Crowdsourcing methods are McKinsey's Prime Business Technology Trends to Watch In 2008

In the recent issue of McKinsey Quarterly, the business journal of strategy consultants McKinsey & Co, James Manyika, Roger Roberts and Kara Sprague discuss Eight Business Technology Trends to Watch In 2008. Five of those eight relate directly to the topics of this blog:

Four trends, Distributing Cocreation, Using consumers as innovators, Tapping into a world of talent, and Extracting more value from interactions are sub-sets of the larger Crowdsourcing idea.

(1) Distributing co-creation is just another term for our own "interactive value creation" or Benkler's "commons-based peer production" or Don Tapscott's "Wikinomics". No doubt that this is a mega-trend which has been described widely in the last years but which practical implementation just has started. In consequence, McKinsey estimates that 12% of all labor activity could be transformed by more distributed and networked innovation:

"Outsiders offer insights that help shape product development, but companies typically control the innovation process. Technology now allows companies to delegate substantial control to outsiders -- co-creation -- in essence by outsourcing innovation to business partners that work together in networks. By distributing innovation through the value chain, companies may reduce their costs and usher new products to market faster by eliminating the bottlenecks that come with total control."

Interestingly, however, in the entire McKinsey article is no word on open source or open licensing models ("commons-based") which are a main driver for the efficiency of distributed open systems of value co-creation. This may be perhaps too much for the typical reader of McKinsey Quarterly.

(2) Using consumers as innovators: Well, not really a new trend, Eric von Hippel is saying this since the 1970s, and since the beginning of industrial production consumers are inventing new products. The new trend, however, is that firms are seeing this potential and they increasingly are utilizing the capabilities for innovation. They are not just asking for feedback on their own creations, but they are integrating consumers actively in the creation of something new. MyKinsey is quoting Threadless here, but this is not a correct example for this trend as most the creators at Threadless are no consumers but experts!

A better example, quoted by the iRise Blog in a posting on the McKinsey article, is Dell's IdeaStorm, and, on the B2B front, Salesforce.com. This software company is using an application for users to make suggestions to improve their CRM software. The top ideas from this contest is receiving executive-level visibility.

(3) Tapping into a world of talent is the consequence of opening your innovation and value creation process:. The people reacting on an open call for participation in the " Distributing co-creation" idea are those who are the most talented to do this work (as they have relatively lower cost to fulfill the job):

"As more and more sophisticated work takes place interactively online and new collaboration and communications tools emerge, companies can outsource increasingly specialized aspects of their work and still maintain organizational coherence. Much as technology permits them to decentralize innovation through networks or customers, it also allows them to parcel out more work to specialists, free agents, and talent networks."

This leads to a further consequence, and their next trend: (4) Extracting more value from interactions. The more a company is relying for value creation in its periphery, the higher is its costs for coordination compared to production cost.

"As a result, a growing proportion of the labor force in developed economies engages primarily in work that involves negotiations and conversations, knowledge, judgment, and ad hoc collaboration—tacit interactions, as we call them. By 2015 we expect employment in jobs primarily involving such interactions to account for about 44 percent of total US employment, up from 40 percent today. Europe and Japan will experience similar changes in the composition of their workforces."

This is nothing new at all, the fact, that the so-called transaction cost are dominating the overall cost in a modern economy is known since several decades. But it is good that McKinsey are stressing this relationship again – as mastering these cost will become a major capability for firms which want to profit from crowdsourcing. Technology is leading this path:

"Technology tools that promote tacit interactions, such as wikis, virtual team environments, and videoconferencing, may become no less ubiquitous than computers are now. As companies learn to use these tools, they will develop managerial innovations—smarter and faster ways for individuals and teams to create value through interactions—that will be difficult for their rivals to replicate. Companies in sectors such as health care and banking are already moving down this road. […] But: Creating the business case for investing in interactions will be challenging—but critical—for managers."

(5) A last trend from their report is "Putting more science into management". Technology is continuously helping managers exploit ever-greater amounts of data in real-time to make smarter decisions. One of the business models which are enabled by this data-driven management is mass customization, named by McKinsey as "the holy grail of deep customer insight":

"The amount of information and a manager’s ability to use it have increased explosively not only for internal processes but also for the engagement of customers. The more a company knows about them, the better able it is to create offerings they want, to target them with messages that get a response, and to extract the value that an offering gives them. The holy grail of deep customer insight—more granular segmentation, low-cost experimentation, and mass customization—becomes increasingly accessible through technological innovations in data collection and processing and in manufacturing."

Go to the original article which has plenty of good references for further reading (requires registration, for a version of the full text of this paper, go to ZDnet).