Part 1: Identification and Significance of the Innovation

Businesses have always asked their consumers to make contributions to their success. Focus groups, customer surveys, and complaints are all used by companies to improve products and services, and design and develop new ones. Despite enormous amounts being spent on market research that is supposed to be the foundation for new product success the probability of product or business success appears very limited. (e.g., Urban, 2005). Now however we see user contributions fueling the growth of even the most advanced companies by systematically helping a company build their business. In most instances the people making the contribution are not paid (although some contributions can be rewarded in the form off a contest with a prize) but the businesses that collect the information make money by developing an idea into a business profit center. The proposed research will “prove” the concept of consumer generated contributions. The research will use an available community based software platform to test whether competitive user generated ideas are superior to ideas generated by more traditional methods. A common “recipe driven” platform to drive user generated ideas would allow businesses who do not have the resources to accomplish this to build their business using a technique that seems to be the province of larger more established businesses that have greater expertise and resources. The availability of this user generated idea platform is not a minor matter since economic competitiveness relies on constantly creating better ideas, products, and services.

Most businesses do not completely understand the “power of the people”. If they did, we would see many more instances of user generated power in the development and creation of products and services. This could either be because the executives running companies do not see the opportunity or they see the opportunity and do not have a clear and accessible platform from which to structure a user generated competition. But first it is important to understand that although we can point to many examples of user generated contribution we cannot state with any degree of empirical certainty that user generated contribution really makes a difference. The concept simply has not been proven although there is theoretical reason to believe that this should work. Although we have anecdotal evidence that user generated content can lower costs and improve products it does not mean that it does. It is somewhat surprising given the popularity of user generated content across a range of industries there is very little empirical evidence that user generated content is effective. Recent literature suggests that “we” need to find ways to open the innovation process to external sources (not simply customers or employees) (e.g., von Hipplel, 2005). Von Hippel and his colleagues have been particularly effective in identifying users as “originators” of many innovations in different industries (von Hippel, 1976; Urban & von Hippel, 1988; Herstaat and von Hippel, 1992; Demonaco, Ali, & von Hippel, 2005).

Competition is generally discussed in the context of economic growth and business environments and business, but not in a way that would illuminate the effectiveness of competition for the development of new business ideas. Illumination can emerge from the research and theoretical discussions of competition and cooperation in social psychology. Competition and cooperation have been of interest to experimental psychologists since the early the 1940’s (e.g., Duetsch, 1949). The discussions ranged from cooperation being seen as the bedrock of a productive society to believing competition was essential to motivate people to greater effort ( Chronbach 1963). The motivational effects of competition have been likened to escape condition whereby competition sets up a drive like state in competitors who must adopt some behavior that reduces the drive like state of the competition. Studies show that competition is a general energizing state (Steigleder, Weiss, Balling, Wenninger, & Lombardo, 1980; Steigleder, Weiss, Cramer, & Feinberg 1978) that can be reduced (will be reduced) by certain behaviors (those that have a direct link to reducing that drive/motivation).

Internet Community Based Competition The Internet has been the driver of broad based user competitions because it is the only easy way large amounts of information can be shared and communicated easily and cheaply. Internet Communities allows large groups outside the small population of employees and consumers to exchange ideas. According to von Hippel (von Hippel & Katz, 2002) the development of toolkit applications for innovation and design shifts the locus of the effort from the manufacturer or business to the user. Piller & Walcher ( 2006) define two types of toolkits to accomplish this. One type of toolkit focuses on “getting access to need information” (p..310). Participants create a solution to a set problem defined by the business. The

1 business responds to these suggestions quickly. Piller & Walcher (2006) suggest that the time and cost of new products created this way is significantly reduced. The second toolkit “focuses on getting access to solution information and more generic innovative ideas in the user domain” (p. 310). Here the business gives information to users and asks them to compete to give them an idea for the solution. Poetz & Schreier (2009) and Pillar, Schaller, & Walcher (2009) present the first “real-world” comparison of solutions generated by experts and users in a contest. They found the solutions of the contest participants were superior to those of the expert/professions. The validity and generalizability of their findings cannot be affirmed given the constraints and methodology of their study yet it does suggest the efficacy of civilians as co-designers in an internet community based competitive environment (see also Piller & Ihl, 2009).

