The idea is that you make a day-long event (at whatever frequency you want) where everyone works on something that is:
- valuable to the company
- but not what they're "supposed" to be working on and
- that can be taken from idea to working prototype in one day
from Keeping Innovation Alive - The Hackathon
I'm not so certain that the comparison with Google's 20% rule are justified (you need to give time to the kind of projects that come out of Google Labs that influence millions of people) but it sounds like a terrific idea for smaller projects. Don't miss the results it produced for JotSpot.
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