A recent Harvard Business Review, authored by Karim R. Lakhani, article focuses on the emerging concept of “crowdsourcing” and how it is being used as an innovation starter.  Crowdsourcing, which seeks the knowledge and input from crowds of users, has been used by a number of organizations to tackle some of the most vexing strategic problems.  Turning to a large number of individuals that are “in the crowd” has led to a number of innovations and problem-solving solutions.  The authors of this HBR article illustrate four main forms of crowdsourcing that organizations use to solve some of their most challenging issues. They cite examples where various top organizations successfully employed crowdsourcing producing remarkable results.

In the spirit of innovation, we explore how crowdsourcing might be a tool in the ERM leaders’ toolkit to seek the talents and skills of the crowd in identifying and managing some of the organization’s most important strategic risks. Crowdsourcing can not only assist with risk identification, but it can also provide valuable insights that can trigger powerful solutions that risk management programs may not have previously considered. In an effort to “think outside the box,” we hope the following summary of crowdsourcing might trigger ideas of how organizations might benefit from the insights of the crowd in their identification of emerging risks and trends that may impact their organization’s long-term strategic success.

A description of the four main types of crowdsourcing follows along with how it can enhance organizations’ risk management programs:

  • Crowd Contests – This type of crowdsourcing engages the crowd by creating a contest in which the organization offers prizes and broadcasts an invitation to submit solutions to an identified problem (risks in the eyes of the organization). Organizations sometimes face technical, analytical and scientific challenges and remain exhaustive of any efficient solution. These constant rising problems in the operational departments may culminate to adverse effects to the strategic objectives in the long run. Risk owners can employ this type of crowdsourcing to generate high-value solutions to some of the most vexing risk issues through large scale and diverse independent experimentation. The assessment of several solutions provided may also provide risk owners and the ERM program valuable insights for future reference to develop more productive and efficient risk response solutions internally. The caveat is that the identified problem must be generalized and carefully abstracted to avoid revealing proprietary company secrets. To protect their intellectual property, organizations may want to engage in contracts and binding agreements
  • Crowd Collaborative Communities – This type of crowdsourcing involves large communities that work together by using an organization’s assets to enhance the overall value of designs, products or projects of the organization. By keeping track of and using the diverse contributions of several communities, organizations collaborate and incorporate the efficient and productive solutions into enhancing their products. The article provides an example where Verizon uses customer support communities that answer each other’s questions and thereby increases the value of its communities. Organizations can enhance their risk management programs by understanding how collaborative communities can help enhance their customer experience, which may reveal risks that directly tie to the success of a particular strategic objective. The difficulty that organizations face, and something that should be taken into account during the risk management process, is differentiating and separating their proprietary assets from their community assets that they seek to share.
  • Crowd Complementors – This type of crowdsourcing involves the use of a market for a product of an organization as a platform for other innovations. Organizations may face several different problems and run the risk of failure in their strategic objectives with respect to low demand for their products. In such circumstances, organizations should manage their risks by employing this type of crowdsourcing, which essentially encourages the generation of various innovative solutions to complement the failing product. By allowing the crowd to innovate and produce complementary products to the organization’s main product, an organization can increase demand for that main product. Although this type of crowdsourcing can be difficult to manage, understanding the purpose and best use can direct the risk management team to successfully implement this solution. Risk events that identify the lack of demand for an organization’s main product should consider this type of crowdsourcing. Again, because the organization provides access to its functions and information about the core product, protecting its assets should be of prime concern.
  • Crowd Labor Markets – This purpose of this type of crowdsourcing is to match skills and talents with certain tasks. The temporary need of an organization to resolve a particular problem or task without having to go through a complete hiring process is fulfilled by this type of crowdsourcing. Third parties act as platforms and maintain well-established categories of work (web-designing, software development, customer service, etc) that can be clearly described and understood. Organizations may face the risk of having a temporary lack of a specialized skill to solve a specialized focus problem. The time spent on trying to solve the problem internally may be too costly for organizations and during which time the problem may have transformed into an emerging risk. During such circumstances, organizations may be able to manage such risks through the use of crowd labor markets. As mentioned, because of the nature of these markets, they are able to efficiently and flexibly match talent with specialized tasks on a temporary basis. This effortlessly overcomes the risks organizations face.

Risk management teams may find benefits of crowdsourcing in managing high speed risks and emerging strategic risks. Crowdsourcing does have its weaknesses, and risk management programs must acknowledge that. However, there is a tradeoff that risk management programs should assess while managing and responding to risks. In times of limited resources and possible future adverse risk events, organizations whose risk management programs call upon crowdsourcing may find themselves better positioned to manage emerging strategic risks. 

Link: Harvard Business Review

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ERM Enterprise Risk Management Initiative 2013-04-01