POWERING CROWDSOURCING

Unconventional Solutions Require Better Incentive Systems Mis-aligned Incentives Cause Chaos

The global financial crisis has highlighted the complexity of creating beneficial financial incentives. While a multitude of factors might be blamed for the crisis, one of the most prominently discussed is the failure of an easily abused system of bonuses and rewards. In hindsight, the ramifications of unchecked monetary motivations point to appalling cases of fraud and corruption. This market disruption, however, will spur new business methods and improved foundations. And though it's easy to conclude that unrestricted monetary incentives can produce incredible market turmoil, it's also true that wisely-distributed monetary rewards can generate results that are amazingly useful and constructive.

Re-aligned Incentives Can Solve The Hardest Problems

Prize competitions offer an intriguing peek into the world of incentives. A recent success story in the growing trend of open innovation and public challenges is the 2009 DARPA Network Challenge, in which the Defense Advanced Research Projects Agency placed 10 balloons in undisclosed locations all over the continental US -- offering $40,000 to the first person or team to submit the exact locations for the balloons. No one was sure if the contest would produce a winner at all, but it took just 9 hours for a team from MIT to locate and find all of DARPA's balloons. The MIT team was the first and only participant to submit a complete winning entry, but many other teams submitted at least 8 correct locations.

This problem of finding balloons might sound trivial at first glance, but it's an elegantly general challenge. In fact, its solutions might be applied to a wide variety of business goals. Imagine if, instead of 10 balloons, a company wanted a top ten list of solutions to its most urgent threats or an actionable compilation of business opportunities. The same basic principles for generating and gathering information are relevant for all of these challenges, and the many key elements of this crowdsourced effort are enlightening.

In particular, the incentive scheme supporting the winning MIT team consisted of a hierarchy of relationships among its members. Before the winners were known, an affiliate system was created to encourage widespread participation. Given the goal of finding 10 balloons for $40,000, the individual who first submitted the correct coordinates of a balloon would be awarded $2000. Additionally, the person who invited that balloon finder would receive $1000, and the next two inviters were given $500 and $250, respectively. The remaining $250 (of this $4000-per-balloon award system) was donated to charity.

Again, this specific incentive scheme doesn't sound too inspiring on its face, but the overall challenge and this award system actually adhere to several successful principles behind crowdwork and motivational techniques for complicated, high-value tasks -- the kind of tasks that are the most important for businesses to solve. These principles include (but are not limited to):

• Independence/Autonomy -- The methods of each team member should not be hindered by others. Team participants are generally more motivated to perform when they are allowed to choose and implement their own plans.
• Mastery -- Contributors tend to perform better when they feel there is an element of self-improvement to the task.
• Purpose -- Participants in crowdwork are more engaged when the goal of the project is noble, charitable or can be expressed in terms that are greater than an individual's self interest.
• Decentralization -- Team members should be allowed to utilize their local skills and individual knowledge.
• Diversity -- A team has better odds of success when its members are not all like-minded and have a wide range of skills/backgrounds.
• Aggregation -- The team must have a reliable and easy-to-use mechanism for communicating and collecting information for decisions.

In applying these guidelines, the MIT team also developed and used a variety of web-based tools -- which was actually the point of this DARPA challenge from the beginning. DARPA's $40,000 contest aimed to celebrate the 40th anniversary of the creation of the Internet. And not surprisingly, the Internet played a critical role in coordinating the communications of a large number of the participants. While the specific techniques are still being analyzed by DARPA, the winning MIT group had to verify a vast amount of information and protect against competing groups who were known to be broadcasting false information to purposely mislead other contestants. So in addition to setting up an incentive model that encouraged and motivated participants, the MIT team had to employ technological assistance to ensure objective and accurate data gathering. Without the Internet and the tools it enables, it's likely that there would be no winner for this DARPA project.

Departure From Traditional Carrots And Sticks

For relatively simple tasks, straightforward incentives (or punishments) are generally sufficient to get the job done. But for today's more complicated objectives with no simple solutions, the right mix of incentives and technology is necessary to achieve the desired results. Traditional financial incentives have been demonstrated to simply not work, or even worse, to backfire disastrously under common conditions. Fortunately, though, companies adopting open models for innovation have achieved significant benefits from their acceptance of crowdsourcing principles.