More on Crowdsourcing and Design

The other day, Daniel, a reader of Zen and the Art of Innovation, asked a very interesting question about the potentially negative impact of crowdsourcing on the design industry. Rather than respond in the comments section, I decided to do a blog post.

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I can certainly see how crowdsourcing can be perceived as undermining the design industry and the client. As a means of sourcing new design ideas, crowdsourcing can potentially lead to a lot of quantity, at the expense of quality, relevance, or a more complete design solution.

But let me offer the glass half full perspective. To me, crowdsourcing:

1. Encourages design activity to be more strategic. To source great design effectively, whether by traditional or non-traditional means, client companies will have to strengthen their understanding of their underlying brand foundations, design principles, and business goals. Without these anchoring criteria, the client has no way of judging whether a design is relevant to the job at hand. What the client then potentially ends up with is a Tropicana-like disaster, and that costs more than $500.
   
   
2. Enables people to become knowledgeable about design. A lot of people still think design equals “make it pretty”, assuming they know what design is at all. Until this changes, design work will always be undervalued and designers will continue to be underpaid relative to their counterparts in engineering, marketing, and finance. Crowdsourcing provides business people exposure to the value of design and hopefully whets their appetite for different types of design work (e.g. industrial, interaction, design thinking).
   
   
3. Allows less-established designers to find companies (and vice versa). One of the great things about crowdsourcing is the marketmaking nature of the model. Young designers, just getting started or in-between jobs, can find projects that help pay the bills and build their portfolios. Entrepreneurial companies with limited marketing budgets can still obtain some design work. Basically, crowdsourcing is a disruptive innovation that targets non-consumption, just like Southwest Airlines.
   

Ultimately, crowdsourcing is enabling an eBay-like model for design; right now, what’s missing are the standards that ensure quality, fair pricing, and value for both the buyer and the seller. There’s a business model idea somewhere in that statement.

That said, I do believe that a lot of basic design work will be outsourced overseas in the near future. The discrepancy in labor costs and the growing cadre of design talent in places like India and China suggest that the shifts we have seen in other disciplines (e.g. computer programming, customer contact centers, manufacturing) is likely to occur in the design world. Sadly, a designer in mid-town Manhattan will soon be competing with a girl sitting in a shared office in Austin, TX, plus some random guy in Bangalore on a regular basis. This would be true even if crowdsourcing didn't exist.

In the long run, I hope my work—which often lies at the intersection of design and business—will encourage a dialogue and common understanding between MBA-trained and design-trained professionals about what strategic, impactful design can enable. For a case example of the value of design being elevated in a corporation, check out this month’s Fast Company, which has a great feature article on David Butler, VP of Design at Coca-Cola, and how his work has transformed the brands and innovations at that company.

Social media and innovation

Recently, vitaminwater has been advertising a new “flavorcreator” Facebook app, which allows consumers to develop the next great vitaminwater. In addition to voting for the next flavor, consumers can also determine the vitamins and create the new label. Over 500,000 fans have participated, and the new vitaminwater will launch in early 2010.

People often ask me about the implications of social media to innovation. My multi-part answer is:

1) It’s really too early to describe “best practices”. There are many interesting books on social media, but the pace of change on this topic is, in my opinion, far too quick to codify in a book. For example, are there any books that were published in 2008 that predicted the impact Twitter would have on us in 2009? Blogs and Linkedin are as big as ever, but are companies still investing in Second Life storefronts?

2) The implications vary greatly by industry. The vitaminwater example demonstrates the potential of Facebook for Gen-Y oriented consumer products industries. But does the same thinking truly apply toward health care or financial services companies that face greater regulatory constraints? In the end, I believe that some social media technologies are more relevant to some industries and certain usage cases than others.

3) Some interesting things are happening in crowdsourcing. Basically a form of open innovation, crowdsourcing is a very interesting way to leverage social media, and vitaminwater’s Facebook app is just one example. Increasingly, Peer Insight is working with companies to leverage crowdsourcing (and prediction markets) as a means of fostering more effective field research, ideation, and concept testing.

Can you disrupt the disruptor? The new iPod Nano

On Wednesday, Steve Jobs unveiled the new iPod Nano at the company's annual music event. The major change to the Nano this year is the addition of a standard definition (not HD) video camera. An 8GB Nano costs $150, and the 16GB version is $180. The combination of a low-end video camera, convenient form factor, and relatively low price suggests that the iPod Nano is a disruptive innovation to the camcorder industry.

What’s amazing about the video camera-enabled iPod Nano is that it actually disrupts a very successful disruptive product: the Flip Video camera (shown on the left). With an incredibly small size (my Flip is 3.3 ounces), decent video (HD is an option), and easy uploading, the Flip Video has been high on tech geeks’ wish lists for a long time. Many of my friends use their Flips to post quick videos of their kids at home or to run short interviews at work.

Given the rapid of pace of technology R&D and Moore’s Law, it comes as no surprise that one of 2008’s most disruptive products gets disrupted itself in 2009. The big question becomes: what are the best practices for how companies should create disruptions in a market that has already been disrupted? A corollary question is: are there certain market trends that suggest disruption is possible in a recently disrupted market?

Undoubtedly, these are new questions to ponder. The answers to these questions will become more evident in the next 12 to 18 months as continued rapid innovation occurs in a number of industries, including health care, alternative energy, and of course, consumer technology.

Measuring Innovation

Having worked in innovation for over 5 years now, I have learned (like many others in the field) that comparing companies on how well they innovate can be very challenging. Far too often, senior executives equate innovation spend to R&D spend, thereby ignoring many effective types of innovations (e.g. business model innovation, disruptive innovation). As well, industries have inherent levels of innovation, driven by a combination of competitive dynamics, market maturity, and regulatory requirements.

Last week, McKinsey & Co published an article about their proposed metric for measuring innovation, which they are calling IPS (Innovation Performance Score). The methodology leverages their proprietary "granularity of growth" database, which contains information on 750 companies, and involves the following steps:

1. Looking for revenues generated by new reporting segments, caused by new initiatives or acquisitions that are not related to geographic expansion.
   
   
2. Comparing revenue growth to overall market growth, and attributing any superior performance to a company's ability to innovate
   
   
3. Calculating the IPS %, which shows a company's compound annual growth rate over a specific period that is due to innovation

Some of McKinsey's more interesting findings include:

1. A strong IPS is a reliable indicator of stock market performance. This should be no surprise and is hopefully confirming to those of you who work in or have invested heavily in innovation.
   
   
2. Business model innovation is a must. While the level of product, process, and business model innovation will vary by industry, significant business model innovation is key to "superior innovation impact".
   
   
3. There is actually an optimum level of innovation. Companies with lower IPS scores tended to underperform relative to the market, but companies with very high IPS were not rewarded disproportionately.
   

Interesting stuff for sure, and kudos to McKinsey for doing the work. The general logic of the methodology and the conclusions are sound.

One potential opportunity for improvement: the methodology does not appear to fully consider breakthrough, organic growth in existing businesses due to non-product, non-business model innovations (e.g. due to customer experience).

One potential issue: Revenues from an acquisition that leads to new products or services are considered, but this would be tough to accurately dissect from the overall revenues due to the acquisition.