Crowdsourcing problems through prize competitions is the new R&D

Centuries ago, the biggest problems of the day were solved with prize competitions: measuring longitude at sea by the Royal Navy in 1714; preserving food by the French government in the early 1800s; air travel by the Schneider prize in 1911.

In the 20th century, as enterprises grew and multi-national corporations boasted bigger budgets than the GDPs of small countries, internal Research & Development departments became built in (ie. internal, in-house) problem solvers. Now, as the Internet continues to empower and connect individuals around the world, and as economic crises restrict public and private budgets, prize competitions and crowdsourcing are making a strong comeback.

Asking the crowd to help find solutions to your problems is beneficial for many reasons, but the following two are perhaps more important. Firstly, crowdsourcing is cost effective – it inevitably costs less to run a competition and put up a prize than to rent a fully-equipped lab and pay several PhDs full salaries. Importantly, you can design the prize to only pay for results, not just for effort.

Secondly, crowdsourcing has more potential for original and creative ideas. When you open yourself up to the crowd, you can expect solutions influenced by a wide range of environments, experiences, educations and experiments. R&D departments are typically staffed by a group of academics with similar career paths, working in the same city, in the same building and lab even.

The ability for our environments to inspire us should not be underestimated, particularly when it comes to generating innovative ideas.

It seems pretty simple – next time you have a big problem or gap that your R&D department is struggling to solve or fill, turn to the crowd. You’ll spend less money and likely get a creative and original solution, but the prize will still be significant to the individual winner. However, crowdsourcing only works because the crowd is motivated and eager to contribute, so it’s important to ensure they gain something as well.

Counter intuitively, it is not the prize award but the intellectual challenge and feedback are the number one way to reward the crowd for their contributions. Although it doesn’t require much effort for a judge to jot down a few thoughts after reviewing an entry, actively seeking (and receiving) expert feedback independent from a competition process can be quite difficult.

It is unheard of for VCs to provide feedback to every business plan they reject. Even during the recruiting process, many employers decline to give feedback to every candidate, so providing learning to entrants is quite a crucial aspect in further development.

The Netflix Prize (2006-2009) did this well, enabling entrants to upload their algorithms and receive a real time response on the accuracy improvement. R&D spending and seed-stage venture capital investing in Europe are in decline, and it is the prize model of crowdsourcing ideas that looks likely to step into this opening gap to find and fund innovation.

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Simon Schneider is General Manager, Grand Challenges and Head of EMEA at InnoCentive. He co-founded OmniCompete, a leading company focused on Grand Challenges, which was acquired by InnoCentive in January 2012. Under Simon's leadership, OmniCompete awarded over $2.9 million in prizes, which multiplied into $124 million in impact by prize finalists. Before completing his MBA at London Business School, Simon worked as a security consultant for IBM in New York, where he managed multi-million dollar technology projects in video surveillance, biometrics, and business continuity. Prior to working at IBM, Simon founded and led two venture-backed technology start-ups in Germany and the US. Simon sits on innovation advising committees for departments of the German and UK governments, and he also invented a patent that has been licensed to IBM. Simon contributes regularly to open innovation discussions in the media (e.g., New Scientist) and speaks regularly at conferences in Washington, London, and Brussels.