Goals of proposed research  Survey of retail executives to assess the degree to which they understand and have used the power of consumer generated innovation.  Conduct 2 controlled experiments to test the power of competition to generate new ideas and products.  Conduct internet based panel research using game theory to assess whether the new ideas generated by competition create a potentially better portfolio of ideas.

Part 2: Background and Phase I Technical Objectives

Contestheory proposes to conduct a feasibility study during Phase I to answer the following: 1. To what extent does competitive contest gaming on the Internet with consumers lead to the more, better, more creative ideas and solutions to business problems and/or innovations? 2. To what extent can we develop a scalable platform that can be used by all businesses to develop their strategy to collect user generated contributions?

We propose investigation of the effectiveness of the internet based community competition platform in two ways. In the first way we design very controlled laboratory experiments using validated social psychological methodology to test the effectiveness of the platform to lead to innovative consumer input. In the second way, we use a portfolio management methodology to assess the effectiveness of community based internet suggestions. The combined social psychological and strategic management approaches provide a solid foundation for validating the Internet Community Based Model for business innovation. This will help us offer an effective solution to companies for their marketing campaigns using the internet. The plan would be to offer this solution as a “Software as a Service” model.

Social Psychological Experimentation The research will involve investigating systematically the motivational structure underlying competition as it directly relates to the power of user generated content. Using standard psychological methodology we will attempt to see if the noxious drive like state that defines competition can be reduced by behaviors that would be proxies for those creative and business development behaviors we see in the anecdotal evidence for user generated contributions.

The experiments will be designed to assess the sensitivity of subjects to changes in reinforcement magnitude or probabilities in these contests (during competition). Is it the competition itself or the magnitude of the possible reward that is significant in achieving the results of the competition? The social psychological literature is clear that these probabilities and magnitude of the reward should have an influence (e.g., Dougherty & Cherek, 1994) but this has never been tested in the business arena.

Successful experimentation would allow us to set up an applied experiment to assess the effectiveness of consumer generated ideas in a business environment.

Contest Project Portfolio Selection and Evaluation Framework The contest portfolio strategic analysis architecture includes contest project entry evaluation and selection, resource requirements analysis and allocation, and portfolio profit and risk analysis. Figure 1

2 depicts the process of creating an appropriate contest portfolio. The objective during Phase 1 will be to first screen contest proposals considering contest requirements, the demands of each phase in the contest life cycle, and the merits of each contestant’s entry using internal and external factors. External factors will include contest organizer’s needs, state-of-the-art technologies, competitors, intellectual property, and any environmental or other laws affecting the contest. Internal factors considered include time, the risk and the profit of a contest project, the technological capabilities of the firm, contest organizer’s patents, and contest organizer’s strategies. The four dimensions of the factors include economics, risk, strategy, and technology. By using these multiple criteria, the contest organizers objectively select potential and high value contest projects. In order to create a set of feasible contest project portfolios, and secondly we will consider interactions among activity groups within a classification to assess the required enterprise resources for a contest portfolio. The derived model considers the characteristics of the resources. Third, we will calculate the profits and risks of plausible contest portfolios (derived in second) and finally develop the appropriate contest portfolio strategy.

Figure 1 - The analytical framework for selecting and evaluating contest portfolios

