In a several-round-long crowdfunding initiative, the employees of Siemens not only had the opportunity to present their own ideas on an in-house online platform; in the role of investors, they were also able to choose which projects to implement.
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In other words, they had a chance to do things normally reserved for managers: make decisions and allocate budgets.
The researchers assessed how well this distributed decision-making approach worked and the corresponding role of hierarchies. Their conclusion, "Employees submitted high-quality ideas, which their colleagues recognized and financially supported," says Christina Raasch, a Professor of Digital Economy at KLU and researcher at Kiel Institute for the World Economy (IfW).
However, these investors weren't wholly unbiased; they tended to support the ideas of employees at their own hierarchical level. As Raasch explains, "Similarities with the person who submitted it increased their identification with the idea and promoted a sense of group identity, leading to a more positive evaluation."
And the more innovative the idea was, the more pronounced this effect was. In contrast, when investors and creators were competitors, the amounts invested tended to be smaller.
Nevertheless, at the end of the day, the advantages of idea competitions with distributed decision-making are self evident: They allow in-house know-how that is distributed throughout the company and perhaps going to waste to be tapped, while also promoting exchanges and collaboration across internal borders.
"In addition, we observed that employee loyalty and motivation improved when their ideas were appreciated and their decisions were respected—the management had no veto power," Raasch reports. Further, the approach helps to manage larger numbers of ideas, since there are more shoulders to bear the burden.
To ensure that companies and employees alike reap the maximum benefits of internal crowdfunding, the processes involved have to be carefully thought through and adapted to the company in question. To ensure the investors aren't overwhelmed with too many ideas, larger companies should form smaller groups of creators.
The management has to stand behind the idea of putting decision-making power in the hands of employees—and can't snatch it back later. It also needs to be clear where the money the investors are meant to allocate comes from.
In most cases, creators want to present their idea together with their own name. Christina Raasch explains why, "This kind of visibility boosts motivation and satisfaction for everyone involved—which is more important than any minor skewing affects in the evaluation."
Any company that wants to be innovative and foster new ideas also has to ensure that, if an idea fails, it has no negative consequences for either the creator or the investors; rather, it has to be part of the company's learning culture. After all, innovations always involve a degree of risk. Another important factor is whether or not investors are anonymous: When investors' identities are known, they tend to evaluate more thoroughly, but are also more cautious and could be put under pressure by creators.
"Another possibility would be to only reveal the identities of the investors for ideas that are implemented," Raasch suggests. "But I normally recommend permanent anonymity to avoid any potential fallout for investors." ■