The ‘solution economy’: how new players are solving old problems

BY William D. Eggers and Paul Macmillan  September 25, 2013 at 12:25 PM EST

Grassroots innovators are all around us, fueling a “solution revolution” that tackles social problems like America’s low recycling rates. Photo courtesy of Flickr user Kit. A new cadre of problem-solvers is changing the global economy and the way America innovates. They’re not a select group making big bucks and names for themselves in the history books, nor are they all high-techies developing the kind of futuristic gadgets we’ve seen before on the Business Desk.

These problem-solvers are all around us, changing our quotidian habits, improving life on spaceships and facilitating commerce in remote areas. At least, that’s what the landscape looks like to two consultants who have written about a grassroots, “solution revolution” taking hold in the marketplace.

William D. Eggers leads Deloitte’s public sector research and has written widely on government reform. Paul Macmillan is the global public sector leader for Deloitte Touche Tomatsu. The following piece is adapted from their recently published book, “The Solution Revolution: How Business, Government, and Social Enterprises are Teaming up to Solve Society’s Toughest Problems.”


Over the last decade or so, a dizzying variety of new players — from business, government, philanthropy and social enterprise — has developed innovative ways to tackle social problems. They’ve facilitated easier recycling, essay-grading, ride-sharing and female entrepreneurship, and with those things, a burgeoning new economy.

These new problem solvers, whom we call “wavemakers,” operate in what we call a “solution economy,” using new technologies, innovative business models and clever behavioral incentives to solve old challenges.

“Business models” may even be too narrow a term. Wavemakers develop fundamentally different operating models that are fostering new relationships between services and clients, government and citizens, managers and workers, neighbors and neighbors and strangers and strangers. Just as a computer’s operating system provides the foundation for all the software, these new operating models enable a whole new set of social and economic relationships that break through existing boundaries.

To see how, here’s a brief tour of five breakthrough approaches that directly challenge existing ways of doing business and support new entrants in the societal problem-solving marketplace.

Recycling

Despite endless public service announcements and community campaigns, too many Americans don’t recycle. For more than a decade, the overall solid-waste recycling rate in America has hovered at around a third, a far cry from Denmark’s 69 percent, for instance, or the zero-waste future environmentalists dream of.

In a number of cities, however, recycling rates have not stagnated; they’ve soared. Recycling jumped from 2 percent of waste to 65 percent in a matter of months in Wilmington, Delaware. In parts of Philadelphia, recycling rates skyrocketed from a dismal 7 percent to 90 percent in months.

What was the difference? These cities had one thing in common: a partnership with an organization called Recyclebank. This innovative social enterprise has turned recycling into a game: by recycling, households can earn points that can be redeemed for real prizes, such as vacations and discounts on products from hundreds of companies. Radio-frequency identification device (RFID) sensors placed on the recycling bins calculate the number of points each household earns by recording how much waste they recycle. The more you recycle, the more points you earn.

In just a few short years, Recyclebank has gone from an interesting idea to a company operating in hundreds of cities, with a membership of more than 3 million households.

Student Assessment

Which of the following best assesses a student’s critical-thinking skills and command of knowledge of a given subject: a multiple-choice test or an essay?

Everybody knows that essays better assess students. So why are high school students often asked to write just three essays per semester? Because of the high cost of grading them. When professional graders score essay portions of standardized tests, the price tag runs from $2 to $3 per essay. Multiplied by millions of students, that’s a hefty tab. Thus, teachers make do with the less meaningful yardstick of multiple-choice tests because they’re easier to grade.

Multiple-choice tests are a scalable form of assessment. Fill in the ovals with your number two pencil, and a computer can grade your test. But what if a computer could grade your essay just as well as your teacher could?

In spring 2012, the William and Flora Hewlett Foundation sponsored a $100,000 competition to find algorithms to replicate the scoring of human graders. Partnering with Kaggle, a web-based exchange that runs predictive modeling competitions, they tapped a global community of data scientists.

Provided with thousands of hand-scored essays from schools across the country, competitors had three months to build a software engine to “read” and grade the essays, and the program best able to match the scores given by human graders would win the purse, and the bragging rights.

Ten years ago, nothing like Kaggle existed. The idea of a permanent virtual gathering of geeks pitting algorithms against one another to solve real-world problems was the stuff of cyberpunk.

By the time Kaggle hosted its essay-scoring competition in 2012, the platform had grown to a user base of more than 17,000 data scientists. Competitions had already contributed advancements to forecasting highway travel times in Sydney and creating a genetic blueprint to predict the progression of HIV.

In the Hewlett Foundation’s essay scoring battle, the $100,000 investment brought in many times that amount in resources applied to the problem, producing an astonishingly accurate algorithm that can closely predict the scores of a skilled human grader. The prize went to a team including a data analyst for the National Weather Service, a British particle physicist, and a graduate student from Germany, none of whom had a background in education.

Ridesharing

In the United States, the average commuter loses 34 hours a year to congestion delays; that’s 4.76 billion hours among all American commuters. The economic opportunity cost is staggering: $429 million daily or about $160 billion every year.

