Working Paper | Vikas N.

Prabhu, Doctoral Student, IIM, Bangalore

Crowdsourcing: A Strategic Mechanism for Innovation

The phenomenon of crowdsourcing has existed for at least two decades1, though the
terminology per se is often traced to an article by Howe (2006). Crowdsourcing is, essentially,
the process of accomplishing a given task through the involvement of a (large) group of
interconnected individuals that have no apriori binding which, according to Howe (2006,
2009), fundamentally differentiates crowdsourcing from outsourcing models and which, in
effect, makes the sourcing ground a crowd rather than a team. However, the boundaries of
crowdsourcing, from an ontological perspective, remain largely unclear. As Viscusi & Tucci
(2018) indicate, this ambiguity stems more from an unclear definition of crowds itself – a crowd
is basically an undefined network of agents (Howe, 2006). However, insofar as crowdsourcing
involves networked participants outside traditional organizational bounds, it may be seen as a
paradigm that falls between pure intra-organizational teams on the one side and free public
cooperative enterprises on the other. This is illustrated in Fig. 1 which shows that, while
crowdsourcing as a paradigm encapsulates a well-defined core – namely, of processes and
purpose – its scope overlaps with many other joint-operational organizational phenomena.

Innovation
Communities
(von Hippel, 2005)
Traditional intra-organizational teams

Cooperative

Free public enterprises (cooperatives)

User Technical
Innovation Organizations
(Rosenkopf &
Crowdsourcing Tushman, 1998)
[Joint sourcing/
funding/solving/
ideation]
Distributed Out-
Computing sourcing

Open
Innovation

Figure 1: Crowdsourcing in the context of other community-based phenomena

It has to be noted that by virtue of lying in the continuum between intra-firm teams and free
public enterprises, crowdsourcing can serve to borrow from either sides and, hence, incorporate
a balance between professionalism, needed for goal-directed action, borrowed from the
organizational side, and freedom and autonomy, needed for innovative thinking, borrowed
from the side of the public enterprise.

1
One of the earliest widely-known project that employed the phenomenon was SETI@home in 1999 – the
distributed computing project managed by University of California, Berkeley.
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 Working Paper | Vikas N. Prabhu, Doctoral Student, IIM, Bangalore

Two modes of crowdsourcing: Contributory and collaborative

Literature has highlighted various streams of crowd-based work execution. Accordingly,

various themes have emerged that tap the capacity of crowds to fund projects, provide ideas,
solve complex problems, accomplish standardized tasks, test early launches, provide feedback
or provide marketing support. However, when viewed from the perspective of modes of
engagement, two typologies of crowdsourcing emerge:

a) Contributory engagement which involves those phenomena where participants from the
crowd contribute towards accomplishment of the objective merely as a means to achieve
other ends either of economic nature (such as payments or returns on investment) or of non-
economic nature (such as social reputation). These are mainly driven by a quid pro quo
arrangement where alignment and engagement is geared towards each party realizing their
own benefit from the participatory engagement.

b) Collaborative engagement is when the parties are driven by the pursuit of a collective goal
that would, otherwise, be not attainable. In this mode of participation, the parties experience
high levels of alignment and strive towards establishing a platform of shared language and
representation in order to enhance effective accomplishment of the shared objective.

Instances of crowdsourcing that fall into each of the two modes are as shown in Table 1 below.

Table 1: Two modes of crowdsourcing

Contributory Collaborative
(Medium coupled, high engagement, medium (Highly coupled, medium engagement, highly
interaction, low alignment of purpose) interactive, high alignment of purpose)

• Crowd-funding (e.g. Kickstarter) • Distributed computing (e.g. SETI@home,

• Crowd-solving (e.g. InnoCentive,
iConclude)
• Crowd-hiring (e.g. Amazon Mechnical
Turk, YourEncore)
• User-driven content creation (e.g. Youtube,
iStockphoto, Web Junk, Wikipedia)
• Platform-based user-driven development
(e.g. Android playstore, MySpace)
• User-evaluation (e.g. reCaptcha, Amazon)
Folding@home)
• Open innovation (e.g. NineSigma)
• Customer-driven innovation (e.g. Lego
Ideas)
• Lead-user innovation
• Open source software (e.g. VLC player)
• Innovation contests (e.g. hackathons,
Threadless)
• Public-driven search (e.g. MH370 airline
search, Goldcorp challenge)

