Wired Pursuits

Posts Tagged ‘business

Instead of turning to paid analysts, or internal experts some companies are using the crowd to help improve the accuracy of demand forecasts as well as better manage inventory and manufacturing capacity.

Predictive markets, often also referred to as information markets, aggregate the knowledge of the crowd to make predictions regarding unknown future events. By aggregating distributed knowledge the predictions of the crowd are often more accurate than when companies rely on only a handful of experts.

How do they work?

In prediction markets, individuals buy and sell “futures” or “shares” based on their beliefs regarding the probability of the event taking place. If they are correct, they are rewarded for their efforts. Because of U.S. laws related to online gambling, rewards often take the form of play money, gift certificates, or recognition within the market.

What is interesting about prediction markets is their structure creates incentives for individuals to act on their closely held information. Because rewards are tied to correct predictions, individuals in the crowd who have access to more information, which may aid in their understanding of the market, tend to buy more shares than those who are just guessing.

For example, Google uses over 300 internal prediction markets to assess events such as customer demand for new products (“How many Gmail users will there be on January 1, 2009?”), company and product performance (“When will the first Android phone hit the market?”), and competitor performance (“How many iPhones will Apple sell in the first year?”). In addition to new sources of predictions, Google has used these prediction markets to better understand and improve the flow of information within their company.

Do predictive markets work?

As with many new uses of the crowd, we have only scant evidence regarding the effectiveness of prediction markets. Best Buy reports internal prediction markets designed to predict holiday sales of gift cards were 99.5% accurate compared to a 95% accuracy rate from external consultants. Intel also reports success with their internal “forecasting markets.”

Faced with the difficult task of predicting demand of products requiring lead times of months or even quarters, Intel found their internal markets were at least as accurate as official figures and in some cases more accurate by 20% (i.e., 20% less error).

There is, however, evidence that outside factors can impact results of these markets. Some data suggests employees may be overly optimistic regarding company performance tending to artificially inflate positive results. For publically traded companies, stock performance can influence predictions upward or downward in line with the latest market swings. And finally, there are also numerous issues related to providing the right incentives for participation as well as obtaining executive buy-in for such initiatives.

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Often the term crowdsourcing is associated with large groups of people contributing information or data (e.g., Wikipedia), with product innovation (e.g., Dell’s IdeaStorm), or with advertising (e.g., Doritos and Pepsi superbowl ad). But a number of companies are also leveraging the crowd to better serve customers and reduce those long wait times.

One area where the crowd is being leveraged is to supplement or even replace call centers. Because companies often struggle with issues related to ensuring operators have the right level of expertise to efficiently and effectively answer incoming questions, some researchers are suggesting that turning to active user communities as a source of expertise may be a more efficient and cost effective way of providing continuous and expert-level support. Active community members often represent the most knowledgeable customers and are likely already providing advice as part of their online activities. Even if only a small percent of calls can be re-directed to these über-users, it could result in substantial cost reductions and potentially more satisfied customers.

Companies such as HP, Microsoft, and AT&T are currently leveraging their user communities to supplements call center staff. In fact, Intuit reports a reduction in total support calls for TurboTax during tax season by 40%. Other companies such as giffgaff, a UK mobile phone operator, leverage their user community forums to handle 100% of their customer support issues, most within 5 minutes. In addition to leveraging their own communities, companies are working with intermediaries who connect them with other knowledge communities. For example, FixYa.com is an online service that “leases” access to knowledgeable crowds to help companies supplement their current customer support services. And Arise leverages 120,000 highly trained, home based independent contractors to provide high quality support resulting in a 25-30% cost savings relative to traditional brick-and-mortar call centers.

Of course, there are many potential issues with leveraging the crowd for customer service. How do you motivate über-users to act as on-call experts? How can you ensure that someone in the community can answer the question in a timely fashion, after all they don’t work for you? And what are the risks of having non-employees act in a capacity that suggests a company sanctioned response? Certainly these are difficult questions.

So the next time you call a customer service line, you might strike up a conversation and see who’s actually answering the phone.

As a researcher studying crowdsourcing I was excited to see that Haydn Shaughnessy of Forbes magazine predicts that crowdsourcing will be top of mind for companies in 2012.  While I agree that crowdsourcing examples are on the rise, I’m not sure I agree that crowdsourcing is a “fail safe” option that is a “mature” as Haydn suggests.

