Innovation Management Study: Corporate Crowdfunding

Where’s the next big idea? Companies such as IBM, Lufthansa Systems, and Siemens have charted a new path to enhancing innovation alongside the traditional top-down methods. They use corporate crowdfunding to foster and implement ideas from their organization’s core, their employees. Prof. Dr. Christina Raasch, in collaboration with other universities, compared the strategies of large companies and has identified advantages and obstacles.

Crowdfunding as a principle came to prominence through platforms such as Kickstarter, Starnext, and VisionBakery. For years now companies have also used “swarmfunding,” through which employees receive a budget that they can invest in colleagues’ ideas. Ideas financed in this way are then implemented and tested in a pilot – often independent of management. As in traditional crowdfunding, the everything-or-nothing principle applies. This means that a project only materializes if the predetermined funding objective has been achieved.

“Traditionally, top managers have selected innovative projects and allocated funding. New forms of digitally enhanced innovation management open the floodgates. New digital technologies make it possible for many bright minds at the company to be involved in finding the next big idea,” Prof. Christina Raasch said, outlining the advantages.

To find out more about corporate crowdfunding, scholars followed funding competitions within Siemens, Europe’s largest industrial manufacturer, for five years. The study includes experiments and interviews with employees and managers at Siemens as well as Lufthansa Systems, Audi, and Kühne+Nagel, which also use corporate crowdfunding.

Corporate Crowdfunding’s Advantages

The study identifies four key advantages of corporate crowdfunding as compared to traditional innovation processes:

Decentralization. A digital platform activates a multitude of talents and experiences within the company. At Lufthansa Systems, for example, up to 30% of Lufthansa Systems employees per month were active in the ideation phase. Siemens gleaned around 120 ideas per competition. These ideas ranged from blind dates at lunch (used by more than 20,000 employees) to 3D printing applications. In the financing phase, evaluation makes ideation in corporate crowdfunding more transparent and democratic.

Cross-collaboration. Corporate crowdfunding builds bridges between employees who wouldn’t otherwise meet. An example of this is a Siemens team at work on an idea for offshore algae cultivation. The members come from four countries and play different roles at different career levels. What unites them is their interest in sustainable solutions.

Institutionalization. Rather unpredictable things, such as a good idea somewhere in the company, gain an institutional framework and support.

Intrapreneurship. Corporate crowdfunding makes the innovation process more entrepreneurial and participants become intrapreneurs. They’re self-motivated and stand up for their ideas. Feedback early on in the ideation phase accelerates the decision making process from idea to implementation.

Keys to a Successful Crowdfunding Campaign

Depending on the company, a crowdfunding campaign can be variously organized. Relevant parameters are selection and the size of the participating group, the configuration of the platform in terms of timeframe, financing mechanism and transparency, and the degree of control over ideas and their implementation.

On control Raasch says, “We’ve seen that control mechanisms such as the right of veto for managers aren’t necessary. In the vast majority of cases, the crowd selects projects that are advantageous for the company.” So beer gardens haven’t been financed yet, but a company child care program for holiday periods has.

Corporate Crowdfunding Challenges and How to Overcome Them

As helpful as corporate crowdfunding can be, it also comes with some challenges. The research team sees a few central challenges, among them dealing with rejected ideas and sustainable implementation once funding ends. As Prof. Raasch summarized, “We see that corporate crowdfunding has to be actively managed, but the effort is worth it. Because there are many advantages for innovation, collaboration, and employee engagement.”

The study was conducted jointly with the Technical University of Munich (TUM) and the University of Twente (Netherlands).

More information:
Tim Schweisfurth, Michael A. Zaggl, Claus P. Schöttl and Christina Raasch, Hierarchical similarity biases in idea evaluation: A study in enterprise crowdfunding, No 2095, Kiel Working Papers from Kiel Institute for the World Economy (IfW), 2017.