Crowdsourcing and Risk-Management a survey based approach Michael Gebert May 2014 Supervisors Dr Paul Jones, University of Plymouth Dr Brychan Thomas, University of Glamorgan Dr Thomas Peisl, University of Munich External Examiner Dr Amit Mitra, University of the West of England Internal Examiner Dr Gareth White, University of Glamorgan Chair Professor David Pickernell, University of Glamorgan Director of Studies Dr Brychan Thomas, University of Glamorgan The submission presented in partial fulfilment of the requirements of the University of South Wales/Prifysgol De Cymru for the Degree of Doctor of Business Administration. 1 Abstract The business world has become globally competitive. Innovation is less frequently undertaken in-house, in a closed and integrated way but transformed more into an open call where many actors are involved in the different steps of the innovation process. It is therefore, imperative for organizations to gain competitive advantage by adopting new technologies to apply in company operations. Crowdsourcing Innovation encourages companies in their effort to re-evaluate as well as re-design business processes and diversify a greater task to a heterogeneous group of people for a common goal. The principal objective of this thesis is to identify crowdsourced innovation models and examine the usage in a business context in order to evaluate and establish methods of managing crowdsourcing innovation risks in organizations. The increased potential of crowdsourcing as a tool for business development and innovation has prompted extensive research into this crucial field by academia. This thesis is an added endeavour to crowdsourcing investigative studies and makes a significant contribution to literature as well as commercial practice. In an effort to outline the research objectives, the research questions seek to provide an understanding of the risks associated with crowdsourcing, the potential of the concept to improve business practices and possible strategies that can be used to manage the identified risks. An initial investigation of the extant literature traced the growth and development of crowdsourcing since its inception and revealed that the concept is marred with criticism and controversy such as economic constraints, social ramifications and ethical implications. An additional objective of the literature review was to critically scrutinise the assessment of crowdsourcing to enrich companies with near infinite problem 2 solving capacities, its ability to pay for solutions, not failures and most importantly, to solve problems possibly faster and with reduced cost of operations. To enable the development of a conceptual risk-framework the thesis gives a detailed analysis of risk management, while defining fundamental aspects of risk regulations. The study encompassed a qualitative collective survey methodology, which was applied in form of a prepared online questionnaire template to a systematic random sample. A qualitative study with 151 globally sampled industry experts and customers of leading intermediary crowdsourcing platforms has been conducted over an eight-month period. In addition, one-to-one structured formal interviews have been recorded. The selection of participants has been defined by a systematic random sample. The analysis of the aggregated data revealed that the disruptive nature of innovation through crowdsourcing effects every department within an organization. This finding contributes to practice showing that crowdsourcing was particularly not only prevalent within Research and Development and Marketing and Sales, but also involved Human Resources, Logistics and Accounting among others. Even though the overall perception in favour for the opportunities to excel innovation was high, possible risks for adoption were identified. The thesis contributes to academic knowledge and practice by identifying those risks - especially turbulence risk as the most prominent source of risk, followed by organizational, societal risk and financial risk among others. In an attempt to provide a deeper comprehension of the applicability of crowdsourcing the study delivered potential strategic solutions to the risks identified. The thesis provides a conclusion, which analyses the perceptions held about crowdsourcing by diverse stakeholders such as its immense contribution to sharing of business ideas, collecting business capital and involving customers to drive innovation. 3 Finally, the dissertation findings form a platform for a proposal of recommendations to identify limitations of crowdsourcing, which include effective risk management through ensuring anonymity of an organisations data, and restriction of access to sensitive materials, among other security measures. This exploratory research seeks to provide a multidisciplinary path for future academic research. From the viewpoint of practical use for managerial decision guidance the study provides new and valuable information on how the crowdsourcing concept advances business practices and how possible risks and restrictions can be managed. These findings are to encourage as a guide in recommending where future researchers could focus or advance the field of study. 4 R11 Certificate of Research This is to certify that, except where specific reference is made, the work described in this thesis is the result of the candidate. Neither this thesis, nor any part of it, has been presented, or is currently submitted, in candidature for any degree at any other University. Signed: …………………………………………………………………………… Candidate Signed: …………………………………………………………………………… Director of Studies Date: …………………………………………………………………………… 5 Crowdsourcing and Risk-Management – a survey based approach Content 1. Introduction .................................................................................................................. 17 1.1. Research Question ...................................................................................................... 17 1.2. Background ................................................................................................................ 19 1.3. Early Practice .............................................................................................................. 26 1.4. Current Use ................................................................................................................ 31 1.5. Limitations of Crowdsourcing ..................................................................................... 36 1.6. Risk Management ....................................................................................................... 38 1.6.1 Aspects of Risk Management ...................................................................................... 39 1.6.2 Stages of Risk Management ........................................................................................ 41 1.7. Dissertation Aims & Objectives ................................................................................... 46 1.8. Theoretical & Organizational Context ......................................................................... 47 1.9. Contribution to the Field of Knowledge and Practice .................................................. 49 1.10. Dissertation Outline .................................................................................................. 49 1.11. Summary and conclusion .......................................................................................... 51 2. Literature Review .......................................................................................................... 53 2.1. Introduction ............................................................................................................... 53 2.2. Crowdsourcing ........................................................................................................... 53 2.2.1. Theory of Crowdsourcing ........................................................................................... 55 2.2.2. Evolution of Crowdsourcing ....................................................................................... 57 2.2.3. Approaches to Crowdsourcing ................................................................................... 60 6 Crowdsourcing and Risk-Management – a survey based approach 2.2.3.2. Paid Crowdsourcing ................................................................................................. 62 2.2.3.3. Competitive Crowdsourcing .................................................................................... 65 2.2.4. Crowdsourcing Strategies ........................................................................................... 67 2.2.4.1. Collective Intelligence .............................................................................................. 67 2.2.4.2. Types of collective intelligence ................................................................................ 68 2.2.4.3. Crowdcreation ......................................................................................................... 70 2.2.4.3. Voting ...................................................................................................................... 71 2.2.4.4. Crowdfunding .......................................................................................................... 71 2.2.5. Benefits of Crowdsourcing ......................................................................................... 72 2.2.5.1. Cost .........................................................................................................................