Approval for any innovation project requires satisfactory answers to three key questions:
1. How likely is a viable solution to come out of the project?
2. How much will the project cost, in out-of-pocket expenses and internal labor?
3. How long will the project take? [published on 20 October 2021. Read it HERE].
This blog entry tackles the 2nd question and shares learnings from five recently-completed open-innovation challenges where SeaFreight Labs served as Project Advisor. These challenges were run by Habitat for Humanity and World Vision to solve long-standing humanitarian problems related to the work of each organization [See Note 1 below]. They were run in late 2020 and into 2021 on the InnoCentive platform and with the InnoCentive crowd (www.innocentive.com).
Introduction
The expenses related to an open-innovation challenge fall into two general categories: out-of-pocket and internal labor. The out-of-pocket expenses are cash payments made to external parties. The internal labor expenses are the non-cash cost-accounting for the time of organization employees involved in running the challenge. The sum of these two categories is the total execution cost of an open-innovation challenge.
Out-of-Pocket Expenses
An open-innovation challenge typically has seven different out-of-pocket expense categories:
Challenge prize (only expended if there is a winner to the challenge)
Prototype reimbursement (optional, but useful to engage with high-potential solvers)
Project Advisor (optional, but recommended for organizations inexperienced in crowdsolving)
Challenge design and project management services
Access to an innovation “crowd”
Access to a challenge publishing and judging platform
Challenge promotion (optional, but potentially useful in many cases)
In the case of these humanitarian challenges, all five challenges were successful in finding an attractive solution, so all five awarded a challenge prize (item #1, above). Two of the five challenges engaged solvers in a funded field-testing phase, where the Seeker reimbursed the Solvers for their out-of-pocket costs associated with the prototype (item #2, above). SeaFreight Labs provided Project Advisor services (item #3, above) and InnoCentive provided the product and services related to items #4, #5 and #6 above. SeaFreight Labs did a small amount of external paid promotion of the first four challenges attempting to expand the engaged crowd, but primarily relied on the InnoCentive crowd for our solvers (item #7, above).
Both SeaFreight Labs and InnoCentive offered significant discounts off of their normal pricing to enable the projects to move ahead. Because the reader should not expect this to happen again, two different analyses are provided: typical costs and actual (discounted) costs.
Figure 1 (below) shows the cost distribution for the typical (undiscounted) out-of-pocket costs on the five humanitarian challenges analyzed here. Figure 2 (below) shows the actual (discounted) cost distribution for the same five humanitarian challenges. As might be expected, the challenge prize is the largest single expense in a humanitarian challenge. The other important cost buckets are necessary to ensure that the challenge is run well and delivers a valuable solution to the stated problem.
The out-of-pocket costs for a future humanitarian challenge depend greatly on the selected vendor for each of the key project services (items 3-6 above). They also are highly dependent on the difficulty and nature of the problem which is to be solved. Each problem will determine how much prize money is necessary to attract multiple quality proposals and whether additional marketing is necessary to attract solver registrations. Lastly, the Seeker’s requirements for field validation will determine whether prototype reimbursement is necessary. In each of these five challenges, the total out-of-pocket costs were mid-to-high five figures (USD).
Internal Labor Expenses
Predicting the number of hours that an organization will invest in a specific challenge is inherently impossible. The answer depends on the people involved, the culture of the organization and the type of challenge that is being executed.
The typical categories of internal time necessary to conduct a successful challenge include:
Problem selection
Challenge definition
Promotion & monitoring
Judging recruitment
Judging (assume 10 judges across 3 rounds)
Feedback to rejected solvers
Promotion of winning solution
Internal management reporting
In the case of these five humanitarian challenges, both Seekers were global organizations that involved people from around the world in the challenges. This made it impossible to reliably track staff hours involved in any of the phases of any of the challenges. However, in serving as Project Advisor, I was able to record all of my hours on each challenge and categorize them, as shown in Figure 3 (below). All of the time was provided from my US-based office, comprising webinar, telephone and individual activity.
