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.

Regular readers of this blog know that we’re fans of James Surowiecki and the popularization of the concept of crowdsourcing. And as creators of an innovation management platform—Foresight—we also monitor rich sources of innovation like TED. This year, Chris Anderson introduced us to the concept of crowd accelerated innovation.

Seth Godin has nicely summarized and extended the thesis of Chris’s talk:

The idea is one of those big ones, a simple one that will stick with you for a long time… Online video radically changes the reach and speed of the improvement cycle. Things like dance, snowboarding and TED talks keep getting better, and faster, because artists see the best and improve on it. Even more than that, it requires you to top what’s out there, or you’ll be ignored.

Now it’s our turn because we have a slightly different take. Chris’s talk focuses on how web video is accelerating the interpretive and creative process for people the world over. His examples are strong enough that we’re inclined to agree, but it’s not just video; it’s ideas. YouTube provided a remarkable interactive market for web video. Uploading and viewing were just the beginning. Now video is being recut, reedited, and remixed to create new movie trailers, music videos, and tutorials.

Our Foresight platform provides the same, fully participatory experience for our customers who leverage it. The crowds of employees who become participants in our customers’ markets are getting better at their jobs, sometimes because of the extent of web video. They’re digesting and communicating ideas all the time. And there’s no way that a single manager or even a top management team can possibly distill from the creative energy the best ideas with enough guidance to know what’s best, when it should be applied, and how soon it will work without help. Foresight is that help. It’s an example of managed crowd accelerated innovation.

After you’ve honed your dance skills from YouTube (in your office with the door closed, presumably) and you want to accelerate innovation in the enterprise, you’ll want to contact us.

We were reading a recent article in the McKinsey Quarterly, and there’s no reason to restate their kickoff question; better to repeat it verbatim: Are you doing all that you can to enhance the productivity of your knowledge workers? According to the authors, Eric Matson and Laurence Prusak, few executives have a good answer.

Some of the issues involved in knowledge work and knowledge worker productivity caught our eye:

• knowledge workers are those “… whose jobs consist primarily of interactions”
• knowledge work “involves more diverse and amorphous tasks”
• “performance metrics are hard to come by in knowledge work”
• “knowledge workers spend half their time on interactions”
• “complex interactions often require contact with people in other departments or divisions, making it hard for workers to asses a colleague’s level of expertise or apply the advice they may receive

A few of the solutions mentioned by the authors include creating “communities of practice,” leveraging online tools and social networking tools to supplement occasional in-person meetings for the purpose of building relationships. Another was technical forums where specialists can learn about one another’s work with the goal of building trust.

We couldn’t help but think of another: Foresight. Our platform naturally creates communities in an organization and contributes to building trust through person-to-person interaction within the framework of a highly interactive market. Many of our customers report that their employees enjoy participation in an implementation of our platform, and the results they achieve speak to the productivity and efficiency gains enjoyed.

If you’d like a better answer to the question of how well you’re managing the productivity of your knowledge workers, we suggest you contact us.

Last week, Robin and I presented to a group of Chicago-based knowledge managers on the topic of enterprise prediction markets. We were focused on efficacy in the enterprise: what makes markets work in a business environment and why. Of course, the first thing that makes them work is selecting the right platform. We also tried to provide some background on market theory, as well as applied lessons.

We think the reasons markets work for forecasting guidance are fascinating, and we’re perpetually fascinated by Robin and his research. We’re continually impressed by customer success, too. We did our best to ensure that the talk included a mix of theory and applied material drawn directly from those customer successes.

Here are a few lessons from the talk on how to operate an enterprise prediction market with ongoing success:

Do:

• Integrate
 into
 enterprise
 processes
• Nurture executive sponsorship
• Make accessible to all
• Customize to your business
• Make it part of your value proposition

Don’t:

• Run a 30-day pilot
• Use a similar group of participants
• Run a market without promoting it
• Assume leaders will act on insights

If you’d like to dig deeper into the why of the do and don’t, we’ve posted the slides from our talk. And if you’d like to engage our services, we hope you’ll contact us.

As companies begin to focus on growth, innovation has once again become a priority, based on a recent McKinsey Global Survey. While 84% of executives say innovation is extremely or very important to their companies’ growth strategy, many of the challenges—finding the right talent, encouraging collaboration and risk taking, organizing the innovation process from beginning to end—are remarkably consistent.

The authors offer some suggestions on how companies can be more successful at innovation: “In particular, they can formalize processes for setting priorities and commercializing products and integrate innovation into their strategic-planning efforts.”

That’s where Foresight can help:

• Foresight can enable improved innovation processes and tactics, by uncovering gaps in processes.
• Foresight can accelerate the time to review good ideas, by 50% or more.
• Strategic planning and innovation are both aided with the type of forecasting guidance and collective thought leadership offered by Foresight, enabling improved business impact.

