Open the floodgates: Internal crowdfunding fosters innovation and engages employees
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CHRISTINA RAASCH IS PROFESSOR OF DIGITAL ECONOMY AT KÜHNE LOGISTICS UNIVERSITY.
view moreCREDIT: KLU
In a several-round-long crowdfunding initiative, the employees of Siemens AG 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. 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.
Tapping hidden know-how and fostering employee loyalty
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.
Viable paths to joint innovation
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.”
How the study was conducted
Since 2015, Siemens has implemented nine rounds of financing with internal crowdfunding. Here’s how it works: Employees submit their ideas for projects, together with the projected benefits for the company, on a shared platform. All employees can “like” the ideas and share their feedback. Up to a given deadline, creators can continuously refine their projects. Then, a limited number of anonymous investors – all employees are eligible to sign up, and the investors are selected at random – receive a budget, assess the ideas, and are free to allocate funding in 1-euro increments. Those ideas that reach their funding target are green-lighted.
The team of researchers analyzed the data from the idea platform in anonymized form, assessing e.g. how new the ideas were, the investment choices made, and the hierarchical levels involved – factors that were integrated into the study. In addition, they spoke with creators, investors and managers, and conducted an online survey of employee perceptions of the platform’s benefits. The resulting information offered them deeper insights into internal crowdfunding at Siemens.
Publications:
Tim G. Schweisfurth, Claus P. Schöttl, Christina Raasch and Michael A. Zaggl (2023). Distributed decision-making in the shadow of hierarchy: How hierarchical similarity biases idea evaluation. Strategic Management Journal 44(7). DOI:10.1002/smj.3497
https://doi.org/10.1002/smj.3497
Claus P. Schöttl, Christian Homma, Tim G. Schweisfurth and Christina Raasch (2023). Opening the floodgates: How big companies can reap the benefits of internal crowdfunding. Business Horizons, Sept. 21th 2023
About KLU
Kühne Logistics University – Wissenschaftliche Hochschule für Logistik und Unternehmensführung (KLU) – is a private university located in Hamburg’s HafenCity. The independent, state-certified university’s major research areas are Sustainability, Digital Transformation, Entrepreneurship and Value Creation in the fields of Transport, Global Logistics, and Supply Chain Management.
KLU is one of very few private universities in Germany entitled to confer their own PhDs.
With one BSc and three MSc degree programs, a structured doctoral program, and a part-time Executive MBA, KLU offers its 400 full-time students a high level of specialization and excellent learning conditions. KLU has an international team of around 30 professors who teach in English. In open, tailor-made management seminar series, industry specialists and managers alike benefit from the application of academic findings to practical issues.
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JOURNAL
Strategic Management Journal
METHOD OF RESEARCH
Case study
SUBJECT OF RESEARCH
People
ARTICLE TITLE
Opening the floodgates: How big companies can reap the benefits of internal crowdfunding
The secret to enhancing consumer valuation and addressing the climate crisis at once: introduce circular take-back programs
News from the Journal of Marketing
Peer-Reviewed PublicationResearchers from Boston University published a Journal of Marketing study showing that tapping into consumers’ sense of ownership prompts them to place a higher value on products from a circular economy.
The study, forthcoming in the Journal of Marketing, is titled “Affording Disposal Control: The Effect of Circular Take-Back Programs on Psychological Ownership and Valuation” and is authored by Anna Tari and Remi Trudel.
Governments worldwide view a circular economy as part of the solution to the climate crisis. In the U.S., several states such as California, Connecticut, Maine, Oregon, and Vermont have implemented Extended Producer Responsibility (EPR) laws that hold manufacturers accountable for the entire life cycle of their products, including disposal and repurposing. However, implementing circular take-back programs under EPR regulations faces challenges as policymakers grapple with prioritizing these programs when faced with limited consumer awareness and support. Manufacturers resist these programs due to potential cost escalation, shrinking profit margins, and the perceived burden of passing costs onto consumers, potentially compromising their competitiveness in the market.
Consumer Interest in Take-Back Programs
The researchers discover that consumers exhibit a higher willingness to pay for products that are part of a circular take-back program. Tari explains that “the driving force behind this willingness lies in a concept known as psychological ownership. Circular products offer control over the disposal of the product, which taps into consumers’ sense of ownership, prompting them to place higher value on these items. This finding could alter how businesses and policymakers approach the implementation of circular programs.”
A circular economy can decrease supply chain risk by increasing the security and price stability of a company’s supply chain through the use of recovered materials. Circular programs may also allow firms to develop new markets, gain new customers, and build their brands and reputations as environmentally friendly and innovative organizations.
Several companies have recognized the benefits of the circular economy. For example, clothing retailer H&M encourages consumers to participate in its circular take-back program by returning their used clothes to the retailer. Depending on the type of clothing and its condition, H&M donates the clothing to charity, recycles it, or reuses it to make new clothing to sell. IKEA has committed to being 100% circular by 2030 and has implemented a take-back scheme promoted extensively in stores. Zara has expanded its “Closing the Loop” initiative to include home collection services.
Eight experiments that study a variety of products demonstrate that people ascribe more valuation to circular program products. The increase in valuation is due to a factor unique to circular program products: disposal control. This control does not in itself increase valuation; rather, it increases the capacity for a circular economy product to evoke psychological ownership.
Lessons for Marketers and Policymakers
The study offers valuable lessons for chief marketing officers:
- Manufacturers need to reassess their concerns about cost implications. The study illuminates the potential for consumers to accept price adjustments associated with circular programs.
- Companies can make take-back programs product-specific and allow consumers to directly return products they no longer need to the manufacturer or retailer. This gives consumers more control over disposal, as opposed to relying on a broader curbside recycling system.
- Implementation of a take-back program does not seem to require product discounts or the need for companies to offer convenient pick-up services.
It also emphasizes lessons for policymakers:
- Foster awareness and understanding among consumers and boost political will for these programs.
- Focus on policies that can lead to increased investment in regulatory frameworks, infrastructure, and financial incentives to support such programs.
- Promote policies and encourage companies to participate in these programs by providing them with guidelines on how to do so. When companies are informed that consumers value circular program products, they may be more willing to invest in them, creating a potential positive cycle of engagement where consumer demand and corporate engagement reinforce each other.
The insights from this research hold important conclusions. Trudel says that “businesses can align their strategies with consumer values; policymakers can foster support for sustainable initiatives; and consumers can make choices that resonate with their values. It is time to embrace the circular economy not just as a theoretical concept, but as a tangible force for positive transformation in our society.”
Full article and author contact information available at: https://doi.org/10.1177/00222429231196576
About the Journal of Marketing
The Journal of Marketing develops and disseminates knowledge about real-world marketing questions useful to scholars, educators, managers, policy makers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM has played a significant role in shaping the content and boundaries of the marketing discipline. Shrihari (Hari) Sridhar (Joe Foster ’56 Chair in Business Leadership, Professor of Marketing at Mays Business School, Texas A&M University) serves as the current Editor in Chief.
https://www.ama.org/jm
About the American Marketing Association (AMA)
As the largest chapter-based marketing association in the world, the AMA is trusted by marketing and sales professionals to help them discover what is coming next in the industry. The AMA has a community of local chapters in more than 70 cities and 350 college campuses throughout North America. The AMA is home to award-winning content, PCM® professional certification, premiere academic journals, and industry-leading training events and conferences.
https://www.ama.org
JOURNAL
Journal of Marketing
ARTICLE TITLE
Affording Disposal Control: The Effect of Circular Take-Back Programs on Psychological Ownership and Valuation
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