Figure 3
As you can see, I was not involved in all 8 phases of the project (I did not participate in phases 1, 4, 6, or 8). On average, I spent 50 hours advising a project. The most time-consuming portions of the challenge for me were judging (40%) and challenge design (25%). The other categories consumed the balance of the time.
The seeking organization (“Seeker”) needs to have a Project Leader to manage the 8 phases in each challenge. This person is the ‘point person’ for all decisions as the challenge proceeds. The Project Leader will use various parts of the organization throughout the challenge with the broadest support needed during the problem selection (phase 1), challenge definition (phase 2) and judging (phase 5) phases.
Extrapolating the required effort for the Project Leader from my Project Advisor hours is straightforward. Making liberal assumptions about the amount of time that a competent Project Leader would require per phase leads to a conclusion that a Project Leader will need about 115 hours to run a single challenge. This would be spread out over 6-12 months, so the average time per month for the Project Leader would range from 10-20 hours.
Further extrapolating the organizational support that is necessary to ensure the best outcome of a challenge leads to a conclusion that the organization would devote an additional 333 hours to a single challenge. This would also be spread across 6-12 months and across 10-15 different individuals. It is unlikely that any individual would invest more than 30 hours across the 6-12 month life of a single challenge.
See Figure 4 (below) for a visual representation of how an organization’s time would be invested in a single challenge.
Figure 4
Analysis and Conclusion
The decision to use crowdsolving to seek solutions to difficult humanitarian problems commits an organization to expending a few hundred hours of staff time, as well as a five-figure out-of-pocket expenditure (in USD). It is my hope that knowing the required level of commitment for success will push a humanitarian organization to be sure that they have a few high-impact problems before they embark on a crowdsolving initiative.
A crowdsolving project has the best chance of success if the Seeker allocates adequate time for the Project Leader and other participants to perform their responsibilities in a timely way as the challenge proceeds. Feedback from Project Leaders on these recent humanitarian crowdsolving projects indicates that the biggest roadblock to crowdsolving success was an expectation that the Project Leader can perform their full-time job AND serve as Project Leader. Management should manage the workload of a Project Leader during a challenge to provide 10-20 hours per month to push the challenge forward.
The use of a Project Advisor is another decision that a humanitarian executive must make. The Project Advisor works for the humanitarian organization (not the crowdsolving platform) and is solely tasked with guiding a crowdsolving project to deliver success as defined by the humanitarian organization. My opinion is that there is clear payback for a Project Advisor on the first couple of crowdsolving challenges that are run by a humanitarian organization. The Project Advisor can help avoid errors and streamline internal decision-making. Both of these contributions increase the chances of success on a project, sometimes in a dramatic way. I think of the cost of the Project Advisor as an ‘insurance policy’ to give the humanitarian organization the best chances of success.
Crowdsolving works. It is a proven process to solve difficult humanitarian problems by leveraging the expertise of the global crowd in an efficient manner. Having discussed the costs of crowdsolving in this blog and the duration of the process in my prior blog, I plan to next write about the types of humanitarian problems best suited for crowdsolving. See you then!
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[Note 1] Habitat for Humanity’s were:
“Increasing Resilience to Earthquakes and Typhoons for Homes with No Foundations” which launched as an RTP (“Reduction-To-Practice”) challenge on 7 October 2020 and closed on 5 January 2021. The challenge prize was US$25,000
“Improved Construction and Demolition Waste Management” which launched as an ideation challenge on 26 October 2020 and closed on 25 January 2021. The challenge prize was US$15,000.
“Affordable Water Harvesting for Low-Income Households in Urban Areas” which launched as an RTP challenge on 2 April 2021 and closed on 5 July 2021. The challenge prize was US$25,000.
World Vision’s were:
“Affordable Rural Single Family Sanitation Solutions” which launched as an ideation challenge on 14 October 2020 and closed on 12 January 2021. The challenge prize was US$15,000.
“Low-Cost Chlorine Monitoring for Rural Piped Water Systems” which launched as an RTP challenge on 4 November 2020 and closed on 4 February 2021. The challenge prize was US$20,000.
See www.seafreightlabs.com/our-challenges for more details.