How PayPal Gets Employees Invested in Innovation

Crowdsourcing is often used to foster innovation, but in practice unlocking the wisdom of the crowd is easier said than done. Firms can be overwhelmed by bad or useless ideas, which can clog up the process and even lead a company astray. Many crowdsourcing campaigns offer prizes for winning ideas, but determining the optimal type (cash or non-cash) and size of the reward is a difficult task. There is also evidence that firms resist ideas, no matter how worthy, that weren’t invented internally.

To circumvent these common problems, the financial technology company PayPal has developed a new approach inspired by the world of venture capital (VC). Participants in the company’s annual Global Innovation Tournament submit their ideas, as in conventional contests. But in a subsequent round, they act as investors, placing wagers on what they think are the best ideas, regardless of the source. In addition, the investment round is open to all of the company’s approximately 30,000 full-time employees.

An Innovation Currency

The key to the investment round lies in the company’s internal blockchain-based tokens called WoW. Employees earn tokens by participating in innovation efforts (eg, patents) throughout the company. Tokens can be redeemed for invaluable experiences such as bringing a boss for a skydiving lesson, learning the martial art of Krav Maga directly from CEO Dan Schulman, or having CTO Sri Shivananda come to your house and set up your home network and smart speaker system.

To ensure as many people as possible have a chance to invest, the company gives a number of WoW tokens to all participating employees. Employees can invest in projects that they believe are good candidates to perform well in the competition. PayPal also capped investments to 100 WoW per idea to provide an incentive for participants to diversify their investment portfolios and seek out good ideas.

Participants who invest in the three ideas that make it to the final round of the innovation tournament earn a generous return on the WoW tokens they stake — a 200-fold return for backing the winning idea and a 100-fold return on the runners-up . And, just as in the real investment world, participants lose the tokens they stake on ideas that don’t make it to the final round.

From Idea to Implementation

First initiated in 2019 at the suggestion of a group of interns, the now-annual tournament takes place over a period of several months. It consists of six rounds, starting with the initial idea submission to a final “Shark Tank-like” type company-wide event where the top three teams pitch their ideas and strategies to PayPal’s senior management. The winning idea is then developed for implementation.

To help guide the crowd, a set of problem statements is developed by key executives across the globe, ensuring that submitted ideas focus on areas that are important to the company. These generally cover wide-ranging themes such as “growth markets” and “social innovation.” The questions posed are open-ended, such as: “How can we create or improve products to support an inclusive economic recovery and better meet the needs of the unbanked, digitally excluded populations, and unemployed/underemployed?” and “How do we use our products and services to more effectively help our customers fight climate change?”

The 2019 contest attracted 1,500 entries; in 2020 the number jumped to 2,500. Submissions undergo an initial screening to ensure fit and feasibility, after which participants put their investor hats on and decide where they want to stake their WoW tokens. The 100 ideas that attract the most investment are then promoted to the next round.

In the round of 100, teams submit one-page business plans, which are judged by the sponsors of the problem statements that kicked off the contest. Then two to three ideas per problem statement are promoted to a round of 25, where teams present one-minute videos. PayPal employees then vote, ranking their top three preferences. The top 10 vote-getters then move on to the next round, where they pitch to the sponsors of the problem statements. The sponsors pick the top three ideas, which move on to the final company-wide event, where senior management crowns the winner.

In 2019, the winning idea was developed by a globally diverse, cross-functional team of four. They conducted market research, reconsidered the user experience, and piloted customer checkout concepts designed to promote climate action by PayPal consumers and merchants. Following the tournament, the team worked with PayPal’s Global Innovation and Environmental Sustainability teams to develop a product prototype that promotes climate awareness within the company’s platform, encouraging customers to offset their carbon footprints.

In 2020, the winning team’s idea addressed the problem statement of finding more effective and immediate ways to service PayPal’s customers. The team proposed an artificial-intelligence-powered framework that auto-triages and auto-generates solutions for failed customer interactions in real time. The idea has blossomed into a multi-year project that has already yielded significant improvements such as reducing average customer service handling times and reducing the volume of customer service calls (by allowing customers to provide more accurate problem descriptions).

In addition, the company decided to implement another top-10 idea designed to help propel the careers of more female directors and senior directors by partnering them with a vice president- or senior vice president-level sponsor. By the end 2021, almost 100 women had enrolled in the program and been paired with about 48 sponsors across the company.

What the Crowd Thought of the Contest

Surveys conducted after the 2019 and 2020 tournaments provide strong evidence of the effectiveness of this VC-based design. (Due to the disruptions of the pandemic, the program was paused in 2021 but will resume in the summer of 2022.) Hundreds of participants — both employees who pitched ideas and those who invested in them — responded to them.

Three-quarters of respondents reported that the prospect of the investment round made them think more carefully about which of their ideas their peers were more likely to invest in. A majority also said the investment feature increased the number of ideas they submitted. By increasing both the quality and the quantity of submissions, the investment feature appears to have solved a central problem of crowdsourcing: High rewards like cash prizes often attract a greater number of submissions but don’t necessarily improve quality.

More specifically, the prospect of competition in the investment round appeared to affect the quality and quantity of the submissions. Two-thirds of respondents believed the investment round increased the overall level of competition. We found a positive 30% correlation between perceived competition levels and the degree to which participants cared about what their peers would think. We also found a strong positive correlation of 50% between perceived competition levels and the number of ideas participants chose to submit. In other words, the more participants believed the investment round increased the level of competition, the more they thought about external validation and the more ideas they ended up submitting.

Another factor that improved the effectiveness of the tournament was its success in tapping into the intrinsic motivation of the crowd: Over 90% of respondents said they joined the tournament to improve the customer experience or to help the company be more successful. A similar percentage thought the tournament was “fun” in that it let them see what their peers thought of their ideas.

Some concerns did emerge from the surveys that companies would need to be mindful of. For instance, many respondents worried that teams engaged in lobbying, aggressively pitching their projects to prospective excessive investors — much as startups do when seeking venture capital. This could destroy the tournament’s ability to uncover the “best” idea, skewing results toward ideas that were the most “marketed” instead. To preempt such distortions, limits on such lobbying could be beneficial in future rounds.

Happy with the results of the program, PayPal intends to continue it. The company is also sharing the design with other firms that might want to adopt it. Time will tell whether this innovative approach will rewrite innovation crowdsourcing standards, but the potential it has shown so far in increasing both the quantity and quality of ideas makes it a serious contender.

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