47 Pages Posted: 11 Mar 2010 Last revised: 11 Jan 2012
Date Written: June 13, 2011
Organizations increasingly seek solutions to their open-ended design problems by employing a contest approach in which search over a solution space is delegated to outside agents. We study this new class of problems, which are costly to specify, pose credibility issues for the focal firm, and require finely-tuned awards for meeting the firm's needs. Through an analytical model, we examine the relationship between problem specification, award structure, and breadth of solution space searched by outside agents towards characterizing how a firm should effectively manage such open-ended design contests.
Our results independently establish and offer a causal explanation for an interesting phenomenon observed in design contests - clustering of searchers in specific regions of the solution space. The analysis also yields a cautionary finding - while the breadth of search increases with number of searchers, the relationship is strongly sub-linear (logarithmic). Finally, from the practical perspective of managing the delegated search process, our results offer rules of thumb on how many and what size awards should be offered, as well as the extent to which firms should undertake problem specification, contingent on the nature (open-endedness and uncertainty) of the design problem solution being delegated to outside agents.
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By Alva Taylor