We’ve only begun to examine the economic impacts of crowdsourcing initiatives on the corporate bottom line. Some studies are finding that turning to the crowd has reduced cost and time for product innovation and problem solving, improved quality, and increased market acceptance of new products. In fact, TopCoder a site that runs contests for developing complex software applciations reports that projects typically requiring over a year of development have been completed in slightly over five months. Additionally, TopCoder programs average .98 bugs per thousand lines of code, significantly better than the industry standard of six per thousand. These initial findings are promising, but more research is needed to determine the true benefits to corporations.

While potentially more economical than traditional innovation methods, crowdsourcing does not come without costs. It is not a “build it and they will come” solution. Success requires defined business goals, an understanding of crowd dynamics as well as collaborative technologies. Additionally, those who are getting the crowd to participate are often finding it difficult to sort through and evaluate all the information and ideas that are generated.

One of the biggest hurdles is organizational culture. I saw a similar issue when working with companies to leverage social media for marketing initiatives. Success at leveraging the crowd requires an organizational culture that embraces open methods from the top down and is willing to give up some control. Exposing yourself and your company to the crowd can be scary and isn’t without risk. Lawyers raise concerns about leakage of trade secrets and issues related to intellectual property. Employees may feel they are becoming obsolete and fear for their jobs. And, executives may pull the plug when they encounter negative feedback or comments from customers.

Every day there are new and different uses of the crowd for innovation. While companies like P&G and intermediaries like InnoCentive seem to have it down, most are only beginning to experiment with leveraging the crowd for innovation. I do agree that crowdsourcing may be an excellent opportunity for companies to supplement or even replace their current innovation initiatives – saving money and time in the process. But currently we have only scant evidence of the how best companies can extra value from the crowd.

(Cartoon (c) Geek and Poke, 2009)

Part of the reason I decided to go back to get my PhD was to study how social media was changing how businesses connect with customers and build brands. I’m currently focusing on “crowdsourcing.” Crowdsourcing is basically an open call to the “crowd” to participate in an activity typically completed by employees or paid consultant/contractor.

There are tons of different types of crowdsourcing sites and researchers are only beginning to examine the different uses of the crowd.  I wrote a post about the crowdsourcing site eBird a while back. Here’s another example of a crowdsourced site. This one for crowdsourced software development.

TopCoder.com connects companies with programmers in the crowd to collectively build complex programs.

Here’s how it works:

  • Clients specify requirements, timelines, and budgets and the crowd competes to see who can produce the best code in the allotted timeframe.
  • Qualified reviewers evaluate weekly submissions, scores are posted for everyone to see, and a winner is selected.
  • After all modules are complete, a new contest is held to assemble the modules into the final program.
  • Winners are paid a pre-defined fee and coders in second place receive half the amount of the winner.
  • Winners turn over code (and all rights to it) to the paying company.

You’d think that throwing out a programming challenge to an undefined group of people without set standards or guidelines would result in pretty “iffy” code. But, what’s interesting is that TopCoder code actually exceeds the industry standard for quality. TopCoder reports an average of .98 errors per 1000 lines of code, compared to the industry average of 6 per 1000.

TopCoder manages to create complex programs in less time, at less cost, and at a higher quality than typical of internal development teams. Is this the end of internal software development teams?

Just watched a commercial for Domino’s pizza that made think about the impact of social media and online consumer comments on corporations. The commercial went something like this:

  • Domino’s holds an old fashioned, face-to-face, videotaped focus group.
  • A number of individuals in the focus group express their displeasure at Domino’s pizza – they basically say it sucks.
  • Domino’s reworks their entire pizza to address customer issues.
  • They go back to each person in the focus group (supposedly surprising them) and ask them their opinion of the new Domino’s pizza.

What’s interesting is that the commercial highlights the fact that Domino’s is responding to consumer criticism. Domino’s is making sure that everyone knows they are responsive. In fact, they have a whole site dedicated to their “Pizza Turnaround Documentary.

Years ago (prior to online social media) corporations would have just made the change and come out with a “new and improved” campaign.  I believe this new, “I’m listening” approach is a product of the new social world and the power that online social technology affords consumers.

