Here is a brief excerpt from an article written by Rakshit Bhandari, Somnath Chatterjee, Kushagra Gupta, and Brajabhusan Panda for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Crowdsourcing is emerging as an important capability for companies modernizing IT. Businesses that do it best follow five important principles.

Once seen as an experimental technique, crowdsourcing has found acceptance as a mode of technology innovation and implementation across organizations. Gartner has estimated that by 2018 yearend, crowdsourcing (the practice of tapping a distributed labor force of mainly freelance workers, typically through digital channels, to complete a specific piece of work) will constitute 20 percent of all enterprise software application-development initiatives.¹

Enterprises and technology providers are increasingly turning to crowdsourcing because of the benefits it offers:

• Talent: As demand for increasingly niche and sophisticated skills increases, crowdsourcing is becoming a flexible way to access new talent. Organizations are also using internal crowdsourcing marketplaces to help employees hone new skills and keep them engaged.
• Speed: Huge projects that might otherwise take months to complete can be broken down, parceled out, and completed by multiple teams working in parallel. At one company, crowdsourcing reduced what would normally be a nine-month-long research project to three months.
• Cost: The average cost of a crowdsourced project is usually significantly lower than what most organizations would spend internally to develop the same solution. Analysts estimate that within IT-services businesses, crowdsourcing can increase productivity by up to 9 percent and reduce costs by up to 7 percent.² One technology major sourced three different analytical models through crowdsourcing and developed a best-of-breed solution at a ~5 percent lower cost than deploying a full-time team.

That shift in demand has been matched by a change on the supply side, as many skilled workers are now looking for opportunities to work on diverse sets of problems with no long-term employment commitment. Crowdsourcing platforms give them the flexibility of choosing the when, what, and how of their work. This development has now made it easier than ever to hire niche talent from around the globe to work on specific problems on short notice.

Despite the clear benefits of crowdsourcing, we find that companies are consistently running into pitfalls:

1. Poor understanding of what tasks and platforms are best suited for crowdsourcing. Companies are often tempted to crowdsource a wide range of tasks without understanding which activities are suitable and which are not. That lack of clarity often extends to platform selection. Different crowdsourcing platforms are optimized for different activities.
2. A management apparatus that can’t address the specific demands of crowdsourcing. Enterprises have developed management roles and practices to manage traditional IT projects, but those capabilities cannot address the specific circumstances of crowdsourced projects. New capabilities are needed to focus on process, integration, and management to support crowdsourcing.
3. Underestimating the complexity of working with established architecture. Standard IT structures tend to be monolithic and made up of a mix of large and often-outdated systems. That lack of flexibility can radically increase the complexity of crowdsourcing as IT managers try to address an often-baffling set of system dependencies and configurations for any given project.
4. Insufficient attention to client confidentiality. The remote nature of crowdsourced delivery means that enterprises need to enforce high levels of client confidentiality. But the complexities of sharing, allowing access to files, and validating solutions require a clear approach to confidentiality protections before a project even begins.
5. Misaligned pricing incentives. Too often, enterprises default to traditional pricing practices that lead to poor outcomes, do not attract the best talent, and have a low ROI.

Overcoming these challenges requires revisiting existing development-process, governance and program-management protocols. Based on our experience with some of the largest IT firms experimenting with crowdsourcing, we have found that the following five guiding principles are the most important:

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Here is a direct link to the complete article.

Rakshit Bhandari is a digital manager in McKinsey’s Australia office; Somnath Chatterjee is a partner in the Mumbai office, where Kushagra Gupta is a consultant; and Brajabhusan Panda is a digital expert in the Bengaluru office.