McKinsey has been engaged in a multi-year study of how organizations are using Web 2.0 and the resulting impact. They’ve shared some results in a recent write-up, and they’re striking: companies using the Web intensively gain greater market share and higher margins. This is encouraging news for us because we have an enterprise-class web application with a social focus.

McKinsey identifies three types of organizations that have realized significant business benefit from their use of Web 2.0: internally networked organizations, externally networked organizations, and fully networked enterprises.

Here’s there summary of the latter:

… some companies use Web 2.0 in revolutionary ways. This elite group of organizations—3 percent of those in our survey—derives very high levels of benefits from Web 2.0’s widespread use, involving employees, customers, and business partners, according to the survey. Respondents at these organizations reported higher levels of employee benefits than internally networked organizations did and higher levels of customer and partner benefits than did externally networked organizations. In applying Web 2.0 technologies, fully networked enterprises seem to have moved much further along the learning curve than other organizations have. The integration of Web 2.0 into day-to-day activities is high, executives say, and they report that these technologies are promoting higher levels of collaboration by helping to break down organizational barriers that impede information flows.

Our Foresight platform not only contributes to fully networking an organization, but it’s a great fit within an organization that is already moving in this direction, with rich buy-in from stakeholders throughout and on the periphery of the organization. Participation in a prediction market not only increases employee satisfaction, but it improves forecasting accuracy and delivers true ROI. Best of all, it’s a social network in a Web 2.0 framerwork that can be custom integrated into the workflow of an organization of any size.

This is why we were pleased to see this among the final recommendations from the McKinsey report:

Break down the barriers to organizational change. Fully networked organizations appear to have more fluid information flows, deploy talent more flexibly to deal with problems, and allow employees lower in the corporate hierarchy to make decisions. Organizational collaboration is correlated with self-reported market share gains; distributed decision making and work, with increased self-reported profitability.

Leveraging our social predictive analytics solution could be just the thing you need to foster organizational change and collaboration in 2011.

A recent article in the Financial Times got my attention because it seemed to pit scenario planning against forecasting as tools for the enterprise to prepare for the future. The best part about using prediction markets for forecasting guidance is that forecasting and scenario planning don’t have to be mutually exclusive strategic approaches.

From the article:

Imagine a future in which everyone got by on just three hours’ sleep a night; or in which employers were required to hire equal numbers of men and women for every type of job; or in which a technological meltdown persuaded millions to quit their cities in favour of rural self-sufficiency. Now imagine what each of these unlikely scenarios might mean for your business.

Such thinking might seem woolly but an increasing number of organisations are trying similar exercises as they struggle to make predictions in turbulent times. The practice of “scenario-building” (or “scenario-planning”) can, say its advocates, inform both long-term strategy and present-day decisions but most importantly it can equip senior managers with a mode of thinking that will help them deal more effectively with the unexpected.

I don’t disagree with the impact scenario planning can have, but it’s impact can be refined and strengthened when paired with prediction markets. Imagine if you could get your organization to undertake the exercise of scenario planning by presenting each of the scenarios as questions in a market. The market would offer insight into which of the scenarios are likeliest to have a real-world impact on your business rather than just serving as an exercise in creative thinking or outside-the-box forecasting.

Instead of having to consider the meaning of a seemingly random assortment of scenarios designed to provide outside-the-box thinking–those presented in the example from the article, for instance–imagine if you could know that your employees actually expected one of them to mean something important, for instance if impending legislation made organizational gender equity more relevant than a productivity pill.

If you’re engaged in scenario planning, make sure you’re identifying scenarios worth planning for. Prediction markets aren’t just forecasting; they’re collective forecasting. Let your organization help you know what to expect, with Consensus Point’s Foresight.

Yesterday, our Chief Scientist Robin Hanson presented at the Society for Risk Analysis 2010 Annual Meeting. We mention it because risk management is one of the primary domains of problems to which our Foresight platform can be applied.

Robin is known for thinking big and thinking about the future, and his talk yesterday was representative in both regards. Here’s the abstract:

Catastrophic Risk Forecasts from Refuge Entry Futures
Speculative markets have demonstrated powerful abilities to forecast future events, which has inspired a new field of prediction markets to explore such possibilities. Can such power be harnessed to forecast global catastrophic risk?

