Crowdfunding has commonly been deployed at German giant Siemens AG, with employees participating in a multi-round crowdfunding effort. They could not only suggest their own ideas on an internal online platform but also act as investors, deciding which projects to support with funds. This meant they got to do something usually reserved for managers – making choices and allocating budgets.

Research from Kühne Logistics University examines how well this decentralized decision-making process worked and the role of hierarchies. They found that employees submitted high-quality ideas, which their colleagues recognized and financially supported.

However, these investors were not entirely impartial. They tended to favor ideas from colleagues at their own level in the company hierarchy. The more an idea resembled something they would suggest, the more they liked it and felt a stronger sense of belonging. This effect was more pronounced for highly innovative ideas. When investors and creators were in competition, they tended to invest less.

Robust benefits

Despite this bias, the benefits of idea competitions with decentralized decision-making are clear. They tap into the knowledge scattered throughout the company, encourage collaboration across different parts of the organization, and boost employee loyalty and motivation.

To make the most of internal crowdfunding, companies should carefully plan the process and adapt it to their needs. In larger companies, it might be a good idea to create smaller groups of creators to avoid overwhelming investors. Management needs to fully support the idea of giving decision-making power to employees and make the source of the funds clear.

It’s important to maintain transparency – most creators want to attach their name to their ideas, as it increases motivation and satisfaction. Companies should also create a culture where failed ideas don’t have negative consequences for creators or investors, as innovation always carries some risk. Whether investors are anonymous or not can affect their evaluations and choices.

The study focused on Siemens’ experience with internal crowdfunding since 2015. Employees proposed project ideas with potential benefits for the company, which were then reviewed and funded by a random selection of anonymous investors. The researchers analyzed data from the platform and conducted interviews and surveys to gain insights into this internal crowdfunding approach at Siemens.