In the age of Web 2.0, an innovative theory can quickly generate new related concepts and applications. New elements are added to parts of the original idea and it can be difficult to draw a clear distinction between the theory and its OFFSPRING concepts. This is what happened with the concept of crowdsourcing and the related idea of the wisdom of the crowd. The term “crowdsourcing” was coined in 2006 by Jeff Howe, an editor at Wired Magazine. On his website, Howe defines the term as follows:
“Crowdsourcing is the act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undeﬁned, generally large group of people in the form of an open call” (Jeff Howe 2006).
The “wisdom of the crowd,” on the other hand, is summed up by journalist and writer James Surowiecki as a decision-making process that leverages the collective knowledge of a group of individuals instead of relying on the opinions of a handful of experts.
Both are about opening up a process of value creation to a so-called “crowd” – usually an unspecified group of people – to enhance the effectiveness of the process. The crowd is therefore a crucial element of both concepts. Both concepts are ubiquitous on today’s internet because the costs of gathering and involving a crowd have been drastically reduced by the interactive applications made possible by the user-centered Web 2.0 technology. So how can we differentiate between the two ideas?
The key difference lies in the extent to which the crowds contributions are aggregated. In a crowdsourcing process, the input of the crowd isn’t necessarily aggregated into a final output. In Surowiecki’s theory of crowd wisdom, on the other hand, aggregation plays an important role. Making use of the wisdom of a crowd requires the aggregation of their individual contributions into an applicable output through a suitable mechanism.
The term “wisdom” is central to Surowiecki’s theory. According to him, collective decisions are not only more efficient but also generally better. By contrast, the key element of Howe’s crowdsourcing concept is the idea of outsourcing. His main focus is the increase in efficiency that crowdsourcing can entail. Individual steps in the value creation chain can be outsourced to the crowd to save time and money and thus improve overall productivity.
Thus, the overall focus of “crowd wisdom” is on increasing quality, whereas the focus of “crowdsourcing” is on increasing efficiency. The difference between the two concepts is therefore not in the process of involving the crowd but rather in the emphasis of different aspects of stakeholder involvement: The quality of the result or the efficiency of the process leading up to it.
The example of the British government’s “Red Tape Challenge” helps illustrate this difference. In 2011, the British government announced that it was looking to consult citizens, companies, organizations and other stakeholders to reduce unnecessary bureaucratic hurdles. Outdated regulations were impeding the productivity and agility of British companies and institutions. The government wanted to reduce the bureaucratic challenges faced by companies to help stimulate the economy.
Over a period of three years, companies, organizations and citizens were given the chance to comment on the 5,662 existing rules and regulations and to submit suggestions for possible improvements. The rules were divided up into 28 different subject areas. Every month, the rules in one such area were up for debate. After each four-week period, the respective ministry would have three months to consider the suggestions, make decisions based on them and provide feedback to the stakeholders who had contributed. The results of the Red Tape Challenge were astounding: More than 3,000 of the rules that were discussed as part of the challenge were either eliminated or substantially improved. For example, easing the accounting regulations for small and medium sized businesses has led to an annual increase in savings of 300 British Pounds. According to the British treasury department, the Red Tape Challenge helped save 10 billion Pounds within the first four years.
The Red Tape Challenge is a classic example of crowd wisdom. By consulting its stakeholders, who were confronted with the relevant rules and regulations on a daily basis, the government was looking to gather concrete strategic advice to help reduce bureaucratic hurdles. In other words, the wisdom of the crowd was meant to improve the quality of bureaucratic reform. On the other hand, the Red Tape Challenge could also be viewed as a form of crowdsourcing by emphasizing the efficiency aspect: Thanks to the contributions of the stakeholders, the government was able to develop a catalogue of recommendations for bureaucratic reform more quickly and efficiently than it might have done without involving the crowd.
We at Insights.US believe in the wisdom of crowds and have developed our tool in order to manage and effectively use the wisdom of crowds for better decisions. If you want to know more about how crowd wisdom has already improved decision-making in the past, please visit our Case Studies.