Friday, February 02, 2007

The Wisdom of the (Virtual) Miners

A few years back, Toronto-based gold mining company Goldcorp (GG) was in trouble. Besieged by strikes, lingering debts, and an exceedingly high cost of production, the company had terminated mining operations....Chief Executive Officer Rob McEwen needed a miracle. Frustrated that his in-house geologists couldn't reliably estimate the value and location of the gold on his property, McEwen did something unheard of in his industry: He published his geological data on the Web for all to see and challenged the world to do the prospecting. The "Goldcorp Challenge" made a total of $575,000 in prize money available to participants who submitted the best methods and estimates...

Within weeks, submissions from around the world were flooding into Goldcorp headquarters. There were entries from graduate students, management consultants, mathematicians, military officers, and a virtual army of geologists....

The contestants identified 110 targets on the Red Lake property, more than 80% of which yielded substantial quantities of gold. In fact, since the challenge was initiated, an astounding 8 million ounces of gold have been found—worth well over $3 billion. Not a bad return on a half million dollar investment.

This is from an article in BusinessWeek by Don Tapscott and Anthony Williams. (Thanks to Alex Tabarrok on Marginal Revolution for the excerpt.) Tapscott and Williams go on to observe the following:

If the masses can peer-produce an operating system, an encyclopedia, the media, a mutual fund, and even physical things like a motorcycle, one should carefully consider what might come next. You could argue that we're becoming an economy unto ourselves—a vast global network of specialized producers that swap and exchange services for entertainment, sustenance, and learning.

This was the insight I gained from doing the Development Marketplace at the World Bank six years ago. The innovation in terms of ideas generated was MUCH higher than the typical internal Bank process - and the cost was much lower. I realized that no matter how smart the Bank's experts are, they have limited information, expertise, and bandwidth. That experience led to the creation of GlobalGiving.

Like a typical company, the World Bank and many other development agencies and foundations are built on a hirearchical model:
Conventional wisdom says companies innovate, differentiate, and compete by doing certain things right. They hire and retain the "best people" to generate new ideas, make new discoveries, compete, and expand their business lines.
It is disheartening to see the slowness with which old (and even some of the larger and newer) organizations are coming to grips with the key lesson:

The lesson for business leaders is that the old monolithic multinational that creates value in a closed hierarchical fashion is dead. Winning companies today have open and porous boundaries and compete by reaching outside their walls to harness external knowledge, resources, and capabilities. Rather than do everything internally, these companies set a context for innovation and then invite their customers, partners, and other third parties to co-create their products and services.