Spurring Innovation Through Business Contests

November 24, 2013

Coming up with innovative products and services is no simple task for companies to accomplish. After all, most new item that businesses roll out takes years of research and development, a costly investment that’s not guaranteed to succeed. In order to avoid R&D burnout, many companies have held competitions in the hopes of finding a great idea from outside the organization. And according to a new MIT study, this might just be the most efficient way for companies to innovate.

For true breakthroughs to occur, many ideas and methods need to be explored in order to determine the most effective course of action. While R&D labs come up with various options through brainstorming sessions, they inevitably hone in on one idea to develop entirely. But just because a concept seemed the best during brainstorming doesn’t mean it will work within a finished product. With competitions, on the other hand, a variety of solutions are explored to their fullest extent by a number of diverse parties. For instance, in 2006 Netflix put out a $1 million call for developers to improve upon their movie recommendation platform by 10 percent. Over the course of three years, the company received more than 44,000 entries from 5,000 teams.

Although many submissions failed to improve upon the existing model, the sheer number of entrants ensured that a significant amount worked well. In fact, Netflix’s competition drew the interest of professionals across the world, bringing in submissions from Chinese graduate students, high-level consultants and Bell Labs researchers. The top 90 entries beat the benchmark by 5 percent while a few of the best projects improved on it by 7 percent. Most importantly, though, in 2009 the company at last found a team that reached the competition’s goal of 10 percent improvement. Thanks to the diverse motivations and expertise of its entrants, Netflix invested just $1 million on an R&D project that could have run into the multi-millions if performed in-house. Other innovative companies like IBM, Google and Cisco have since followed suit and turned to competitions to solve a variety of complicated R&D issues.

 

Questions:

  1. What’s the primary advantage to using competitions in seeking innovations?
  1. What problem could companies face using competitions for innovations?

 

Source: Alan MacCormack, Fiona Murray and Erika Wagner, “Spurring Innovation Through Competitions,” MIT Sloan Management Review, Fall 2013. Photo courtesy of Ashley Van Der Kley.

 

Leave a Reply