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If Developers are Stocks – TopCoder is a Neo-Mutual Fund

By cloudspokes In Uncategorized

Posted December 26th, 2011

arrows up and down sA recent Forbes article – the Rise of Developernomics – piqued our interest. We encourage you to read the worthy article, the lively comments and even the rebuttal post that was created shortly thereafter. To understand the Forbes author’s point and how that equates an Open Innovation platform like TopCoder to the world’s largest human mutual fund, read on.

For those with limited time, here is a snippet from the Forbes post that nicely sums up its sentiment.

“The one absolutely solid place to store your capital today — if you know how to do it – is in software developers’ wallets. If the world survives looming financial apocalypse dangers at all, this is the one investment that will weather the storms. It doesn’t matter whether you are an individual or a corporation, or what corner of the world you inhabit. You need to find a way to invest in software developers.”

If you look at developers as investments, then TopCoder has to be considered a neo-Mutual Fund. You may be asking: Why the “neo” tag appended to the traditional term? A mutual fund is of course a wide collection of individual stocks and commodoties blended into a digestible portfolio allowing the consumer of the fund to enjoy an aggregate of the whole. If the majority of the stocks outperform, the fund goes up. Mutual funds are rather popular because they also mitigate risk. If certain stocks within the whole degrade badly, the whole is less affected, thus mitigating your risk.

WWJCD? Mad Money Jim Cramer

If you are a fan of Mad Money, the flagship CNBC investment program hosted by Jim Cramer – or as my 4 year old daughter refers to him “the Loud Guy” – then you know he continually downplays mutual funds and ETFs (Exchange Traded Funds) as a poor investment decision. His belief is that there is enough data and information out there and if you just do your homework, you can successfully invest and trade individual stocks and reap far larger returns because of this practice. We sure would love to introduce the TopCoder competition methodology to Mr. Cramer.

In previous articles we’ve discussed why a model that leverages a competitive community – some would call this Crowdsourcing – has sincere advantages over a traditional developer setting, whether internal to an organization or outsourced. A key differentiator is the elimination of a single point of failure in an environment where competition is the engine driving the outputs.

The New Choice in Information Technology & Innovation

Extending our stock market analogy, there are 3 ways to approach information technology and innovation.

  1. Pick select stock winners = traditional hiring & cultivating talent internally
  2. Pick a mutual fund = traditional outsourcing
  3. Pick a neo-mutual fund = join & access a competitive community & Open Innovation platform

Traditionally, the issues with option 1 and 2 are what they have always been.

Traditional Hiring – It is incredibly expensive to hire and retain amazing talent. Depending on your industry and physical location on Earth, it can make hiring that much more difficult. Picking individual winners is downright risky and we know from experience, sometimes, you just aren’t going to get the performance you thought you were out of any given individual. This causes challenges, delays and macro-underperformance.red dice cost effort risk

Traditional Outsourcing – You shifted what you were doing internally to some off-shore, near-shore or on-shore “solution”. You essentially purchased a traditional mutual fund hoping the majority of the work you get back from this source is quality and on time. Like any traditional source, individual members inside this outsourced solution will outperform and underperform. The issue is the fact that your company is paying for and is affected by both. You receive the aggregate of the outputs, the good and the not so good. Just like a traditional mutual fund investment, your extremes are limited, but is that good enough to propel your company forward in IT and innovation?

The best solution is a community.

Competitive Community – Utilizing a very over-used term, this truly becomes a best of both world’s solution. You receive the extreme value outomes that can be realized when you hit a traditional hire homerun and get the beneift of minimizing risk that can be accomplished through outsourcing. The key differentiator is competition. Joing a community, you gain access to the hyperspecialized talent you will need to innovate in this incredibly fragmented technological landscape. Because you only pay for best in breed outputs – winning solutions – this innately means you do not pay for attempts, effort and underperformance. You get the outperformance of individual stocks with the security a fund can deliver.

On Point Read: Web 3.0 – Innovation Nightmare or Disruptive Catalyst? (featured on Innovation Excellence site)

If you were to tell Jim Cramer he could invest in a mutual fund – gaining the risk-mitigation a fund provides – where the value was solely determined by the best performers and the negative or underperforming stocks within the whole had no impact whatsoever on the valuation of the fund, what do you think his reaction would be?

For those familiar with his program, the term “Buy, buy, buy!!!” comes to mind. You need to stay nimble and you need access to specialized talent that can drive value for your business. The 21st century solution to the daunting challenges in IT & innovation is joining and ramping up work through an Open Innovation platform.

Image Credit: paidcontent.org, cnbc.com, jimmarous.blogspot.com