A key graf on trends and challenges:

The results also show that the approach companies use to generate good ideas and turn them into products and services has changed little since before the crisis, and not because executives thought what they were doing worked perfectly. Further, many of the challenges—finding the right talent, encouraging collaboration and risk taking, organizing the innovation process from beginning to end—are remarkably consistent. Indeed, surveys over the past few years suggest that the core barriers to successful innovation haven’t changed, and companies have made little progress in surmounting them.

Gartner’s much-reviewed Hype Cycle shows prediction markets progressing toward mainstream adoption. We’re expecting that this signal of maturity means that they will continue to make game-changers out of the companies that employ them as innovation management tools.

After all, the authors of the summary are optimistic:

More positively, the results also suggest some ways that companies can become more successful at innovation. In particular, they can formalize processes for setting priorities and commercializing products and integrate innovation into their strategic-planning efforts.

Here’s where our Foresight platform stands to benefit survey respondents most:

Another consistent pattern is that far fewer respondents say their companies are good at the specific processes and tactics frequently tied to successful innovation—such as generating breakthrough ideas, selecting the right ideas, prototyping, and developing business cases. Respondents say their companies are best at adapting once they’re in the market, with 58 percent claiming to be successful. As in the past, executives have the most difficulty stopping ideas at the right time, with only 26 percent of respondents to this survey saying they do this well.

If you were one of the 2,240 executives who responded to McKinsey’s survey and expressed anything less than confidence about your company’s abilities in innovation management, it’s time we heard from you.

Just before the Labor Day weekend, business and academia came together for a roundtable at the University of Miami School of Business Administration, “featuring presentations that highlighted various approaches to the discipline of risk management.” We were delighted to read about a roundtable of this sort bridging business and academics because we think such collaborative efforts are important, but we also have an important solution to a number of risk management problems. So we were especially delighted that after a clear statement of problems of risk, an especially incisive member of the faculty introduced the concept of prediction markets to the group.

Here are Brian Rice and Henry Pujol, a pair of executives from Royal Caribbean Cruises, explaining the risk scenario:

Brian Rice, executive vice president and CFO of Royal Caribbean Cruises and a member of the School’s Board of Overseers, spearheaded iniatives to develop the roundtable and kicked it off by explaining the importance of risk management in today’s business culture. He pointed to the familiar crises Toyota and BP faced this year, and stressed how corporations are charged with preparing for the inevitable.

“Risk is a big part of our culture. It’s something we’re very focused on at Royal Caribbean,” Rice said. Henry Pujol, the company’s principal accounting officer and a member of the School’s Accounting Advisory Board, explained the cruise line’s top-down approach to risk management in the first presentation. Royal Caribbean has moved from a once-a-year risk management process to an around-the-clock audit.

“Some risks are easy to identify, like the price of fuel,” Pujol said. “Others are more difficult to recognize. The biggest challenge is the unknown. We’ve learned that we may not be able to prevent every risk, but we can react so there is not a panic moment. We prepare ourselves for the unexpected using what-if scenarios.”

And here’s David Kelly, an associate professor of economics, on the value of prediction markets:

“Prediction markets give us a very low-cost way to measure risk precisely and continuously,” Kelly said. “In most cases, it’s more accurate than expert opinions and surveys.”

We’ve already helped customers experience profound success managing risk in the enterprise, and we invite you to explore examples of our customer success.

Maybe, in addition to our world-renowned Chief Scientist Robin Hanson, we need to add a Chief Economist…

We just wrote about the innovator’s dilemma. As if rolling out the strategic business case for our Foresight platform, the Wall Street Journal followed their excerpt from the latest edition of their management guide—“The End of Management”—with a piece on leveraging employee innovation. In large organizations, employees are a crowd with considerable wisdom. And Foresight offers executives a sophisticated tool for innovation management.

J.C. Spender and Bruce Strong suggest “innovation communities” as a solution to harvesting employee innovation. Implementations of Foresight involve participants—often employees—in a market process that functions as an innovation community.

Dr. Spender and Mr. Strong’s ideal innovation communities include seven key characteristics:

• Create the space to innovate.
• Get a broad variety of viewpoints.
• Create a conversation between senior management and participants.
• Participants should be pulled to join, not pushed.
• Tapping unused talent and energy keeps product-development costs low.
• Collateral benefits can be as important as the innovations themselves.
• Measurement is key.

If you’d like to see an example of such an innovation community among our many customer successes, take a look at what Motorola accomplished using Foresight. We’re further expanding this concept through our partnership with Brightidea and their WebStorm interface. If you’re ready to create an innovation community within your organization, so are we.

The 5th annual Global Intranet Strategies Survey just closed. Jane McConnell, its creator, gleaned some important insights even before it closed. To our eye, she saves the best for last: prediction markets appear to be emerging in the enterprise.