One problem is that such mechanisms offered weaker incentives to forecast distant future events, yet we want forecasts about distant future catastrophes. But this is a generic problem with all ways to forecast the distant future; it is not specific to this mechanism. Bets also have a problem forecasting the end of the world, as no one is left afterward to collect on bets. So to let speculators advise us about world’s end, we might have them trade an asset available now that remains valuable as close as possible to an end. Imagine a refuge with a good chance of surviving a wide range of disasters. It might be hidden deep in a mine, stocked with years of food and power, and continuously populated with thirty experts and thirty amateurs. Locked down against pandemics, it is opened every month for supplies and new residents. A refuge ticket gives you the right to use an amateur refuge slot for a given time period. To exercise a ticket, you show up at its entrance at the assigned time. Refuge tickets could be auctioned years in advance, broken into conditional parts, and traded in subsidized markets. For example, one might buy a refuge ticket valid on a certain date only in the event that USA and Russia had just broken off diplomatic relations, or in the event a city somewhere is nuked. The price of such resort tickets would rise with the chance of such events. By trading such tickets conditional on a policy that might mitigate a crisis, such as a treaty, prices could reflect conditional chances of such events.

Okay, so that’s not a traditional business problem. But if you’re an executive who’s uncomfortable with uncertainty, you should get in touch with Consensus Point.

Transformative economist Arthur Laffer, inventor of the Laffer Curve, has joined the board of directors of Nashville-based Consensus Point, creators of the Foresight prediction markets and social predictive analytics platform.

“Dr. Laffer’s insights have had a profound effect on fiscal and economic policy over the past decades,” said Consensus Point CEO Linda Rebrovick. “And we’re profoundly excited to have someone of his stature bring his wisdom to bear on this exciting technology and its related opportunities.”

“I’ve been intrigued by the broad applications of prediction markets since I first became familiar with the concept,” said Laffer. “The power of markets has shaped my thinking and the world, and I’m delighted to be able to advise Consensus Point and help enterprise find greater efficiencies and thus greater profits through the use of a powerful prediction markets platform.”

About Arthur Laffer: Dr. Laffer is the founder and chairman of Laffer Associates, an economic research firm that provides global investment research services to institutional asset managers, pension funds, financial institutions, and corporations. Previously, he was a founding member of the Congressional Policy Advisory Board (105th-107th Congresses), a member of President Reagan’s Economic Policy Advisory Board (1981-1989), and was the first Chief Economist at the Office of Management and Budget (1970-1972).

Laffer currently sits on the board of directors or board of advisors of a number of companies, including Alpha Theory, Armor Concepts, Atrevida Partners, BAP Power, BridgeHealth Medical, Cubit, Dataium, Executive Trading Solutions, HealthEdge Partners, LifePics, and Pillar Data Systems.

About Consensus Point: Consensus Point, a Nashville-based company, offers Foresight, a leading social predictive analytics solution providing forward-looking indicators to identify real-time emerging risks and trends in demand management, innovation management, and major initiatives.

Consensus Point is proud to serve some of the world’s leading companies from our Nashville headquarters. Last week, we announced our partnership with the Nashville Entrepreneur Center to create Startup Exchange. Now, we’re pleased and proud to have been named to Nashville Post’s Fast 50.

From the envelope:

This email is to notify you that your company will appear on Nashville Post magazine’s first ever list of the 50 fast growing, emerging companies to watch in Middle Tennessee.

Selection was based on numerous factors, ranging from revenue and employee growth to growth over a period of years, growth as compared to industry average, projected growth and projected pitfalls, among other criteria. But selection of the list also involved editorial judgment. Many of the companies selected applied to be considered for the list, but many were also chosen by the editorial staff at Nashville Post based on awareness of a company’s success or references from knowledgeable sources about area companies performing well. A handful are even selected for their promise of near-term growth, which, combined with their stories, snugly fit the list’s mission to identify “hot” companies.

