Crowdsourcing is the outsourcing of a task to the crowd through an open call, where skilled workers voluntarily agree to the arrangement and receive various compensation benefits in return for their work.
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People go into crowdsourcing for monetary gains, personal and social rewards, as well as the crowdsourcing ideology (Shepherd 2012). Outsourcing is a relatively old business practice, where companies rely on service providers to handle their non-core business activities like security as aspects of a manufacturing process (Kaganer et al. 2013).
Both crowdsourcing and outsourcing have advantages and disadvantages. In many cases, the goals of a business and its operating environment determine the suitability of the two concepts.
The main difference is that outsourcing requires minimal control of the production process, but it offers overall control of the quality and deliverables’ demands for goods and services. In crowdsourcing, firms relinquish control and deliverables and allow the crowd to respond to emerging issues dynamically (Brabham 2011).
Examples of companies tend to use crowdsourcing instead of outsourcing
Threadless is a T-shirts company that uses crowdsourcing as part of its business plan. It gives members of its social network, who are more than two million, the creative control over the products that the company offers to the market, especially the T-shirt designs.
Members submit and vote for the best designs, where the winners get compensation when their designs are printed and sold by the company as part of the business (Coburn 2012).
The Threadless example shows that companies are encouraged by the ability to meet high innovation and creative designs at a minimal cost as the generic tools for crowdsourcing ideas are already available freely or at affordable rates.
The FoundersClub is a company whose business is the provision of an angel investment platform. The business allows investors who have a few resources to make angel investments in the company, which they would otherwise not be able to do. The FoundersClub requires members to commit small amounts annually for funding activities.
It then pools all the funds and invests in different companies. Thus, the FoundersClub can get money for investment without having to work with a particular financial partner, such as a bank, as its primary supplier.
At the same time, the company allows its investment members to offer skills to the companies they invest in when the companies require the skills urgently, but they are unable to find employees.
Nokia is one of the most established global companies that rely on crowdsourcing for innovation. It manages a consumer driven collaboration platform that unites contributors from 210 countries and generates consumer experiences from the participating innovators.
Participants of the “Ideasproject” by Nokia end up getting a share of the company’s revenue, which comes from its crowdsourced ideas. The participants can become agents of product-design at particular levels within the “Ideasproject”.
As a result, Nokia can respond to the trends and demands for product design and functionality innovations (Innocentive 2013).
TopCoder is another example. It has the TopCoder Direct platform to link the crowd with its clients, where the arrangement allows clients to receive assistance remotely from the crowd, rather than from the company. Members of TopCoder Direct can be regular or advanced.
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The advanced members run projects where they serve as co-pilots. Outsourcing at TopCoder allows the company to maintain a small number of in-house technical staff and automate the customer solutions part of the business using the crowdsourcing platform (Lakhani, Lonstein & Pokrywa 2011).
Pros of Outsourcing
Outsourcing provides companies with cost advantages. Companies that use outsourcing can save the costs of manufacturing and other production processes associated with human resources and management, as well as research and development in some cases.
In addition, outsourcing leads to increased efficiency, as both the client company and outsourcing service provider specialize on their core competitive areas. The client company saves on infrastructure and technology and gets access to skilled resources. It is also able to obtain time zone advantages.
As a result, it can deliver faster and better services to its clients. Organizations that outsource gain considerable flexibility when acquiring rapidly developing technologies or dealing with fast changing trends, like in fashion (McIvor 2005).
Outsourcing helps companies to solve their problems of resource limitations, staff shortage, and the lack of specialized skills. In supply based businesses, the platform allows them to pursue clients who refuse to pay for greater energy than they would if they relied on internal resources (Bragg 2007).
Outsourcing encourages business specialization, which creates positive effects on career development for employees as they get increased chances of learning skills in specified fields in their organizations.
The results of employee improvement due to a company’s mode of doing business are improved employee commitment to the organization and an overall improvement in business performance (McIvor 2005).
Cons of Outsourcing
The downside of using a separate entity in manufacturing or dealing with customers is that it can lead to poor customer relationships due to disagreements and being fixated on rules or policies, instead of allowing them to change according to the situational demands of the business (Bragg 2007).
Outsourcing service providers are very expensive in particular business types in the long run, as they increase rates once their client companies incur considerable low costs.
Outsourcing can lead to dependence on external service providers and force an organization to shift its business processes when the service provider changes operations and technologies, which can increase the cost of doing business (Bragg 2007). Information must move efficiently from the client to the outsourcing service provider.
Any delays or inconsistencies can lead to massive errors and delays on either side, which take additional funds and time to rectify at the expense of business operations. Lastly, it is difficult to balance legal, political, and public mandates of an organization that relies on outsourcing for non-profit institutions.
Moreover, outsourcing of services can lead to increased complaints and service delivery shortcomings due to funding restrictions for the entity acquiring the services (Kohleick 2008).
Pros of crowdsourcing
Crowdsourcing provides an easy access to workers and enhanced control, thereby ensuring that the output meets specific quality requirements (Gassenheimer, Siguaw & Hunter 2013).
