Renowned toy company LEGO has turned around its fortunes with the help of its legion of fans – but there is a twist to this success story. Rather than relying on LEGO lovers to simply buy its products, the Danish corporation is using an online crowdsourcing platform that lets the public post their ideas for potential new games or product lines.
The 2008 trial launch of the concept in Japan with Cuusoo, a crowdsourcing company, and its subsequent global rollout in 2011 has contributed to the resurgence of LEGO, which was on the brink of bankruptcy a decade ago as children stopped playing with its famous plastic bricks and turned to video and computer games.
The platform, now known as LEGO Ideas, complements the work of scores of in-house designers at the company's headquarters in Billund, Denmark.
LEGO is at the forefront of a corporate shift to crowdsourcing that includes the likes of Starbucks, IBM, PwC and even the US Department of Defense. It has seen the toy manufacturer profit from the smarts and passion of fans and creative types outside the business, instead of counting only on its employees. For their part, would-be toy developers get a percentage of sales royalties if their idea goes to market.
In their paper, 'Organisational Learning with Crowdsourcing: The Revelatory Case of LEGO', researchers Daniel Schlagwein and Niels Bjørn-Andersen conclude that crowdsourcing has become a legitimate and systematic form of organisational learning – the area of knowledge relating to how organisations learn and adapt to market changes – that is often cheaper than traditional, employee-based learning, and produces different types of ideas.
Schlagwein, a lecturer in the school of information systems at UNSW Business School, says the embrace of such an open-innovation model represents a paradigm shift in how organisations look for new ideas and opportunities. Larger companies, in particular, are well placed to benefit from their strong brands and resources in this space.
"It's much easier for brands like LEGO because they already have a fan base," Schlagwein says. "LEGO does not only have a large number of customers, [it also has] a large number of customers for whom LEGO really matters."
While academic and business knowledge has always recognised the value of external ideas, those ideas have typically been seen as just part of the landscape in which companies operate.
"But crowdsourcing, such as with the case of LEGO, shows how you can actively create this landscape because all the ideas are not just somehow found by LEGO – they are purposefully created for LEGO," Schlagwein says.
‘You cannot engage crowds, but then not act on their ideas’ – daniel schlagwein
Global IT research company Gartner predicts that by 2017, more than one-half of all consumer goods manufacturers will receive three-quarters of their consumer innovation and R&D capabilities from crowdsourced solutions.
Australian futurist and entrepreneur Ross Dawson, the author of Getting Results from Crowds, says major organisations, in particular, are interested in such open-innovation channels.
"While these groups have deep and broad expertise within the organisation, they also recognise that there will always be more, and more specific, knowledge outside the organisation," Dawson says.
"They do need to find new products, new business models, new ways of working. So those organisations that do use crowds are demonstrably getting an advantage over those organisations that only rely on their internal resources."
But Dawson warns that crowdsourcing may not suit every enterprise, and it can expose companies to dangers in areas such as regulatory requirements, confidentiality restrictions and intellectual property rights.
"There are real risks and concerns that do need to be understood and addressed," he says.
Nevertheless, Dawson believes that through a process he calls governance for transformation, such obstacles can be overcome and dangers mitigated while supporting and enabling value through crowd participation.
In their paper, Schlagwein and Bjørn-Andersen cite the success in 2012 of the best-selling LEGO Minecraft set, an idea proposed by a games fan who was a member of both the LEGO and Minecraft communities.
Minecraft is a popular online game. Given that Minecraft is all about creating communities with virtual blocks, it seemed like a natural fit, but the concept had neither occurred to designers at LEGO nor the developers of Minecraft.
Schlagwein says product creation is typically the result of either "entrepreneurial intuitive" or "expert intuitive" learning. Entrepreneurial intuition refers to ideas that emerge through novel connections between previously unconnected areas and does not necessarily require, or may even be hindered by, professional expertise.
Expert intuition draws from patterns and routines learnt in the past which typically require professional expertise and experience (such as designers with a deep knowledge of LEGO's system of play).
While traditional theories of organisational learning focus on an internal, member-based process that is often independent of IT, Schlagwein says modern organisations are increasingly using crowdsourcing to systematically involve external creators in their learning through the use of state-of-the-art IT.
To improve an organisation's chances of success, Dawson believes a crowdsourcing venture must be well designed and clearly outline up front the rules and possible rewards for external crowd members. Be aware, he notes, that the most talented people are unlikely to engage in a crowdsourcing project if the likely financial or other rewards are unattractive.
"If the rewards are not sufficient, you simply may not get the right people involved," Dawson says.
He argues that senior executives should carefully consider the possible impact on staff within their organisation if they plan to engage an external crowd.
"If these kinds of missions are not well managed, there is potential for staff to feel they are being disempowered from their roles and [that] they may even be supplanted by external crowds who are remunerated in different ways to employees."
Part of the way to address this risk is to ensure there is a clear, senior-level understanding of the rationale for using crowds to drive learning and business performance. It should be made clear to existing staff that the organisation is not looking to replace them but that it is trying to extend the scope and success of the group.
"If there is not clarity and it is not well communicated, there is the potential to have a negative impact on the morale of some internal staff," Dawson says.
Schlagwein says any organisation opting to crowdsource must also be very transparent about intellectual property issues, the rights of external product developers and the nature of any royalties they may receive.
"It really needs to be transparent to the crowd what is going to happen, otherwise you might just upset the crowd."
Just as importantly, he argues, the company must have a credible commitment to following through on any promises made to the crowd. A key to LEGO's crowdsourcing success is that it has a clear and systematic approach to the generation, collection and rollout of ideas. LEGO has also appreciated that crowd developers want to see the results of their efforts.
"You cannot engage crowds, but then not act on their ideas," Schlagwein says. And he believes LEGO provides a blueprint for other organisations to follow.
"It's a way of systemising the whole ideas process from somebody having a hunch to actually having a LEGO product on the shelves worldwide of Wal-Mart stores or wherever"