And this is how Nashville Post describes the group:

Nashville Post’s Fast 50 is our annual look at Middle Tennessee companies on a roll. Fast-growing, emerging or, in some cases, simply brimming with promise, they represent some of the best the Nashville area has to offer in terms of entrepreneurial vision and growth.

From startups gaining their financial legs to more established companies whose mature growth is remarkable, this array of companies — big and small, highly profitable and increasingly profitable, full of dreams or realizing their dreams — is perhaps best described as a list of ‘companies to watch.’

It is our goal, every day, to be a company to watch.

We are pleased to be partners with the Nashville Entrepreneur Center in launching their Startup Exchange (ECX). ECX is a marketplace for investors and participants to simulate buying and selling startups affiliated with the Entrepreneur Center. And, of course, it’s powered by Foresight.

Trades in the market will reflect the confidence of investors in a startup’s ability to hit milestones including funding, pitches, and product launch. The EC Exchange also acts as a forum for dialogue and feedback between startups and the community excited by what they’re doing.

The Entrepreneur Center serves as the “Front Door” of Nashville for entrepreneurs. It serves as a gateway that fuses training, relationships, and resources to cultivate economic development and drive Nashville’s future as the epicenter of entrepreneurial endeavors.

For more information on ECX, just ask.

We were excited to read an excellent white paper we recently downloaded from our friends at Moxie Software (formerly nGenera). Called “Building the Collaborative Enterprise,”iIt includes 10 questions to ask about business opportunities through collaboration. Question #8 out of 10 stood out to us: “Are we pooling our judgments to obtain the best possible forecasts and predictions?” The ensuing discussion is all about prediction markets.

Prediction markets are an emerging way to aggregate individual opinions and insights into remarkably accurate forecasts. In a prediction market, participants trade “contracts,” essentially bets on future events, such as the outcome of an election or success of a new movie. The system is very similar to stock and futures exchanges, where participants buy and sell contracts based on their expectations. Contract values are proxies for the underlying probability that an outcome will occur, as expected by the market participants.

Effectively used by companies such as Hewlett-Packard, Google and Yahoo!, prediction markets are being implemented in a growing number of organizations. Common business questions include: What are sales for a given product going to be next quarter? Will the price of a particular raw material be higher or lower in three months? How many customer complaints are we going to receive by a particular date?

Prediction markets provide an innovative and efficient way to mine and aggregate otherwise buried information and insight. They offer a powerful new way to harness collective intelligence – turning unspoken views and tacit knowledge into tangible, quantitative predictions about the future. While the structure of these markets may vary, they all share the same goal: better information revelation. The assumption is that with the right motivation, large numbers of diverse participants can do a better job of predicting future events than the smartest individual.

This is a nice summary of the concept of prediction markets, including wonderful examples of the kinds of questions that emerge in successful implementations. We’d contend, though, that prediction markets are no longer “emerging”; they’re in the field and yielding success. Just ask our customers, many of whom are experiencing improved forecasting guidance by getting collective answers to questions similar to those provided as examples by Moxie.

In the process of getting to a more collaborative enterprise, our Foresight platform can build much stronger capacity for pooling judgments. As Moxie notes, in this series called Boardroom Imperatives, the business outcome is accurate business forecasts. If this outcome appeals to you, let us know.

I read this article about leveraging employee ideas in The Wall Street Journal a few months ago that accentuates the value of employee input for successful innovation. It stuck with me because I’ve been thinking about how our innovation management platform automates their concept.

The WSJ piece floats the idea of innovation communities:

Companies that have successfully made innovation part of their regular continuing strategy did so by harnessing the creative energies and the insights of their employees across functions and ranks. That’s easy to say. But how, exactly, did they do it? One powerful answer, we found, is in what we like to call innovation communities.

Every company does it a little differently, but innovation communities typically grow from a seed planted by senior management—a desire for a new product, market or business process. A forum of employees then work together to make desire a reality.

Innovation communities tackle projects too big, too risky and too expensive to be pursued by individual operating units. They can be created with little additional cost, because no consultants are needed. After all, those in the midst of the fray already know most of the details relevant to the project.