Many studies show that crowdsourcing leads to improved problem-solving, reduces costs, and create a new perspective on what is possible for an organization (Afuah & Tucci 2012). Startup companies can use crowdsourcing to internationalize rapidly (Heidari, Akhavannia & Kannangara 2012).
Crowdsourcing does not rely on a fixed office location, as workers can perform duties from any part of the world. Workers face no time limitation, as they create their office hours and the entire workforce remains agile to respond to rises and falls in demand for work.
In the meantime, the company does not face additional fixed costs in relation to an increase in crowd workers or complexities of jobs. Crowd workers receive payment based on their output, which play a role in guaranteed profit margins for the company (Boudreau 2013).
Crowdsourcing depends on the establishment of a business ecosystem; thus, it allows a firm to leave other companies and individuals use their innovation, knowledge, and abilities to offer solutions and gain from their participation in the ecosystem.
All this leads to a better situation of distributed creativity in an industry. It allows particular firms to catch up with their peers in skills, as they can have employees of another company working for them as part of the crowd to deliver solutions to problems.
For the contributors and the beneficiaries, the business ecosystem created by crowdsourcing leads to an efficient response to market changes through the capture of value under the guidance of the keystone organization. The niche players contribute their best input in different aspects of solutions provision (Paruthi, Hou & Xu 2014).
Crowdsourcing can allow firms to enjoy the monopoly status in empty market spaces, even when the situation is temporary (Haythornthwaite 2009). Possibilities of teaming up remain consistent when customers are part of the crowd used to solve problems (Afuah 2014; Hammon & Hippner 2012).
Cons of crowdsourcing
Under crowdsourcing, the facility and other fixed costs used for the development of goods or delivery of services contribute to the overall cost and price of the final product. Output relies on headcount, which also determines the pricing of outsourcing activities. This arrangement makes it hard for clients to predict throughput.
At the same time, the commitment to fixed working hours and staffing models requires clients to provide outsourcing service providers with sufficient lead time for conducting activities. Consequently, it reduces the responsiveness of the clients to the environment.
According to Kannangara and Uguccioni (2013), crowdsourcing introduces the following risks to the business ecosystem; relationship complexity, control effectiveness problems, “competition”, and keystone/actor independence.
At the same time, other researchers like Purdy et al. (2012), Koeinig (2012), Adner (2012), Elmquist et al. (2009), Felstiner (2010), and Trompette, Chanal, and Pelissier (2008) add that the replication of business model, loss of know-how, and loss of certainty results and intellectual property laws as additional business risks that come with crowdsourcing.
For firms relying on the crowd, the desire for control can arise when there are too many parameters for management. It is also difficult to achieve control when many research reports support freeing to allow broader participation.
There is an excellent chance that someone else is going to imitate the seeker or substitute and leapfrog the solution sought because crowdsourcing allows the seeker to solve the problems of other seekers. For example, rehearsals and prototype exercises can inform competitors about ongoing developments in the rival organization (Afuah 2014).
Crowdsourcing can cause losses of knowledge of the company to the crowd. On the other hand, members of the crowd can use the knowledge for selfish gains, which can end up destroying the competitive advantages of the seeker firm.
Even when crowd monitoring and evaluation are available, maintaining the crowd creates additional costs for the business and erodes the benefits of crowdsourcing.
Explain how crowdsourcing is a better practice
Crowdsourcing works well for tasks that have clear definitions and allow anyone to take them and work on them, as long as one has sufficient skills. At the same time, businesses have gained immense ability to define tasks for the sake of monitoring and evaluation.
Resultantly, they can outsource most of their operational activities. In comparison, outsourcing requires actual management capacity verification for the outsourcing service provider. It also introduces a new layer of bureaucracy and operations at the remote facility.
Unlike outsourcing, crowdsourcing can include consumers and suppliers in the solutions-provision model to develop better decisions or actions for the business. It is unlikely that outsourcing can replace crowdsourcing, but the reverse situation happens in many cases.
Moreover, crowdsourcing levels the playing field and allows small and large firms alike to discover new market opportunities and rapidly scale up their operations globally to get better at fulfilling their existing business demand or shifting into new business opportunities.
Choosing between crowdsourcing and outsourcing can be difficult for a mature global company that is seeking to enhance its competitive advantages. The nature of the business will affect the decision. In addition, the available platforms for obtaining help from a crowd or a dedicated third-party supplier will affect the final decision.
The paper shows that companies have a lot to gain from crowdsourcing, as it presents novel ways of handling market pressures and finding knowledge about new technologies and work processes. Therefore, companies should choose crowdsourcing over outsourcing.
The latter only allows firms to enhance their competitiveness based on costs and a focus on production, which they must have prior to outsourcing. However, in crowdsourcing, the business moves beyond its network and relies on the ecosystem.
The ecosystem remains dynamic and produces varied ideas, in addition to working independently and cutting production or operations costs significantly.
Nevertheless, crowdsourcing still limits the control that a company has over the final product. It introduces various instances of company knowledge leakages that work against the company.
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