Technology evolves quickly and employees and customers migrate to the new, even while companies stay attached to “legacy” systems. As the digitized crowd gets more capabilities, how do companies react to communities both inside and outside their walls? Read excerpts from the discussion below, or download the full transcript.

Sarrazin: The madness of crowds, crowdsourcing, the tension between well-organized processes that companies fine-tune, and then complete chaos that we open up inside and outside the company. How do you see this play out inside the company today?

Tarkoff: It was interesting. It was about a year ago, the end of 2011, there was a great piece written by Deloitte about the productivity of knowledge workers and how do we really get at the most efficiency of our knowledge workers. And Deloitte actually found that by a factor of two to one, your most passionate knowledge workers existed outside your organization. They were not identified through the traditional means of hiring and bringing employees on. They were out there in your peer base and your customer base.

On the social Web there is entirely new classes of problems that are being invented that only customers can solve. They are at the intersection between different products. They are about different platforms.

Warrior: I think crowdsourcing and getting ideas, I would argue, is relatively easy. And we do that. We use different platforms at Cisco. We have something called I-Prize. We post a problem globally. We have done it across 156 countries, something that we feel needs to be solved. And no strings attached; we pick the best idea and give the person or people with that idea $250,000 to go commercialize that technology.

What are the right mechanisms to screen these ideas? They are all great ideas, and sometimes people build on other people’s ideas. And when we select them, we go back to conventional methods. And I would argue it’s the back end of the process that’s harder than the sourcing of the processes.

But having said that, I think the fundamental model for innovation is changing. And I like to think of it as becoming much more of a collaborative model.

Sarrazin: You are dealing with crowdsourcing externally, a community that exists out there. How is that working? How are you getting people to come together? What are the incentives? How do you select what is good, what is bad?

Ljung: We’re not an existing company that adds crowdsourcing as a strategy for a specific problem that we have. Crowdsourcing, just thinking about large amounts of crowds and how people do things together, is at the core of what we do. Like, we don’t create a product, sell that to somebody, and then the experience they have is based on just that product that we made. Part of, like, our proposition to everybody who comes to SoundCloud is the community and the whole crowd that is actually there. They are not just our customers and users. They are actually part of our product as well.

I have found that one of the most powerful things with having large amounts of crowds is not that people come up with the solution for things, but that they spark this chaos and this ongoing conversation, which over time leads you to a better solution.

Tarkoff: How do you take that innovation model, which is about sustained engagement, about people establishing influence in peer channels, where they are the product of what they write, not any kind of hierarchy and an employee base; and how do you combine that with the traditional ways that we have sourced innovation, which is get ideas and then have the people who really have the knowledge arbitrate, as opposed to having the community arbitrate.

Warrior: Regardless of how you define the community, whether it’s within the walls of an enterprise or extending from the walls of the enterprise, how do you harness the power of that community to being something meaningful versus something that’s just creating a lot of—how do you identify the signal from the noise? And I think at the root of that is a fundamental scientific problem.

Tarkoff: There are ways in which you want to tap into that customer base that gets them the most engaged in helping you solve your problems. And one way not to do that is to quickly answer every question that is asked, without giving your advocates out in the community an opportunity to express their influence. Because the people in your company are not always the most valuable people to be solving the problems.

Sarrazin: These communities are networks. And there’s a body of knowledge around how networks self-regulate and whether they can arbitrage themself and come to an outcome that is in the greater good. Is there some darker side, where the crowds can actually be wrong? And how do we guard against that?

Ljung: If people start going the wrong direction—and that’s what they are really focused on—if you know that, okay, this is not what we’re going to do, you have just gotten this super-clear signal that you are not thinking in the same way as your users are thinking, and you have a shot to explain to them of why, you know, that may not be the right direction. They might fire back. Maybe you’re wrong. Maybe they are right.

Sarrazin: How do you create a value exchange that seems fair with all the participants in this community and in getting the right ideas?

Tarkoff: This is going to be become what the really important part of crowdsource value creation is, is understanding the role and the place that each of these participants play and how to use that to your advantage and then we’ve got to build some sort of a regulatory and legal structure around that.