don’t require a specific skill-set or in-depth understanding of the industry;
the contributions of someone who has never stayed in a hotel could be as valuable as a seasoned business traveller. Finally the structure of the industry lends itself to simple
but powerful solutions. Brands have the ability to implement a product or service innovation across the entire chain within a matter of months, assuming it has buy-in from the other stakeholders.
Marriott, Hyatt and Starwood are just a few examples of firms who have recently begun to go down the path of co-creating solutions by partnering with the crowd. By setting up innovation labs and engaging in mass focus groups via social media, hotel brands are beginning to realize and actualize the potential that exists in seeking out innovations by asking your potential or existing customers to contribute to the process.