The trends Ms. McConnell identified are worth reprinting in their entirety:

• Mobile optimization is not happening very fast. There has been no evolution since last year’s survey: Only 7% say their intranet is optimized for mobile access, 24% are running pilots or are in the planning stages. This is identical to last year.
• Social media is advancing inside. It is implemented to some extent in 70 % of the organizations, up 10 % points from last year. Out of these, 20 % have had social media for less than one year, and over 25% have had it for 3 or more years.
• Enterprises are looking outwards…. 40% say “We create official, branded spaces on external networking platforms such as Facebook.” But most are still being cautious….and only 11% say “We encourage employees to blog on the internet.”
• Collaboration is now “self-service” for some. Out of 276 organizations with blogs, wikis and/or collaborative spaces, approximately 40% provide a self-service solution where people can do it themselves with no or minimal help desk support. However, from 45 to 55% say that only IT can open these spaces.
• Are prediction markets emerging? 10% of the participating organizations already have them. Another 7% are in the pilot or planning stages. Last year, the highest we had were 3% who were testing prediction markets.

Keep in mind, an intranet is the network that is built inside an organization, frequently for the purposes of communication, project management, sales process, etc. When we implement our Foresight platform, it is often in the context of an intranet.

The final insight about prediction markets tracks nicely with Gartner’s latest edition of their Hype Cycle for Social Software, in which prediction markets were clearly maturing. We’re anxiously awaiting the final results of the survey. In the meantime, isn’t it time your organization set up a pilot?

According to an adapted excerpt from the recently published The Wall Street Journal Essential Guide to Management, The Innovator’s Dilemma is an influential book among several major CEOs. For executives who are concerned that they’ll miss “disruptive innovations that opened up new customers and markets for lower-margin, blockbuster products,” we’ve got a solution: Foresight.

Adding a bit more context from Alan Murray’s piece:

Even the best-managed companies aren’t protected from this destructive clash between whirlwind change and corporate inertia. When I asked members of The Wall Street Journal’s CEO Council, a group of chief executives who meet each year to deliberate on issues of public interest, to name the most influential business book they had read, many cited Clayton Christensen’s “The Innovator’s Dilemma.” That book documents how market-leading companies have missed game-changing transformations in industry after industry—computers (mainframes to PCs), telephony (landline to mobile), photography (film to digital), stock markets (floor to online)—not because of “bad” management, but because they followed the dictates of “good” management. They listened closely to their customers. They carefully studied market trends. They allocated capital to the innovations that promised the largest returns. And in the process, they missed disruptive innovations that opened up new customers and markets for lower-margin, blockbuster products.

Information is being generated at ever increasing speeds. Executives hoping to draw lessons from those profiled by Christensen would do well to realize that thought leadership is all around them. Our Foresight platform facilitates innovation management by extracting collective thought leadership from throughout (and, if the business case requires it, beyond) the corporation.

More Murray:

Information gathering also needs to be broader and more inclusive. Former Procter & Gamble CEO A.G. Lafley’s demand that the company cull product ideas from outside the company, rather than developing them all from within, was a step in this direction. (It even has a website for submitting ideas.) The new model will have to go further. New mechanisms will have to be created for harnessing the “wisdom of crowds.” Feedback loops will need to be built that allow products and services to constantly evolve in response to new information. Change, innovation, adaptability, all have to become orders of the day.

We have the “new mechanism.” For us, it’s not new. It’s a stable, mature platform in its sixth major release with several examples of customer success to show for it.

We’re working hard to ensure that executives are equipped and thereby empowered to solve enterprise problems in important domains:

• forecasting, where Foresight offers strong guidance capabilities
• brand identity and brand development
• innovative disruptions

Over the coming months, we’ll be exploring ways that today’s executives can demonstrate collective thought leadership. If you need a solution to the innovator’s dilemma, give us a call.

Gartner has released their Hype Cycle for Social Software, 2010 report. We agree that the interest and meaningful use of prediction markets are on the rise. In addition, Sherrilynne Starkie has an excellent summary of the identified trends.

She identifies two of our strengths in trends on the rise:

Idea Marketplaces: enable organisations to source innovative ideas, technologies, products and services by connecting them to innovators and solution providers from around the world.

Social Analytics: the process of measuring, analysing and interpreting the results of interactions between brands and consumers and/or businesses across digital channels in the context of specific goals and objectives.

Sliding into Gartner’s infamous Trough of Disillusionment, though, are prediction markets, sandwiched in between mobile social networks (aka Facebook) and unified communications (aka IP telephony and video conferencing):

Prediction Markets: are speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Republican) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. Prediction markets are thus structured as betting exchanges, without any risk for the bookmaker.

We agree that prediction markets are maturing, and our customers continue to use our versatile platform to make better decisions earlier. We’re glad Gartner is conducting detailed analysis of this important enterprise software domain, and support the forward movement towards mainstream business use. We also know the importance of services and already offer them to our customers—something that Gartner projects does not happen until technologies reach the slope of enlightenment.

Fortunately, the versatility of our Foresight platform—which allows for idea management, social analytics, and decision markets—has us and our customers and partners optimistic about the future.