8 November 2012 | Nick Martindale
Drawing on the ideas of the masses to devise new goods or services is a concept now spreading to procurement. Nick Martindale looks at how crowdsourcing works.
In recent years, Web 2.0 technologies – and social media platforms in particular – have slowly become accepted as viable business tools. Initially, such dialogue was centred on defending or promoting a brand, or perhaps driving sales in an intangible manner.
The concept of crowdsourcing – using the power of the masses to source new services or ideas – brings with it a more obvious business benefit: improved efficiency and reduced cost in the sourcing process, mixed with the ability to tap into knowledge that can help shape innovation and drive future product development.
In its most crude format, crowdsourcing enables organisations to gain access to thousands of new suppliers from all over the world, encouraging them to submit bids for particular pieces of work. This has centred largely on indirect services, with creative products such as marketing or design most common. US company Threadless T-shirts, for example, sources its entire product development – in the form of designs for T-shirts – from the crowd, with artists submitting concepts and then everyone voting on which ones should actually go into production.
There are now signs that this is beginning to spread to higher-value services, too. “It doesn’t have to be that low-end, low-value and potentially low-quality work,” says Dorothy Mead, head of marketing at Blur Group, which runs a platform connecting organisations and suppliers and has recently moved into offering services such as legal, accounting and IT. “The industry is now moving towards the expert sourcing side, where you’re going out to a managed crowd with actual experience in the areas you’re looking to use. In some ways, you’re outsourcing the entire RFP process.” In today’s market, where many highly experienced professionals now work for themselves, this can mean getting access to seasoned individuals at a fraction of the cost, she adds. A recent report by McKinsey, The Social Economy: unlocking value and productivity through social technologies, also made this point, identifying services that have traditionally been sourced through agencies – such as recruitment, advertising or management consultancy – as likely targets for a crowdsourcing model. Such a set-up could also allow smaller companies to access such services, which may previously have been impossible, it suggested.
The concept of using crowdsourcing as a means of finding new suppliers is something that interests John Champion, director of indirect procurement at BAE Systems. “With maintenance, repair and operations categories, for example, every supplier fiercely guards their prices, but what if you could just post the whole database on a portal, saying: ‘This is what we pay. If you can do it better, cheaper and in a more imaginative way, why not let us know’?” he asks. “You could see that kind of model starting to mature in the future.”
Procurement is gradually starting to get involved in such campaigns, often alongside internal customers, says Mead. “It’s probably lobbied for initially by functional heads, but these kinds of thing do not get through without having the approval of procurement,” she says. “The next stage will be that it’s procurement that starts the process, so instead of going out and looking for a company to develop an ecommerce platform, maybe they will put a request on the IT part of the exchange and see how that goes.”
Arguably greater potential, however, lies in the use of crowds of suppliers to help develop particular concepts and projects. McKinsey highlights the example of the US Defense Department, which approached a small automotive manufacturer – Local Motors – to design and produce a vehicle capable of travelling at high speed over desert terrain, resulting in 162 entries. The crowd eventually selected one design and a finished vehicle was produced within five months.
It is this kind of potential that prompted supply chain software firm Wax Digital to develop a new crowdsourcing platform in addition to its established model, drawing on its existing network of customer organisations and suppliers. A typical application, says Daniel Ball, business development director, could be a large organisation looking to develop a design project where the emphasis is on the generation of ideas as much as undertaking the work itself. “That’s where crowdsourcing works really well – where companies publish an event and ask people to come back to them not with a price, but with concepts that will look at how to take that event and inject added value,” he says.
Here, too, Champion can see the attraction, but he admits to concerns over how this could operate in practice. “In an ideal world, you’d like to send a very loose request proposal out to three or four advertising agencies or, on a completely different scale, three or four facilities management companies, take the best of all the proposals and then go to market again,” he says. “But is that really fair? As a procurement director, I have to coach my team in reputational risk and ethics. But a bit of me thinks the days of long-winded tenders are coming to an end.”
A logical extension of this, however, which would certainly appeal to suppliers, is the use of such platforms to share information and develop closer relationships. Karsten Horn, director of international sales, inventory and supply chain at inventory management software firm INFORM, points out that they could interface with ERP packages, enabling better visibility around stock availability and allowing for forward-planning around raw materials that may be subject to shortages. “You would get a much closer relationship and both sides would know they get important information from each other,” he says.
A company already using this in such a fashion is TEVA Pharmaceuticals, which announced at the Enterprise 2.0 event in Boston earlier this year that it had reduced lead times by 60 per cent in the case of one supplier and 15 per cent in another. The organisation is currently reviewing its policy in this area and expects to announce an updated strategy later this year, and declined to be interviewed by SM.
A further way in which procurement teams could make use of crowdsourcing is by drawing on ideas from both suppliers and customers as a source of co-creation or innovation, and a potential forum for researching new products and markets. David Berry is director of consultancy Sourcing Edge and previously indirect sourcing director at an international technology business, where he developed a crowdsourcing initiative that drew on the organisation’s global employee base (see below). Such a concept, he says, could easily be extended outside the organisation.