Part 3: Research Plan Project I: Research and Development of consumer generated idea platform 1. To what extent do business executives understand and use the power of the consumer to generate useful business ideas and products or service solutions. A survey of CEO’s and senior executives of the top 200 retailers in the U.S. will be conducted to assess their understanding and use of consumer generated content. This survey will also assess the likelihood of adoption given a platform for them to define and run a consumer generated idea contest. (The PI and the researchers through their association with the Purdue University Center for Customer Driven Quality have developed a panel of senior retail executives who make themselves available for surveys of this type in return for information of interest to their businesses). 2. To what extent are these contests more effective in generating ideas than traditional ways of getting ideas? In a controlled environment setting subjects will be randomly assigned to conditions that vary by the following factors: (contest non-contest) by (reward condition- no reward…small reward…larger reward). The factorial design and the laboratory control allow clear cause and effect statements of the effectiveness of contests of user generated ideas. The factorial design is standard in social psychological experiments of this type. We will use well developed and understood tasks to measure idea productivity and quality following extensive pretesting. (Human experimentation requires approval of the Purdue University Institutional Review Board. Application for this research is in process and given the nature to work that the researchers have been doing we see no problem with approval). 3. The Dimensions and Criteria for Evaluating Contest Projects using game theory and portfolio analysis We proposed that a game/portfolio analysis can illuminate the potential of any “consumer generated idea platform.” The application of this approach to the “contest consumer generated idea” is novel. The ideas below represent a first attempt to define the process of this evaluation and Phase 1 research will allow us to better develop this process and analysis. This process is outlined in detail in a set of studies by Trappey and Associates (Trappey, Trappey, Chang, & Huamng, 2009; Trappey & Trappey, 2009).

3.1 –Portfolio Analysis applied to contest idea quality The first step for contest portfolio strategic analysis is to collect internal and external factor criteria for contest project evaluation. Based on the results of a literature review and contest organizer’s interviews, this study creates a hierarchical structure of dimensions and criteria for the evaluation of a contest project as shown in Figure 2. This structure includes four dimensions: technology, risk, strategy and economics. Each dimension forms the multiple selection criteria. Contest organizers in the initial selection stage assess whether the functions of a new contest entry satisfy the requirements of the target market. Critical factors such as the expected Net Present Value (NPV) profits, the market-share growth rate, and the risk of achieving the profit objective determine the alignment between the contest marketing strategy, the enhancement of competitiveness, 3 the collaborative integration of design chain, and the NPV profits of patents and intellectual property. During the design phase, contest organizers also consider demands of other contest life cycle stages including manufacturability, risk of technical and business failures, availability of critical parts, and design for environment.

Based on the results of a literature review and contest organizer’s interviews, this study creates a hierarchical structure of dimensions and criteria for the evaluation of a contest project as shown in Figure 2. This structure includes four dimensions: technology, risk, strategy and economics. Each dimension forms the multiple selection criteria. Contest organizers in the initial selection stage assess whether the functions of a new contest entry satisfy the requirements of the target market. Critical factors such as the expected NPV profits, the market-share growth rate, and the risk of achieving the profit objective determine the alignment between the contest marketing strategy, the enhancement of competitiveness, the collaborative integration of design chain, and the NPV (Net Present value) profits of patents and intellectual property. During the design phase, contest organizers also consider demands of other contest life cycle stages including manufacturability, risk of technical and business failures, availability of critical parts, and design for environment.

The qualitative and quantitative evaluation of the performance criteria form two groups with the profits of contests has been defined by Trappey and his colleagues and we believe can be applied to the current research. The methodology and analysis requires the collection of data from interviewing companies who have engaged in “content driven consumer ideas” and translating that into a set of assumptions. These assumptions are then analyzed to a well developed set of formulas and procedures as outlined by Trappey and associates. The sections below are illustrative and not exhaustive of the mathematical analysis of contest idea portfolios and its application will allow comparison of the proposed advantages of contest driven ideas versus ideas developed by more traditional methods.

3.2 - The Portfolio Analysis in the Evaluation of Contest Projects For the evaluation of contest projects, the fuzzy hierarchical analysis (FHA) determines the criteria weights and fuzzy multi-criteria decision making (FMCDM) selects the contest projects with the greatest potential and highest value. FHA uses paired comparisons and a consistency test to ensure the objectivity of criteria weights. Using triangular fuzzy numbers, top managers or experts express the fuzzy relative importance of criterion i and criterion j and then produce a fuzzy positive reciprocal matrix. There are set of other estimates of capital and budget requirements, risks, R&D, and human resource requirements that are used to lead to a set of feasible contest portfolios. Then the analysis considers the profit and the risk of the feasible contest portfolios. The extensive quantitative analysis (outlined in Trappey and associates) leads to the evaluation of contest portfolio profit. This final analysis allows us to make statements about the relative advantage (if it is there of idea portfolios generated by traditional means (e.g., experts) and those generated by consumer input.

