In the fall of 2011, the Department of Energy’s Inspector General issued a sobering report calling for a major restructuring of operations.

In a stunning revelation, the report showed that 35 percent of the $10.4 billion needed to run DOE’s sixteen national laboratories each year was spent on overhead costs, not research.

Recommending a consolidation of lab operations, Inspector General Gregory Friedman called the current situation “unsustainable in the current budget environment.”

The report couldn’t have come at a worse time for the DOE. One month earlier, Solyndra had gone bankrupt and the Department was frantically trying to defend itself against allegations of corruption. After a bit of press coverage, the report faded into the background amidst the furor over the loan guarantee program.

The Solyndra story has mostly dissolved. But the DOE's fiscal problems still remain. And with forced budget cuts approaching, the DOE will need to make some tough choices in the coming months and years about how to make operations more efficient.

The options laid out by the inspector general were pretty conventional. Friedman proposed a lab re-alignment strategy similar to what the military had done with bases: shifting funds from early-stage R&D to programs that are closer to commercialization, and eliminating redundant operations.

But if the Department is going to truly help meet the biggest energy challenges -- addressing climate change, building a smarter grid, and helping drive down the cost of renewables -- it may need to break conventional thinking and look at new options for how it deploys tight resources.

And that could mean open innovation, also commonly known as crowdsourcing.

That's what Jon Fredrickson of InnoCentive believes.

“The national labs could be much more effective if they spent time using crowdsourcing tools in order to enhance the great work that they already do," said Fredrickson in an interview at the ARPA-E Energy Innovation Summit. "That might be a little controversial, but I want to get people thinking."

As head of government operations for InnoCentive, Fredrickson spends a lot of time in Washington trying to convince government officials they need to think outside the box. That often means thinking outside the agency itself by tapping into problem-solvers around the country (or even the rest of the world) with good ideas.

InnoCentive is a marketplace for open innovation. The company helps private companies or government entities solve internal challenges by creating prize competitions for its hundreds of thousands of members. An organization will anonymously publish its challenge through InnoCentive, set a monetary prize, and solicit ideas from thousands of people who may have a unique take on the answer. The participant pays InnoCentive a fee if the challenge is solved.

The U.S. military, NASA, and other civilian agencies have all used the marketplace.

In 2009, NASA tried crowdsourcing to create a new prediction algorithm for solar flares in order to protect people and equipment in space. The administration's previous model was able to predict solar flares with 50 percent accuracy within four hours of an event. After posting the challenge and receiving hundreds of submissions, NASA finally got its answer from a retired wireless communications engineer living in New Hampshire. The man's algorithm is able to predict a solar flare event with 85 percent accuracy eight hours in advance. It only cost $30,000 in prize money. Over the years, NASA has used crowdsourcing for seven more challenges and has found an answer for every one. (That's unusual -- the average success rate for an InnoCentive challenge is 57 percent.)

The Department of Defense has also used this approach. In 2011, the Air force research lab asked users to help develop a technology to stop fleeing vehicles in a non-lethal way. The answer came from a retired mechanical engineer in Lima, Peru.

One of the most stunning success stories came from the private sector. In 2008, the Swiss pharmaceutical company Roche Diagnostics -- a company with 80,000 employees -- opened up an R&D challenge to the outside world. Within 60 days, the company received 113 answers. In a case study on the challenge, the London Business School concluded that those submissions represented fifteen years of R&D work. And it only cost $20,000.

In some cases, companies have seen a return on investment between 80 percent and 180 percent in a matter of months.

The DOE has recognized the benefits of challenges. As part of its SunShot initiative, the Department set up competitions between cities to encourage better permitting procedures for solar. But Fredrickson argues that it's time for the Department to think more comprehensively about this approach in both its lab operations and deployment programs.

"I think especially in times of austerity, this makes tremendous sense," he said. "If you could replicate fifteen years of R&D history within 60 days while spending a fraction of what it would cost in-house, why wouldn’t you do that? I look at this as an opportunity for the federal government to spend more wisely."

Fredrickson sees two types of institutional barriers.

One is cultural resistance to outsiders. If an organization believes it has already harnessed the smartest people, it may be hesitant to embrace answers from outsiders.

"Very often what we find is that a person with a different background can look at the problem in a fresh way and come up with solutions faster," said Fredrickson.

Another similar barrier comes on the individual level. An expert with an extensive background in a certain subject may also be resistant to an idea from someone else with less education or a completely different school of thought.

There are also political tensions. For example, under the America Competes Act, any awards through the stimulus package could only be handed to U.S. citizens or corporations with half of their money in the U.S. One could imagine political outrage if non-Americans get taxpayer money for solving a challenge.

"It's a perfectly understandable to question whether we should be paying someone in another country. But in open innovation, there's a case to be made that it works. Maybe these answers are in Canada, Brazil, the U.K., India -- wherever they might be. If you eliminate a big portion of the world from where the possible solution is, we could possibly limit the ability of America to lead in innovation."

Whoever or wherever the answers come from, there's a very strong case to be made for more open innovation in government. And in a time of fiscal austerity, the DOE has a unique opportunity to leverage tight funds with the wisdom of crowds.