“Often, there may be expertise within a supplier organisation that could help to solve issues around business processes and other areas that aren’t tapped into because of the way organisations are run,” he suggests. “The way most companies interface with suppliers is through an account team, and you get the same thinking time and again. Crowdsourcing in a collaborative and innovative way strikes me as being the area where you could most benefit and it’s a procurement opportunity that hasn’t been explored.”
There are cases where this kind of activity already exists. Procter & Gamble’s Connect and Develop programme invites existing and potential suppliers working in similar areas to its own to put those ideas to the business, promising a ‘win-win’ if they lead to the development of a new product. By 2015, the company says it hopes this will deliver $3 billion (£1.87bn) towards annual sales and that it will be seen as the “partner of choice for innovation collaboration”. IBM, too, has made efforts in this area, working with crowd intelligence firm Chaordix. Steven Adler is program director for IBM Data Governance Solutions and oversees its Data Governance Council, an initiative that grew from a small network of partners to thousands of interested parties – including suppliers – with the shared aim of best practice across organisations.
The biggest benefit he has seen so far lies in being able to test out concepts among members, providing immediate feedback and direction without needing to have a finished solution already in place. “It’s a form of collective action,” he says. “What’s interesting is that it appeals to people all around the world.”
Matt Sevenoaks is global crowdsourcing lead at KPMG. To date, the vast majority of enquiries he receives in this area stem from marketing teams looking to deliver customer-facing solutions, he says, but he agrees there is potential for procurement to be involved, highlighting Unilever’s commitment to its sustainable living plan as a case in point. “The only way it will achieve sustainability targets and develop the innovations to address them is by reaching out to other communities. The world is changing at such a rapid rate that you have to use technology to reach outside your own walls,” he says.
Yet Ross Dawson, chairman of Advanced Human Technologies and author of Getting Results From Crowds, suggests that, while procurement should certainly be involved in such initiatives, it should not be solely driving such quests. “The attitudes, processes and capabilities required are quite different from those needed for dealing with suppliers in a structured process,” he says. “Input is required from HR, legal, procurement and risk in establishing a crowdsourcing function.”
Contradiction
Yet there remains a number of obstacles that will need to be overcome if procurement is to fully take advantage of crowdsourcing. High among these is the apparent contradiction between the procedural and regimented nature of procurement and the more dynamic and slightly maverick nature of crowdsourcing. “There’s always a bit of a tension between looking for innovation and the very corporate rigour around ensuring that suppliers are capable of meeting your demands and will still be around this time next week,” admits Wax Digital’s Ball. “In a large corporate environment, that can militate against the concept.”
There also exist genuine concerns around both the sharing of a company’s own requirements and the potential for disputes over intellectual property arising from any crowdsourced concept. “If the project is to improve an existing product, members of the crowd will need to be allowed a level of insight into that product’s design,” points out Jonathan Moakes, partner at law firm Gateley. “Without adequate protections in place, someone could come up with an innovation as a result of that exposure and then obtain their own protections for it. In that situation, a company could find itself unable to develop its own product.”
The solution here is to ensure measures are put in place where any ideas generated by the crowd as a result of the disclosure from the customer organisation automatically transfer to that business.
“The most successful open innovation collaborations require all parties to commit to working openly together, based on a clear understanding of who owns what in terms of any intellectual property rights and what they can expect to get in return,” says Dave Croston, partner and patent attorney at intellectual property law firm Withers & Rogers. “If approached carefully, doing so need not pose a significant commercial risk.”
For Champion, though, there is another hurdle to overcome, which could potentially be the hardest of all to crack: time. “The big issue is how we stay innovative when we’re just snowed under,” he says. “This is one of those areas that is interesting, but I don’t know who would have the time to develop it.” For now, he used an Indian market research company to find and assess potential new suppliers, bypassing the technology aspect of crowdsourcing, at least for its most basic usage.
For those brave enough to explore this concept while it remains relatively untapped, however, the advantages could be significant, says Dawson. “Those organisations that can more quickly and effectively establish crowdsourcing functions will have a real competitive advantage, by sourcing talent and innovation more effectively and getting more value from their suppliers,” he says. That, perhaps, is something that should give even the most time-strapped CPO food for thought.
Internal innovation
Using crowdsourcing to generate ideas from staff across the globe
When David Berry, now director at Sourcing Edge, was indirect sourcing director at an international technology business, he looked to develop a way of generating ideas from his own team, located all around the globe. “We had five or six people involved in solving problems time and again and it was easy to overlook some innovative solutions,” he says.
His response was to develop a crowdsourcing event, based around the topic of knowledge management, where individuals at all levels were able to raise problems they encountered and suggest solutions.
Once the ideas had been submitted, employees voted to determine the best and a shortlist of the most promising was developed. At that point, a member of the management team was assigned to each suggestion and a Dragons’ Den-style pitching process took place over a video link, with the company committing to back the winner and runner-up.
“People could see they were taking more control in solving their own problems and felt they had more of a voice in the organisation,” says Berry. “What emerged was a better level of engagement with the workforce and a set of ideas that I don’t think we would have got with a smaller group.”