One abundant and underutilized resource offers a potential solution to the gridlock: the empty seats in cars. Problem solvers are experimenting with ride-sharing to turn lone commuters into a secondary public transit system.

Ride-sharing apps like Zimride, Lyft, Carma, Relay Rides, and Carpooling.com herald the revolution.

Reward Ride awards points to riders and drivers who can trade points for rides of their own, creating a micro-economy in the process. Meanwhile, the Carma app displays a driver’s routes to potential passengers in real time. Wherever a passenger waits, the app alerts drivers, pulling up a profile of the prospective rider. When the ride ends, Carma transfers a fee ($1.00, plus $0.20 per mile, tracked via GPS) from the passenger’s Carma account to the driver’s, with Carma taking a cut. Users then rate each other.

The new ride-sharing programs track progress through digital currencies. Amovens serves as a message board where travelers with profiles post where they hope to travel and how much they’ll pay to do so, allowing dollar prices to fluctuate freely. Users trust each other according to a person’s accumulated social credit; user ratings thus form a currency to increase the odds of finding a willing driver.

Changing commuter behavior requires that ridesharing offer an easy, comfortable, safe alternative to driving alone. Smaller, community ride-sharing programs, though they never make national news, are spurring innovation organically.

Such exchanges, if successful, can potentially have an outsized social impact. By our calculations, doubling the number of rideshare commuters (which would simply bring the percentage back up to 1970 levels) and shifting 10 percent of drivers to car sharing, could take nearly 16 million cars off the road and save 757 million wasted hours in congestion per year in the United States. The country’s carbon dioxide emissions would decline by nearly 2 percent.

If the government tried to match these savings by building new public transit, the bill would run around $27.5 billion, roughly the amount dedicated to repairing the country’s crumbling roads and bridges as part of the American Recovery and Reinvestment Act in 2009. In contrast, ridesharing costs the public sector almost nothing, while the government saves more than $8 billion in road maintenance costs.

Social Entrepreneurship

The majority of sub-Saharan Africa’s half billion inhabitants reside in rural areas populated with only 77 people per square kilometer. This relative isolation lends itself to roving microfranchises capable of serving large geographic areas. Also referred to as direct-sales-agent models, they employ a business-in-a-bag concept where locals are trained to serve members of their own and neighboring communities directly, bypassing shops and intermediaries.

LivingGoods, based in Uganda, equips female sales agents with a ready-made business for selling everything from malaria nets and clean-burning cook stoves to nutrient-rich fortified foods. Health Keepers and Toyola Energy employ similar models for selling health products and cook stoves throughout Ghana.

After providing the essentials, an organization offers the entrepreneurs incentives to build their customer bases. To do so, the entrepreneurs often leverage their own existing relationships. Compensation is linked to sales, encouraging strong performance and the expansion of the model.

The formula is not unlike the one the cosmetics behemoth Avon International uses to sell its wares across 100 countries through its 6.5 million agents. Since the 19th century, when its founder started putting women to work as sales representatives, Avon has been turning relationships into sales funnels and the financially-dependent into enterprising businesswomen.

In the developing world, many organizations use Avon’s microfranchise model for social ends. LivingGoods, for example, charges market rates for its detergent so that it can subsidize its door-to-door malaria and tuberculosis medicine. Though medicine is supposed to be free in Uganda’s health-care system, stocks in community clinics are often empty, forcing patients to trek to the nearest pharmacy. Through LivingGoods, tuberculosis and malaria medicine cost $0.75 — less than one-tenth of what it would cost in a drugstore. That’s without the door-to-door service. “Cheaper than free,” as LivingGoods’ founder likes to say.

The direct-sales-agent model may not be the anytime, anywhere service that Westerners expect. But for remote inhabitants, the roving sales agent brings valuable resources where they are otherwise lacking. And as long as there are eager entrepreneurs and customers interested in the products, there is room for expansion.

Crowd-Sourcing Innovation

Few organizations grapple with as difficult scientific problems as NASA. In recent years, the revered space agency has routinely opened up its problems to the world. NASA’s Open Innovation Initiative releases challenge statements, via Challenge.gov, InnoCentive, Kaggle and other platforms, to solicit solutions from as many disciplines as possible.

NASA began crowd-sourcing innovation ideas in response to budget cutbacks, and has issued more than 50 challenges in recent years.

The first three, issued in late 2009, drew 1,217 initial responses from 65 countries. The challenges asked contestants to learn how to keep food fresh for as long as three years; to design a zero-gravity resistance mechanism for exercise in space; and to devise a way to forecast solar activity so that NASA could schedule launches to minimize exposure to harmful radiation.

NASA’s challenges have generated a variety of breakthroughs. The winner of the Green Flight Challenge, for instance, beat the aircraft industry standard of 20 passenger-miles-per-gallon fuel efficiency with a remarkable 406 passenger-miles-per-gallon.

The top four entrants spent $5 million collectively designing their super fuel-efficient aircraft. Joe Parrish, a deputy manager in NASA’s Jet Propulsion Laboratory, estimates that NASA received more than $3 in research and development benefits for each dollar it spent on the prize. “The Green Flight Challenge was one of our smallest expenditures yet one of our biggest achievements,” Parrish says.


This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions