Crowdsourcing is often used to foster innovation, but in practice, unleashing the wisdom of the crowd is easier said than done. Businesses can be overwhelmed with bad or unnecessary ideas, which can clog the process and even lead a business astray. Many crowdsourcing campaigns offer prizes for winning ideas, but determining the optimal type (cash or non-cash) and size of reward is a difficult task. Businesses are also proven to resist ideas, no matter how good, that weren’t invented in-house.

To circumvent these common problems, financial technology company PayPal has developed a new approach inspired by the world of venture capital (VC). Participants in the annual Global Business Innovation Tournament submit their ideas, as in traditional competitions. But in a later round, they act as investors, placing bets on what they think are the best ideas, regardless of source. In addition, the investment round is open to all of the company’s approximately 30,000 full-time employees.

A currency of innovation

The key to the investment cycle is the company’s internal blockchain-based tokens called WoW. Employees earn tokens by participating in innovation efforts (eg, patents) across the company. Tokens can be redeemed for invaluable experiences such as bringing in a boss for a skydiving lesson, learning the martial art of Krav Maga directly from CEO Dan Schulman, or bringing in CTO Sri Shivananda to your home and setting up your home network and your smart speaker system.

To ensure that as many people as possible have the opportunity to invest, the company offers a number of WoW tokens to all participating employees. Employees can invest in projects that they believe are good candidates to perform well in the competition. PayPal also capped investments at 100 WoW per idea to encourage participants to diversify their investment portfolios and seek out good ideas.

Participants who invest in the three ideas that make it to the final round of the Innovation Tournament earn a generous return on the WoW Tokens they stake – a 200x return for backing the winning idea and a 100x return times on the finalists. And, just like in the real world of investing, participants lose the tokens they bet on ideas that don’t make it to the final round.

From idea to implementation

Initiated in 2019 at the suggestion of a group of trainees, the now annual tournament takes place over several months. It consists of six rounds, starting with the initial submission of ideas to a final company-wide “Shark Tank” event where the top three teams pitch their ideas and strategies to PayPal’s senior management. . The winning idea is then developed for implementation.

To help guide the crowd, a set of problem statements are developed by key leaders from around the world, ensuring that the ideas submitted focus on areas important to the business. These generally cover a wide variety of topics such as ‘growth markets’ and ‘social innovation’. The questions posed are open-ended, such as: “How can we create or improve products to support an inclusive economic recovery and better meet the needs of unbanked, digitally excluded, and unemployed/underemployed populations?” and “How do we use our products and services to more effectively help our customers fight climate change?”

The 2019 competition attracted 1,500 applications; in 2020, the number has increased to 2,500. Submissions undergo an initial screening to ensure their suitability and feasibility, after which participants put on their investor hats and decide where they want to stake their WoW tokens . The 100 ideas that attract the most investment are then promoted to the next round.

In the round of 100, teams submit one-page business plans, which are judged by the sponsors of the problem statements that launched the competition. Then two to three ideas per problem statement are promoted to a round of 25, where teams present one-minute videos. PayPal employees then vote, ranking their top three preferences. The top 10 voters then advance to the next round, where they present sponsors with problem statements. Sponsors select the top three ideas, which move on to the company-wide final event, where senior management crowns the winner.

In 2019, the winning idea was developed by a multidisciplinary team of four people. They conducted market research, reconsidered user experience and tested customer payment concepts designed to promote climate action by consumers and PayPal merchants. After the tournament, the team worked with PayPal’s global innovation and environmental sustainability teams to develop a prototype product that promotes climate awareness within the company’s platform, encouraging customers to offset their carbon footprint.

In 2020, the winning team’s idea addressed the problem statement of finding more efficient and immediate ways to serve PayPal customers. The team proposed an AI-based framework that automatically sorts and automatically generates solutions for failed customer interactions in real time. The idea has blossomed into a multi-year project that has already brought significant improvements such as reducing average customer service handle times and reducing the volume of customer service calls (by allowing customers to provide descriptions more specific problems).

Additionally, the company decided to implement another top 10 idea designed to help propel the careers of more female directors and senior directors by pairing them with a VP or VP-level sponsor. -senior president. By the end of 2021, nearly 100 women had signed up for the program and been matched with approximately 48 sponsors across the company.

What the crowd thought of the contest

Surveys conducted after the 2019 and 2020 tournaments provide strong evidence of the effectiveness of this VC-based design. (Due to pandemic disruptions, the program was paused in 2021 but will resume in the summer of 2022.) Hundreds of participants — both employees who pitched ideas and those who invested in them — responded. .

Three-quarters of respondents said the perspective of the investment cycle made them think more carefully about what ideas their peers were most likely to invest in. A majority also said the investment feature increased the number of ideas they submitted. By increasing both the quality and quantity of submissions, the investment feature appears to have solved a central crowdsourcing problem: high rewards like cash prizes often attract more submissions but do not necessarily improve the quality.

Specifically, the prospect of competition in the investment cycle appears to affect the quality and quantity of bids. Two-thirds of respondents believe the investment cycle has increased the overall level of competition. We found a 30% positive correlation between perceived levels of competition and the degree to which participants cared about what their peers would think. We also found a strong positive correlation of 50% between perceived levels of competition and the number of ideas participants chose to submit. In other words, the more participants thought the investment cycle increased the level of competition, the more they thought about external validation and the more ideas they ended up submitting.

Another factor that improved the tournament’s effectiveness was its ability to tap into the intrinsic motivation of the crowd: over 90% of respondents said they joined the tournament to improve the customer experience or to help the business. to be more successful. A similar percentage thought the tournament was “fun” in that it allowed them to see what their peers thought of their ideas.

Some concerns have emerged from the surveys that companies should be aware of. For example, many respondents worried that teams would engage in excessive lobbying, aggressively pitching their projects to potential investors — much like startups do when seeking venture capital. This could undermine the tournament’s ability to discover the “best” idea, skewing the results towards the most “commercialized” ideas. To anticipate these distortions, limits to this type of lobbying could be beneficial in future cycles.

Happy with the results of the program, PayPal intends to continue it. The company is also sharing the design with other companies that might want to adopt it. Time will tell if this innovative approach will rewrite the standards for innovation crowdsourcing, but the potential it has shown so far to increase both the quantity and quality of ideas makes it a strong contender.