Sure consumers have let their views be known to corporations and friends before, but nothing has been as powerful as the Internet for letting others know what you think. Corporations are recognizing that airing your dirty laundry is good for credibility and business.

Kudos to Domino’s for listening. And, kudos to social media for making them.

Title: Enterprise 2.0: New Collaborative Tools for your Organization’s Toughest Challenges

Author: Andrew McAfee (not the security guy)

Pub Date: 2009, Harvard Business Press

This is not another “2.0” fluff book. McAfee’s book is a great overview of the changing competitive landscape and the role Web 2.0 tools can play in helping enterprises stay competitive. How? Mostly by helping enterprises become more innovative within and outside their corporate walls.

Corporations can no longer rely on inside R&D and product development teams as the only means of innovation. Instead, if they want to remain competitive, they must reach out to employees throughout the enterprise, as well as vendors, customers, and even competitors. McAfee believes (and I agree) that enterprises who use new collaborative Web 2.0 tools to facilitate innovation inside and outside their enterprises will be more successful than those who don’t.

Using real examples along with current research findings McAfee outlines the potential and benefits of Web 2.0 tools for innovation within large and small enterprises.

Some tidbits:

  • “Enterprise 2.0…allows good new business ideas to emerge from anywhere and spread organically, rather than being developed at the center and imposed from the top down.”
  • “I have yet to come across any true horror stories – scenarios that make me question whether the risks associated with deploying [Web 2.0 tools] actually do outweigh the benefits.”
  • “I do not advocate that decision makers should ask for quantitative ROI analyses, either before approving and Enterprise 2.0 effort or to assess its progress.” A controversial statement to be sure, but McAfee makes a compelling argument for this stance.

Best piece of advice:

“Enterprise 2.0 is about abandoning the assumption that unilateral control is the best way to achieve desired outcomes, and instead trusting in people’s ability to interact productively without constant supervision from above.”

Want to hear more?

You can keep up with McAfee here:

duck“Aflac!” We’ve all heard it and we all know it’s the Aflac duck. As a brand symbol, the Aflac duck has been one of the most successful in terms of recognition. Not so good in terms of people knowing what the company does, but certainly an excellent tool for building initial awareness. Well now the duck has turned to social media and is doing a pretty good job.

Duck, duck, Facebook.

The Aflac duck is now on Facebook. But what the duck is doing right that other aren’t is this…

  1. He, I’m assuming it’s a he, doesn’t just talk about himself and his company. He brings humor and personality to his posts with a lot of duck references and photos of his workplace.
  2. He shows a softer, more personal side of the company by uses his page to raise money for the Aflac Cancer Center charity. (They raised over $1M). He posts videos of the children who receive these donations.
  3. He uses contest to draw people into participation.
  4. He’s current – linking to popular videos on YouTube and icanhascheezburger.com.

As of this post he has over 160,000 fans. But we all know that just having fans doesn’t mean engagement. According to Alfac, their fan page receives more interaction per fan than any of the other top 10 fan pages (iMedia). Just check out his photo page and you can see all the people uploading photos of ducks and commenting on them.

A duck that quacks and tweets.

Aflac is also using Twitter to reach out to customers and extend their brand awareness. As with Facebook, they are talking about more than just themselves. From a Twitter perspective they are also doing some things right:

  • The writing is light and witty.
  • They cross-promote their charities (and fun videos) here as well as on Facebook.
  • They have a combination of just simple tweets, RTs, and links to other sites. Mimics what real “tweeple” do.
  • And again humor, personality, and references to current events abound. Just cracked some Skittles, then Kanye came out of nowhere and grabbed them. I guess Beyonce deserved them more.” How do you not smile?

The duck is also active on Twibe for popular shows like LOST and The Office, and uses twitpic.

Extending the Aflac brand.

Alfac is a great example of how to extend your brand using social media. The company also seems to be just trying things out and feeling their way through – another great lesson.  They understand that it doesn’t have to be all or nothing. They can walk before they run. (OK, I’m down with the cheesy clichés.)

Will it create more business? We’ll have to wait and see But awareness and connection to the brand is the first step to getting new customers. The duck connects you to the company and that trickles down for many into a feeling that the company is more than just a corporate entity, that it’s personal.  Exactly what you’d want in an insurance company.

Kudos to Alfac.


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