We think innovation communities are a neat concept, but we also think you don’t need management overhead to create an innovation community; they already exist! Prediction markets provide another way to tap into innovative ideas from employees. Our Foresight platform has helped a number of customers create organization-wide innovation communities who participate in a prediction market, prioritizing ideas and then driving the best ones to the top of the list.

And this is what social predictive analytics is all about. Our platform unleashes employees in an already social environment and produces analytics provide forecasting guidance. Executives wind up with forward-looking indicators helping to identify real-time emerging risks and trends in demand management, innovation management, and major initiatives. And that’s why we have so many satisfied customers.

We suspect you’ve already got an innovation community. When you’re ready to deploy Foresight to harness social predictive analytics, let us know.

Consensus Point CEO Linda Rebrovick announced today that Brian Hogue has joined the enterprise software company as Vice President of Products. “With dozens of leading companies having achieved success with Foresight, we’re confident in our technology as a platform,” said Rebrovick. “We’re delighted that we’re joined by someone with Brian’s skills and experience to leverage the opportunities for proven predictive analytics products.”

Brian has over 15 years of experience delivering technology solutions. He has held a range of technology leadership positions in health care, public policy and digital publishing. Most recently he played a significant leadership role in developing Ingram Digital’s industry leading eBook asset management and distribution platform.

Hogue’s primary responsibilities will be to guide product strategy, drive product innovation from concept through general release, to oversee the software as a service (SaaS) implementation environments, and to lead interface development and integration with Consensus Point customers and partners. Foresight, the prediction markets and social analytics platform created by Consensus Point, is in its sixth major release. Hogue will oversee the launch of the seventh major release, which is currently in development.
 
About Consensus Point: Consensus Point, a Nashville-based company, offers Foresight, a leading social predictive analytics solution providing forward-looking indicators to identify real-time emerging risks and trends in demand management, innovation management, and major initiatives.

Because we hang out with smart people like our Chief Scientist Robin Hanson, we’re sometimes inspired to read scholarly publications relevant to our work. Earlier this year, a Masters Thesis came out of Erasmus School of Economics with an intriguing title: “The Relevancy of Group Expertise for the Accuracy of a Prediction Market.” Danielle Almeida’s prose hooked us from the first page…

First of all, Almeida provides a pithy description of prediction markets:

A prediction market is a futures market in which a large group of people can express their opinion about the out coming of a certain event by buying shares from the answer that – according to the participant – is most likely to be correct. Prediction markets are increasingly implemented in enterprise environments.

The author then makes a list that reminds us of our own list of dos and don’ts:

• Invite as many participants as possible to the company’s prediction market: there is no relevance with regard to the accuracy of the out coming of the prediction market.
• In general, employees that have more knowledge on the subject need less explanation why you want them to participate. Also, more knowledgeable employees are more likely to keep participating when related questions are asked consecutive. This means that non-experts might need an extra stimulation to participate.
• Be aware of the ‘contradictory effect of the prediction market’ that might occur when non-experts are involved. It seems that they have different approaches to come to their decisions. While experts merely buy the shares of the answer they believe is most likely to be right, some non-experts tend to play a more strategic game.

You’ve been hearing us talk about the efficacy of prediction markets for a while, but what we offer is much more than just a platform. We know the platform, and we know how to make it effective in the enterprise. Which is why we offer extensive consultative services, from implementation through monitoring and management.

Finally, we hate spoilers, but we’re going to go ahead and give away the ending because we can’t help it:

Based on this research, we would like to recommend all companies to consider implementing a prediction market to support their decision making process in case predictions are a necessary part of the decision making process. We have proven with this research that – based on several data – a group of experts is not capable of making significant better predictions than non-experts.

Especially companies that have hired expensive experts to make forecasts about future events – such as turnover and product innovation – can save a lot of money, by just asking employees, suppliers and customers to make these forecasts for them. Even on a larger scale than previously researched, experts do not outperform non- experts significantly when using a prediction market to forecast.

If you’re an executive who needs better forecasting guidance, you don’t need an expert; you need experts in implementing prediction markets like Foresight. Our expert advice: call us.