The two pronged approach of social psychological experimentation to test the relative advantage of competitive driven idea creation and portfolio analysis (econometric analysis) to the same research issue is a very innovative combination of what really is two disparate methodologies but if the findings are consistent will be a strong proof of concept for consumer driven creativity in business.

Task 1 – Development of a survey instrument to assess executive understanding and use of the “contest” scenario for business purposes. Pretesting and survey administration will be accomplished using standard practices. The PI and Consultants have completed this type of survey numerous times. Retail executives will be used for this study because retailing has direct customer interaction and would be a prime market for the commercialization of this product.

Task 2 – The creation of the factorial design depends on the development of experimental materials. These materials will come after an extensive literature review. Following development and pretesting the conduct and analysis of the experiments are pretty much standard social psychological techniques.

4 Task 3 – Although portfolio analysis is well understood the exact nature of the task required to conduct this analysis will be determined during this Phase 1.but the steps are well defined by Trappey and associates who have agreed to collaborate in this application.

Technical Barriers

Risk Rating Technical Challenges Innovations approach Task 1 –  There are no technical challenges  The methodology is not innovative. here. The design of the survey is The content has not been studies straight forward. The delivery of the and the findings will be new. survey to retail executives has no technical challenge as the list of executives is part of a data base maintained by the PI. Task 2 –  There are no technological challenges  The “contest” platform is the in the experimental portion of Task 2. innovation that is being tested here The technological challenges would and so the development of this be the modification in development of platform through experimental the “contest” platform that serves as pretesting using social the basis of the commercialization psychological techniques is crucial. described in this proposal. Task 3 –  The development of an experimental  The application of this approach to task to assess the contest platform an area that has not been research using game and portfolio theory has (consumer generated innovation) is not been accomplished and will completely new and innovative. require extensive development. It might not be appropriate for this task.

Project Milestones The Major program tasks proposed and the project plan are illustrated in Table 2 along with the major milestones and metrics

I am working on this having formatting problems…need to have Tina get back from break…I do not know why we let them take breaks

Table 2 – Project Milestones Part 4. Commercial Potential

Contestheory is a new startup, founded in December 2009 by Dr. Richard Feinberg that has developed a platform to allow any business to quickly develop a consumer generated contest to use competition to drive product and service development.

Using user and consumer generated ideas has emerged as one of the unintended side effects of the explosion of social media and community forums in web sites. The commercial potential is sharply etched by an increasing discussion in the general business literature on using competitive consumer input for innovation (the appearance of this framework as a suggestion in the current issue of the December issues of the Harvard Business Review

5 illustrates this). Commercial potential is a question of assessing the understanding and intent in any vertical industry that has a business-consumer relationship. The retail industry (the arena used in this study) appears to be a good proxy for the commercial potential. The survey proposed herein will allow some estimate of this commercial potential. In this one industry vertical. The results of the survey will highlight any perceived barriers to use of the proposed platform. The increasing attention that consumer driven creativity is attracting across industries and countries suggests a wide and deep market for this activity. In one contest by a watch company 2000 ideas were submitted by consumers, from 48 countries. In one idea contest run by Audi 6000 ideas from German and Japanese consumers were evaluated for use in upcoming model development.

Every industry has a need for new ideas, new products, new services. While traditional means of doing this (e.g., focus groups, market research) are known to these companies the arena of consumer driven innovation is new. The emergence of community and social media available on the Internet has opened up this world. The major companies in all vertical industry categories appear to be jumping in this water. It is as clear that small and midsized businesses have not yet seen how this can work for them. This is the commercial market we see for the platform being developed by Contestheory.

