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Social media can be an excellent way to reach out to both existing and potential customers and take advantage of their creativity. There are two ways to involve your network in developing new products and services:

• Crowdsourcing - asking your network to share solutions to a particular problem your company is experiencing, either on their own or in groups. The community collects, develops and ranks the contributions to reveal the strongest performers.
• Open innovation - allowing people to submit their own competitive ideas and inventions for your company to harness.

Advantages of using social media for innovation

With so many minds able to network together, crowdsourcing and open innovation allow people to work together on a massive scale. By involving your online contact network, you can benefit from:

• the wisdom and creativity of people outside your own workforce
• the increased likelihood of people picking up on and developing innovative ideas that might otherwise go unrecognised
• the outside perspective of customers - and potential customers - who may see issues and opportunities you're unaware of
• increased customer loyalty and brand advocacy that comes from having a say in your company's offer
• lower costs when developing new products or enhancements, and more certain market success for them

Disadvantages of using social media for innovation

Some potential drawbacks include:

• a lack of long-term motivation from participants
• a lack of written contracts, non-disclosure agreements or employee agreements
• difficulties managing a large-scale project and maintaining a working relationship with crowdsourced workers

For crowdsourcing to be truly effective, you will need to reward the people who make a difference to your profitability - for example, by giving prizes or simply crediting work. Beware of causing discontent by failing to recognise the efforts of contributors.