While the two modes, above, have inherent disparities in terms of coupling and alignment of
the participants, there is no doubt about the participatory framework that underlie both modes
of crowdsourcing. In effect, the essence of crowdsourcing may be seen as new and viable
ground for new-age businesses – i.e. those that face the challenge of constantly innovating in a
complex environment (Kohler, 2015) – especially in the context of problem-solving in the view
of diverse needs and perspectives (Brabham, 2008).
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 Working Paper | Vikas N. Prabhu, Doctoral Student, IIM, Bangalore

Crowd-sourcing as a strategic direction

There is a strategic underpinning to the collaborative mode of crowdsourcing engagements

illustrated above. This is owing to the fact that the collaborative modes have high overall
alignment towards a larger purpose that can serve to create a transcendental ground – an
overarching purpose – that can coalesce the crowd to work together more effectively. To the
extent that this collaboration involves multitude of actors – ranging from unitary to
organizational over a very large scale (Boudreau & Lakhani, 2013) – collaborative
crowdsourcing stretches the boundaries beyond alliances and joint ventures. With rapid growth
in Internet connectivity, crowdsourcing finds more ground and, hence, increased scope towards
applications. It is indeed emerging as a viable business model (Kohler, 2015) with new
applications in the areas of surveillance (Williams, 2013), cashless economy (Kaikati &
Kaikati, 2013), education (Law et al, 2016), open innovation (Lampel, Jha & Bhalla, 2012),
medical science (Suryanarayanan & Gopal, 2014), etc.

However, as Boudreau & Lakhani (2013) observe, the strategic potential of collaborative
crowdsourcing is moderated by the cautious approach of organizations who, being used to a
culture of internal innovation, are wary of the costs that involvement of crowds would entail,
namely in aspects of intellectual property leakage and the administrative burden of managing
a diffuse team that cannot be subject to bureaucratic control. The authors go on to suggest
remedial measures to mitigate the administrative issues and the cultural changes that need to
be incorporated alongwith, while emphasizing that the viability of crowdsourcing is enhanced
owing to better connectivity, falling spatial transactional costs, and better technological
solutions for crowd management. In order to employ the platform of crowdsourcing, the
authors suggest some strategic measures:

• Abstracting the problem: The need to clearly define the crowdsourcing problem so as
to appeal to the diverse creative levels of the crowd, while also ensuring the problem is
generalized to the extent that it can be creatively researched. It may not be appealing to
float a solution that is very specific to a certain context of the company
• Clarity on incentives: Ensure clear and seamless mechanisms of coordination,
authority, and control; establish pertinent reward structures
• Transparency: There should not be any IP related gaps or assumptions. The IP related
implications should be transparently and objectively laid down
• Complement and integrate: Crowdsourcing is a complement for internal skills, and
not a substitute for it. Hence, firms need to build channels to integrate external and
internal activities/work

With respect to the strategic value of crowdsourcing, we believe it is important to look at

literature that has focused on the mechanisms of crowdsourcing. Hence, we list five key
readings that will provide important insights into the strategic value of crowdsourcing as a
mechanism of innovation, and three optional readings that either supplement the main readings
or serve to provide valuable insights into certain non-core areas or issues related to the above
domain. Integration of crowdsourcing into strategy literature is yet to receive its due (Felin,
Lakhani, & Tushman, 2017) and it is our objective to provide some thrust in this direction.

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 Working Paper | Vikas N. Prabhu, Doctoral Student, IIM, Bangalore

Important literature in and about crowdsourcing

There is a wide area of related literature that relates to, as well as feeds into, the process of
crowdsourcing (as shown in Fig. 2).
Crowdsourcing is essentially built International Communities
atop the knowledge-based view of Business of Pratice
the organization (KBV) that puts
emphasis on innovative capability
KBV, Human
(Kogut & Zander, 1992) centred Capital, Social
Network
around ideas of diversity in human Theory
Capital
Crowd
capital and the dimensions of social sourcing
capital that emerges from the
engagement of creative people into
teams as well as necessitated by it Figure 2: Crowdsourcing allied areas

(Nonaka, 1994; Boisot, 1995). The international business literature emphasizes falling spatial
transaction costs that facilitates disaggregation of global value chains (Mudambi, 2018), and,
hence, also facilitates a broader reach for crowdsourcing. The literature on communities of
practice emphasizes practice-based inter-connections that crystallize into communities (Brown
& Duguid, 2001; Wenger, 2000) and the network-theory based perspectives suggest
moderating the interconnection through the strength of those ties (Granovetter, 1973,
Tortoriello & Krackhardt, 2010).

Consequently, the phenomenon of crowdsourcing, though paradigmatically amorphous, has

attracted literature of its own. Notably, the writings of Karim Lakhani (Felin, Lakhani &
Tushman, 2017; Boudreau & Lakhani, 2013) are core readings – i.e. compulsory background
reading – to picture the concept of crowdsourcing in the context of innovation. O’Mahony and
Lakhani (2011) indicate that crowdsourcing – through the channel of amplifying rational
capacity – serves to mitigate the bounded rationality that organizations suffer from. This
complements the innovation literature view that in dynamic environments it is the network of
individuals that holds higher capacity for innovations (Kogut, 2000). Indeed, as Boudreau and
Lakhani (2013) contend, using crowds as innovation partners provides focal organizations with
an opportunity to sense the frontiers of technological innovation by observing the solutions
around which crowd submissions tend to cluster around (see also King & Lakhani, 2013).
Furthermore, the inclusion of crowds, to the extent that their creative inputs can influence
managerial choice within organizations, has tended to reorient the thresholds of traditional
decision-making (Ogawa & Nishikawa, 2016). Also, by virtue of voluntary participation with
high intrinsic motivation levels, crowds tend to redefine the concept of organizational identity
with a blending of personal and professional identities (O’Mahony & Ferraro, 2007). Owing to
the various organizational aspects discussed above, the phenomenon of crowdsourcing, by
virtue of reorganizing and refashioning creative participation both in terms of individual
dimensions and collective capacities, can be seen as adding significant strategic value to the
innovative capability of organizations. Hence, we feel it is important to review some scholarly
works that have dealt with various dimensions in the context of crowdsourcing as a strategic
dimension for organizations. Below are some important readings that provide valuable insights
in this respect.
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 Working Paper | Vikas N. Prabhu, Doctoral Student, IIM, Bangalore

• Mandatory Readings: crowdsourcing as a strategic mechanism for innovation

1) Afuah, A. & Tucci, C. L. 2012. Crowdsourcing as a solution to distant search. Academy

of Management Review, 37(3): 355-375.
2) Jian, L., Yang, S., Sulin, B., Lu, L. & Jiang, L. C. 2019. Managing the crowds: The effect
of prize guarantees and in-process feedback on participation in crowdsourcing contests.
MIS Quarterly, 43(1): 97-112.
3) Majchrzak, A. & Malhotra, A. 2016. Effect of knowledge-sharing trajectories on
innovative outcomes in temporary online crowds. Information Systems Research, 27(4):
685-703.
4) Bayus, B. L. 2013. Crowdsourcing new product ideas over time: An analysis of the Dell
IdeaStorm community. Management Science, 59(1): 226-244.
5) Chua, R. Y. J., Roth, Y. & Lemoine, J-F. 2015. The impact of culture on creativity: How
cultural tightness and cultural distance affect global innovation crowdsourcing work.
Administrative Science Quarterly, 60(2): 189-227.
Afuah and Tucci (2012) provide a strong foundation of crowdsourcing as a means for
organizations to embark on exploratory searches (March, 1991). When Jeppesen and Lakhani
(2010) noted that the likelihood of solving problems was higher when the problem solvers
hailed from areas distant to the problem, they were suggesting an extension of the learning-by-
hiring model of acquisition of distant knowledge (Song, Almeida, & Wu, 2003; Jain, 2016)
into the crowdsourcing domain. On this basis, Afuah and Tucci (2012) suggest that the strategic
decision to crowdsource could be determined by (1) ability of the focal organization to
articulate the problem to the outside world, (2) the problem solution lying outside of the focal
organization’s existing knowledge space, (3) the technical ability that the crowd is endowed
with, and (4) the ease of integrating the crowdsourced solution into the focal organization’s
problem set. Bayus’ (2013) study, however, clarifies on point (3) in the above study, by
pointing out that serial contributors tend to propose ideas similar to the old ones, and, hence,
suggesting that the capacity for exploratory search in crowdsourcing is moderated by the
possibility of finding new participants. Jian et al (2019) emphasize the mechanisms – mainly
through incentives and feedback – that motivate and enhance participation. They note that
providing in-process feedbacks – both numerical and textual – greatly enhance the probability
of receiving more submissions, irrespective of the existence or absence of prize guarantees.
Zhang, Singh & Ghose (2019) add a further dimension to the enhancement by suggesting the
inclusion of superstars which has been seen to further enhance the learning curve. Chua, Roth
& Lemoine (2015) observe that cultural aspects – both within and between countries of
innovators and the audience – significantly affect creative output. They find that individuals
hailing from tight cultures do not perform well towards foreign creative tasks and this
impediment is heightened with increased cultural distance between the countries. Majchrzak
and Malhotra (2016)2 clarify that crowd-sourcing projects tend to follow specific knowledge