We can get a clear sense of how much is spent in product development for large companies. In this amount we see the potential for a platform to speed the development and cut costs of a new product idea, a new service, and greater consumer awareness. In a Business Week article citing a worldwide study of R&D http://tinyurl.com/9qjde) it was estimated that Microsoft spent 40 billion in product development, IBM 35, Apple and Google 5 billion each. The top R&D spenders spent a total of 384b in 2004. As another example, according to a study published in PLoS Med in 2008 (http://tinyurl.com/nbtu9v). U.S. Pharma spent 2 billion just on promotional events just to make professionals aware of their drugs. Promotional activity is an example of using consumer users to create sales. A contest platform that engages consumers in the manner developed by Contestheory not only makes potential consumers ware of the product/service being developed but actively engages them in the development of that product/service. Work at the Purdue Retail Institute suggests that 25% of product costs of any product on a retailers shelf (individual products may differ) are R&D. Thus creating products faster and cheaper affects prices that consumers ultimately have to pay for retail products and services.

The Business Week article cited above claimed that the study showed that superior business results are a function of the innovation process and not necessarily the amount spent. It is in this context that Contestheory has a large and lucrative market potential since consumer driven innovation may be more effective than non-consumer driven innovation (the reason for this phase 1 research).

There appears to be no commercial product platform to allow small to midsize business to easily develop a contest for consumer generated ideas. Companies that have tried this approach appear to develop the structure for this internally. This type of resource is not readily available to small to midsize business. The availability of the platform allows small and midsized businesses to compete in this arena with their larger competitors. There is a significant first mover advantage for Contestheory. This first mover advantage will allow the product platform to fill a void and should be attractive for investment and commercialization.

Intellectual Property Protection All current and future employees of contestheory are and will be under an NDA and a Non-Compete Clause as part of their employment contract. File for patent

6 In addition to the aforementioned protections to our intellectual property, there are a number of barriers that contestheory will erect to prevent product imitation by would be competitors. 1. Contracts/relationships – 2. Time lag – 3. Learning/private information –

Financing

Part 5. Consultants and Subawards/Subcontracts. Keep in mind that an SBIR Phase I project requires a minimum of two-thirds of the research, as measured by the budget, to be performed by the small business concern. The remaining percentage, one-third may be allocated as appropriate to achieve the objectives of the proposed SBIR Phase I project. Consultant: The services of each consultant must be justified within the context of the proposal. In this section of the proposal, information must be provided on each consultant's expertise, organizational affiliation, and contribution to the project. In addition, each consultant, whether paid or unpaid, must provide a signed statement that confirms availability, time commitment, role in the project, and the agreed consulting rate (not to exceed $600 per day). The maximum consulting rate under this solicitation is $600 per day (NSF defines a day as 8 hours). This rate is exclusive of any indirect costs, travel, per diem, clerical services, fringe benefits, and supplies. The signed consultant statements (with the required stated number of days at $600 per day) must be uploaded as part of the proposal budget justification.

Part 5. Consultants and Subawards/Subcontracts None

Part 6. Equivalent or Overlapping Proposals to Other Federal Agencies No equivalent or overlapping proposals to other Federal Agencies

A.9.4. References Cited. Chronbach, L. (1963). Educational psychology. NY: Harcourt Brace & World. Demonaco, H., Ali, A., & von Hippel, R. (2005). The major role of clinicians in the discovery of off label drug therapies. MIT Sloan Research Paper 4552-05. Downloaded from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=780544 Deutsch (1949). A theory of cooperation and competition. Human Relations, 2, 129-151. Dougherty, D., & Cherek, D. (1994). Effects of social context, reinforce probability, and reinforcer magnitude on human choices to compete or not to compete. The Journal of Experimental Analysis of Behavior, 62, 133-148. Herstaat, C., & von Hippel, E. (1992). Developing new product concepts via lead user method. Journal of Product Innovation Management, 9, 213-221. McDonald, A., & Schrattenholzer, L. (2002). Learning curves and technology assessment. International Journal of Technology Management, 23, 718–745. Piller, F., & Ihl, C. (2009). Open innovation with customers: Foundations, competences and international trends. Manuscript downloaded at http://www.internationalmonitoring.com/fileadmin/Downloads/Trendstudien/Piller- Ihl_Open_Innovation_with_Customers.pdf Piller, F., Schaller, C., & Walcher, D. (2009). Customers as co-designers: A framework for open innovation. Downloaded at http://www.handels.gu.se/ifsam/Streams/Poster/116%20POSTER %20final.pdf.

