Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis

Kevin J. Boudreau; Nicola  Lacetera; Karim R. Lakhani

Article | Management Science | May 2011

Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis

by Kevin J. Boudreau, Nicola Lacetera and Karim R. Lakhani

Abstract

Contests are a historically important and increasingly popular mechanism for encouraging innovation. A central concern in designing innovation contests is how many competitors to admit. Using a unique data set of 9,661 software contests, we provide evidence of two coexisting and opposing forces that operate when the number of competitors increases. Greater rivalry reduces the incentives of all competitors in a contest to exert effort and make investments. At the same time, adding competitors increases the likelihood that at least one competitor will find an extreme-value solution. We show that the effort-reducing effect of greater rivalry dominates for less uncertain problems whereas the effect on the extreme value prevails for more uncertain problems. Adding competitors thus systematically increases overall contest performance for high-uncertainty problems. We also find that higher uncertainty reduces the negative effect of added competitors on incentives. Thus uncertainty and the nature of the problem should be explicitly considered in the design of innovation tournaments. We explore the implications of our findings for the theory and practice of innovation contests.

Keywords: Motivation and Incentives; Problems and Challenges; Risk and Uncertainty; Innovation and Invention; Management Analysis, Tools, and Techniques; Value; Software; Competition; Performance; Theory; Practice;

Format: Print

21 pages

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Citation:

Boudreau, Kevin J., Nicola Lacetera, and Karim R. Lakhani. "Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis." Management Science 57, no. 5 (May 2011): 843–863.

In its 2019 Partner Symposium, 2U, an online program management provider (OPM), showcased its new vision: “Career. Curriculum. Continuum. A construct for lifelong learning in the 21st century”. 2U, founded in 2008, and went public in 2014, was looking to expand beyond their current degree offerings to include a wider range of programs, such as short courses, bootcamps, and professional certificates. Led by co-founder and CEO Chip Paucek, 2U believed that they were the strongest partner in the OPM market that could enable universities’ digital transformation, allowing them to offer a variety of courses to a changing student profile. The universities, on the other hand, recognized that times were changing and that the appeal of a residential experience might be dwindling. Pressures of offering a more flexible learning format were mounting. Some schools were engaging in partnerships such as with 2U to get themselves online while others saw digital and online as the next evolution of instruction and that it was their responsibility to learn how to master it and own it. The case considers Paucek’s challenge of leading a for-profit OPM. Was 2U growing in a way that risked alienating their most important stakeholders, the brand named universities themselves? Were the university leaders going to change their approach and start investing in the digital transformation themselves to avoid giving 2U a cut of their revenues?

Over the course of the 2010s, the rapid advancement of mobile technologies and the rise of online freelancing platforms seemed to portend a radical transformation of labor markets into on-demand, flexible talent pools. Even though several Fortune 500 companies, including Microsoft, Samsung, and General Electric, embraced digital labor solutions, enterprise adoption lagged far behind smaller businesses and startups. Despite the promising potential benefits, concerns persisted about navigating labor regulations, ensuring appropriate vetting, and guaranteeing the quality of work. Sarah Tang, the newly appointed Vice President of Enterprise at Freelancer, Ltd., took on the challenge of crafting the growth strategy, operations, and sales of Freelancer’s services to Fortune 500 companies. What it would take to convince more enterprises of the potential of on-demand freelance labor which could help them hire skilled freelancers in volume or in multiple countries simultaneously? What did the future hold for open work practices between enterprises and digital labor markets?

Article | Strategy & Leadership | 2019

Overcoming Cultural Resistance to Open Source Innovation

John Winsor, Jin Hyun Paik, Michael Tushman and Karim R. Lakhani

Purpose: This article offers insight on how to effectively help incumbent organizations prepare for global business shifts to open source and digital business models.
Design/methodology/approach: Discussion related to observation, experience and case studies related to incumbent organizations and their efforts to adopt open source models and business tools.
Findings: Companies that let their old culture reject the new risk becoming obsolete if doing so inhibits their rethinking of their future using powerful tools like crowdsourcing, blockchain, customer experience-based connections, integrating workflows with artificial intelligence (AI), automated technologies and digital business platforms. These new ways of working affect how and where work is done, access to information, an organization’s capacity for work and its efficiency. As important as technological proficiency is, managing the cultural shift required to embrace transformative industry architecture – the key to innovating new business models -- may be the bigger challenge.
Research limitations/implications: Findings are based on original research and case studies. Insights are theoretically, based on additional study, interviews, and research, but need to be tested through additional case studies.
Practical implications: The goal is to make the transition more productive and less traumatic for incumbent firms by providing a language and tested methods to help senior leaders use innovative technologies to build on their core even as they explore new business models.
Social implications: This article provides insights that will lead to more effective ideas for helping organizations adapt.
Originality/value: This article is based on original research and case experience. That research and experience has then been analyzed and viewed through the lens of models that have been known to work. The result is original insights and findings that can be applied in new ways to further adoption within incumbent organizations.

Keywords: open source innovation; Organizational Culture; Organizational Change and Adaptation; Business Model; Technological Innovation; Collaborative Innovation and Invention;

Citation:

Winsor, John, Jin Hyun Paik, Michael Tushman, and Karim R. Lakhani. "Overcoming Cultural Resistance to Open Source Innovation." Strategy & Leadership 47, no. 6 (2019): 28–33. View Details

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Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis

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