2
The special journal volume – issue 27(4) of Information Systems Research – that this article is a part of
seems dedicated to understanding knowledge flows in online communities and, hence, other articles may be of
importance in the context of crowdsourcing. In this vein, we also suggest another issue – issue 15(2) of
Strategic Organization – that looks at various dimensions of firms, crowds, and innovation.
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 Working Paper | Vikas N. Prabhu, Doctoral Student, IIM, Bangalore

trajectories. Their study details four types of trajectories found in crowdsourcing. The above
readings, in effect, provide strategic insights that guide an organization’s decision to engage
with crowdsourcing platforms. Their strategic contribution can be summarized as below:

Strategic Unit of
Paper Details
Question Analysis
• When the problem can be articulated,
Afuah & Tucci When to Organization - and solution can be integrated.
(2012) crowdsource? Problem • When the crowd has sufficient
technical depth.
• Serial solvers will not be able to repeat
What kind of
Crowd – early successes
Bayus (2013) crowd to source
to?
Capacity • Constantly need to look for distant
knowledge
• Cultural distance between the
Chua, Roth, & What kind of
Crowd – individual and firm negatively affects
Lemoine crowd to source
culture output when individual comes from a
(2015) to?
tight culture, but firm does not
• Moderate in-process feedbacks have
Jian et al How to engage Crowd –
significant positive effect on number
(2019) the crowd? expectation
of submissions
Majchrzak & How to engage
Crowd – • Paradox-framing trajectory is best
Malhotra temporary
learning modes suited for temporary online crowds
(2016) crowds?

The five readings suggested above also can be seen to relate to each other as shown below:

Bayus, 2013 | Repeat solvers cannot repeat early success

Extends through mechanism to

Jian et al ,2019 | Motivate crowds through in-

Clarifies the condition when crowds can provide

repeated success
motivate the crowd

Afuah & Tucci, 2012 | When to crowdsource?

Extends the study by bringing in the cultural

aspect

Chua, Roth, & Lemoine, 2015 | Distance between

individual and firm culture influences output
process feedbacks

Extends motivated learning along the paradox-framing

trajectory (temporary online crowds)

Majchrzak & Malhotra, 2016 | Knowledge-sharing trajectories

• Optional Readings:

1) Mindel, V, Mathiassen, L. & Rai, A. 2018. The sustainability of polycentric information

commons. MIS Quarterly, 42(2): 607-631.

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 Working Paper | Vikas N. Prabhu, Doctoral Student, IIM, Bangalore

2) Surowiecki, J. 2004. The Wisdom of Crowds: Why the Many are Smarter than the Few
and How Collective Wisdom Shapes Business, Economies, Societies, and Nations. NY:
Random House.
3) Vuculescu, O. & Bergenholtz, C. 2014. How to solve problems with crowds: A computer-
based simulation model. Creativity and Innovation Management, 23(2): 121-139.
Crowdsourcing, while providing benefits of diverse collaboration, can potentially entail issues
with regard to security and ownership. Mindel et al (2018) provide ethical clarification by way
of a framework of polycentric commons (based on Hardin’s tragedy-of-commons and Ostrom’s
polycentric-governance models) that attempts to balance ownership perceptions in order to
drive sustained participation. Mansell (2013) is also an important contribution in this regard.
Further, Surowiecki (2004) and Vuculescu and Bergenholtz (2014) provide insights into
ways to manage crowds, and the resulting impact on businesses and, even the larger economy,
of the crowdsourcing paradigm.

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