7 Piller, F., & Walcher, D. (2006). Toolkits for idea competitions: a novel method to integrate users in new product development. R & D Management, 36, 307-318. Poetz, M., & Schreier, M. (2009). The value of crowdsourcing: Can users really compete with professionals generating new product ideas?. Paper presented at the Summer Conference at the Copenhagen Business School June 17-19, 2009. Steigleder, M., Weiss, R., Balling, S., Wenninger, V., & Lombardo, J. (1980). Drivelike motivational properties of competitive behavior. Journal of Personality and Social Psychology, 38, 93-104. Steigleder, M., Weiss, R., Cramer, R., & Feinberg, R. (1978). Motivating and reinforcing functions of competitive behavior. Journal of Personality and Social Psychology, 36, 1291-1301. Trappey, C., Trappey, A., Chang, A-C., & Huang, A. (2009) The analysis of customer service choices and promotion preferences using hierarchical clustering. Journal of Chinese Institute of Industrial Engineers, 101-109. Trappey, A., & Trappey, C. (2009). A Fuzzy ontological knowledge document clustering methodology. IEEE Transactions on Systems and Cybernetics, 39, 806-815 Urban, G. (2005). Don’t just relate- advocate: A Blueprint for profit in the era of customer power. NJ: Pearson. Urban, G., & von Hippel, E. (1988). Lead user analysis for the development of new industrial products. Management Science, 34, 569-582. von Hippel, E. (2005). Demonstrating innovation. Cambridge, MA; MIT Press. von Hippel, E. (2006) Democratizing innovation. Cambridge, MA: MIT Press von Hippel, E., & Katz, R. (2002). Shifting innovation to users via toolkits. Management Science, 48, 821-833. A.9.5. Biographical Sketches. (A maximum of 2 pages per person.) Provide relevant biographical information for the Principal Investigator (PI) and key personnel (including consultants and key members of the subaward team). A.9.6. Budget. The total budget shall not exceed $150,000 for the SBIR Phase I proposal. Budget line items must be shown in detail in the budget justification. List the principal investigator and senior personnel by name with their time commitments budgeted in person-months and the dollar amount for the performance period. [Don’t worry about this. We will do this in a separate area] A.9.7. Current and Pending Support of Principal Investigator and Senior Personnel. This section should provide information about all research to which the principal investigator and other senior personnel either have committed time or have planned to commit time (in the event that other pending projects are supported during the Phase I period of performance), whether salary for the person involved is included in the budgets of the various projects. If none, state NONE. For all ongoing or proposed projects or proposals that will be submitted in the near future -- but excluding any proposals already cited above in the Equivalent or Overlapping Proposals to other Federal Agencies section -- that involve the Principal Investigator or senior personnel, provide the following information:  Name of sponsoring organization,  Title and performance period of the proposal, and  Annual person-months (calendar months) devoted to the project by the principal investigator and each of the senior personnel. A.9.8. Equipment, Instrumentation, Computers, and Facilities. Provide a description that specifies the availability and location of significant equipment, instrumentation, computers, and physical facilities necessary to complete the portion of the research that is to be carried out by the proposing firm in Phase I. Purchase of permanent equipment is not permitted in a Phase I project (reference definition of Permanent Equipment). DO NOT use budget line item D for Phase I proposals. If the equipment, instrumentation, computers, and facilities for this research are not the property (owned or leased) of the proposing firm, include a statement signed by the owner or lessor which affirms the availability of these facilities for use in the proposed research, reasonable lease or rental costs for their use, and any other associated costs. Upload images of the scanned statements into this section.

8 A.9.9. Supplementary Docs. This section will only contain the following components (if applicable): A.9.9.1. Letter(s) of Support for Technology (no more than three letters). Letters of support act as an indication of market validation for the proposed innovation and add significant credibility to the proposed effort. Letters of support should demonstrate that the company has initiated dialog with relevant stakeholders (potential customers, strategic partners or investors) for the proposed innovation and that a real business opportunity may exist should the technology prove feasible. The letter(s) must contain affiliation and contact information for the signatory stakeholder. [We need letter from Imaginestics and Finish Line]