Picture this: for two straight work days, everyone at your company stops what they're doing to work on something completely new. They assemble teams and at the end the team with the most viable idea—the one with the most potential improve the organization—wins.

Sound crazy? Welcome to the world of hackathons—events gaining steam in the tech industry and starting to make rounds elsewhere. The name hackathon can conjure images of programmers swigging Red Bull and writing code until 3 a.m. Sure, that's not far from the Silicon Valley truth, but for most start-ups, the goal of a hackathon isn't quite so manic. "It's very important to stop for a minute, take a breath, slow down for a day or two, and look at what you can improve," says Todd Sheridan, the ScrumMaster in charge of running the hackathons at Rally Software in Boulder, Colorado, a vendor and trainer of Agile technology.

Sheridan and Rally have grown so fond of hackathons, in fact, that they institute a week-long version every eight-to- 10 weeks for their development team. What outsiders may see as an excessive strain on workers, Sheridan and Rally view as a chance to mine for creativity. Sheridan says: "It's about those bigger issues that they see daily but don't have time to really tackle by themselves or within their own department."

Freedom and autonomy, as we continually learn from vanguards like Google, are big drivers of the impetus to innovate. Here's how to use a hackathon to spur the innovation your company needs.

Setting Up A Hackathon: Bring on the Brainstorm

Even before you start with set-up, it's essential to give employees a chance to generate ideas. Odds are they have come across improvements they can make on their own, but unfortunately never have time to sort them out. Hackathons present an opportunity to encourage the growth of those idea seedlings.

"Sometimes we have things in our head that are important but not urgent, and never get to be urgent enough," says David J. Jilk, CEO of Standing Cloud, which focuses on cloud computing technology, and is also based in Boulder, Colorado.

Jilk says that getting employees to think more closely about a matter that they normally wouldn't develop can really motivate them. It not only nourishes innovative thought processes, but gives them hope that their projects will bring value to the company in the future. "You might have that person in accounting who has a product or service idea," he says. "It won't be perfected, but it may have the germ of an idea that could turn into a good revenue stream."

One method to get those early juices flowing is to create a hackathon wiki. Workers can post idea possibilities in the months and weeks leading up to the event and even begin to form teams. The wiki also allows you to dwindle down the project ideas as the hackathon approaches. Members then simply choose which ones they want to develop before it gets fully underway.

Setting Up A Hackathon: Lay Down the Rules

Once you've formed a healthy stable of ideas, it's time to set the rules—the most important being: There are no rules. Teams should have free reign to self-select their members, come up with quirky names, and choose or change whichever ideas they see fit. Above all, the team element helps get everyone involved in areas they might not think about on a day-to-day basis.

"You will have people whose creative impulse is just less or so suppressed that they have trouble expressing ideas because they're afraid of being shot down," Jilk says. Yet in a team environment, he says, responsibilities become shared among the group so everyone will feel motivated to contribute.

From there, the event should also have some regulations with regard to time constraints and results. Some companies, like Rally, decide to host weeklong hackathons while others, like Standing Cloud, take the 48-hour route. Regardless of preference, make sure to define a clear start and end point to rouse competitive spirit. Also appoint a panel of judges, usually executives and top developers, to curate the event with food and drinks as teams toil to meet the deadline. At the end of the session they'll award the project with the highest feasibility, which more often than not finds it way into the product development cycle.

The demos also present a crop of new avenues for the company to take. Even if not every idea succeeds, they all contribute to the innovative mentality so highly coveted in today's competitive landscape. "You can't assume everyone will produce something making millions of dollars," Jilk says. "But that one thing can have real value for the company."

Setting Up A Hackathon: Ease the Restrictions

As exercises in ingenuity, hackathons intrinsically give latitude to the creative process. While you should place limits on start times and end times, the team members should decide almost everything else. This includes how much time they spend on the projects and even where they want to work.

"It's hard to put a time box around creativity," says Chris Browne, Agile Coach at Rally Software. "If people aren't inspired by being at the office, then we don't require them to be at the office."

Browne also says that some of Rally's best product ideas have come during hackathons where people threw out ideas last-minute and worked late into the night to get it done. During regular work-weeks, that level of autonomy rarely takes hold because there's less motivation to truly own an idea from start to finish. "This is their chance to build it and demo it for sales to take another look," Sheridan says. With no overhead, hackathons allow team members to have a little more fun while demonstrating something that could become useful for the company.

Setting Up A Hackathon: Break The Mold

Just as you want to encourage workers to set their own boundaries, you also want to encourage them to think as far outside the box as possible. This undercurrent should flow directly from the leadership downward, and then motivate the staff to think differently about their jobs. Jilk of Standing Cloud says that some of the company's most critical ideas spawned from this outlook—where it's not about working harder on projects already in their sights, but coming up with ones that were completely new.

"In some cases, we didn't even know we wanted a product and then immediately we needed it," Jilk says.

The thinking shouldn't only extend to product ideas, but to how the company operates internally, forcing it to take a retrospective outlook on improvements. At Rally, for example, employees see this distance as an integral component to their success. Quoting founder Ryan Martens, Sheridan calls it a chance to work on the company rather than in the company. He admits that these innovations might not get that "wow" factor from customers, but they will increase efficiency and relieve roadblocks to ultimately benefit the end user.

If nothing else, hackathons serve to stir the imaginations of a staff unable to think creatively, if at all, about how to improve. And from that standpoint, even the most outlandish of ideas need not be spurned. "Even if we never got any features out of our hackathons," Sheridan says, "they would still be worth it."