New CMU Study Shows How Firms Can Successfully Crowdsource High Potential New Product Ideas From Consumers

PITTSBURGH, Feb. 1, 2012 /PRNewswire/ -- Researchers from Carnegie Mellon University have published a new study that refutes three key criticisms of crowdsourcing, a popular tool for new idea generation for firms as they seek to develop new products and services and to improve on their existing offerings in an increasingly competitive marketplace.

The study finds that crowdsourcing is not the misguided fad that some critics have suggested but that the process of crowdsourcing actually — under the right conditions — creates more knowledgeable consumers and, in time, leads to more efficient, lower-cost generation of high potential ideas.

The study, "Crowdsourcing New Product Ideas Under Consumer Learning," was conducted by Kannan Srinivasan, the Rohet Tolani Distinguished Professor of International Business and the H.J. Heinz II Professor of Management, Marketing and Information Systems at Carnegie Mellon's Tepper School of Business; Assistant Professor of Information Systems Param Vir Singh, also of the Tepper School; and Yan Huang, a Ph.D. student at the Heinz College at Carnegie Mellon. 

The team set out to investigate the three most common criticisms of crowdsourcing: that individuals' limited view about firms' products leads to the contribution of mainly niche ideas; that consumers' limited knowledge about firms' cost structure leads to too many infeasible ideas; and that firms' lack of response to customers' ideas leads to customer dissatisfaction.

"Although crowdsourcing initiatives are being widely adopted in many different industries, the number of ideas generated often declines over time, and implementation rates are quite low," Srinivasan said. "Our findings, however, suggest that a better understanding of the dynamics at work in the crowdsourcing process can help us to address the common criticisms and propose policies that draw out the most consistently valuable ideas with the highest potential for implementation from crowdsourcing efforts in virtually any industry."

The policies suggested by the study for effective crowdsourcing rely on the implementation of a system for peer evaluation, rapid company response to ideas that receive significant positive endorsement from the community of idea contributors, provision of precise cost signals that enable contributors to assess the feasibility of their ideas, and a system to reward contributors whose ideas are implemented rather than one that rewards individuals when they post ideas.

"Using a peer voting system, consumers are empowered to both contribute their own ideas and vote on the ideas submitted by others, enabling firms to infer the true potential of ideas as they begin to screen for ideas that are truly worthy of implementation," Singh said.

Singh added that the initial field of ideas generated in a crowdsourcing effort tends to be overcrowded with ideas that are unlikely to be implemented as consumers overestimate the potential of their ideas and underestimate the cost of implementation. "However, individuals learn about their abilities to come up with high-potential ideas as well as the cost structure of a firm through peer voting and the firm's response to contributed ideas, and individuals whose ideas do not earn the favor of their peers or the backing of the firm drop out of the process while contributors of high-potential ideas remain active," he said.

"Over time, the quality of generated ideas — in terms of their actual potential for implementation — improves while the total number of ideas contributed through crowdsourcing decreases," Huang said. "So, the cost to screen contributed ideas is reduced, the efficiency of the process is increased and the crowdsourcing initiative yields high-value ideas with the greatest potential for implementation."

Although crowdsourcing initiatives have become rapidly popular, the usefulness of this relatively new approach to idea generation has been heavily debated. There have been few academic studies of crowdsourcing despite the enormous business and media attention the topic has attracted, and this study by the team at Carnegie Mellon proposes answers to some of the most hotly contested concerns regarding the value of these initiatives.

For more information and to read the findings of the study in detail visit https://student-3k.tepper.cmu.edu/gsiadoc/WP/2011-E40.pdf.

About Carnegie Mellon University: Carnegie Mellon (www.cmu.edu) is a private, internationally ranked research university with programs in areas ranging from science, technology and business, to public policy, the humanities and the arts. More than 11,000 students in the university's seven schools and colleges benefit from a small student-to-faculty ratio and an education characterized by its focus on creating and implementing solutions for real problems, interdisciplinary collaboration and innovation. A global university, Carnegie Mellon's main campus in the United States is in Pittsburgh, Pa. It has campuses in California's Silicon Valley and Qatar, and programs in Asia, Australia, Europe and Mexico. The university is in the midst of a $1 billion fundraising campaign, titled "Inspire Innovation: The Campaign for Carnegie Mellon University," which aims to build its endowment, support faculty, students and innovative research, and enhance the physical campus with equipment and facility improvements.

About the Tepper School of Business: Founded in 1949, the Tepper School of Business at Carnegie Mellon University (www.tepper.cmu.edu) is a pioneer in the field of management science and analytical-decision making. The school's notable contributions to the intellectual community include eight Nobel laureates. The school is among those institutions with the highest rate of academic citations in the fields of finance, operations research, organizational behavior and production/operations. The academic offerings of the Tepper School include undergraduate studies in business and economics, graduate studies in business administration and financial engineering, and doctoral studies.

SOURCE Tepper School of Business at Carnegie Mellon University