We’ve been reading Harvard Business Review blogger and MIT Center for Digital Business researcher Andrew McAfee’s excellent book, Enterprise 2.0, which is full of valuable lessons for the enterprise, including that prediction markets are a very useful collaborative tool.

For instance, here’s an interesting discovery from the Google Prediction Markets, originally proposed internally in December 2004:

Analyses … revealed that at every point in time, even as much as ten weeks away from the closing date of the market, the most expensive outcome was the one most likely to actually occur. It seemed that GPM’s markets, in other words, could quickly and accurately distinguish among possible outcomes, identify the one most likely to occur, and attach a high price to that outcome.

This is exactly what our Foresight platform does on a regular basis for our customers.

Regular readers might remember a few months back when we cross-posted one of his posts from the Harvard Business Review blog. You might also recall when we posted a presentation that Linda Rebrovick (our CEO) gave in Chicago at the Prediction Markets Cluster conference in Chicago last November.

Linda noted the following best practice examples in her presentation:

• integrate into enterprise processes
• nurture executive sponsorship
• go big or go home
• make accessible to all
• customize to your business
• make it part of your value proposition

We were struck how similar these examples were to the Six Organizational Strategies identified by McAfee:

• Determine Desired Results
• Prepare for the Long Haul
• Communicate, Educate, and Evangelize
• Move into the Flow
• Measure Progress, not ROI
• Show That Enterprise 2.0 Is Valued

Coming back to the commentary on GPM, McAfee continues:

Google’s prediction markets shared with all markets a fundamental property: the ability to generate highly valuable information by bringing people together who have little or nothing in common.

Okay, we don’t actually know how different Linda and Andrew are, but we’re pleased that our executive leadership understood key lessons before an interested commentator went to press with his book. It’s almost… predictive.

In September 2009, McKinsey & Company revealed the results of a global survey on trends in Web 2.0 in the enterprise. Prediction markets were included among 12 core Enterprise 2.0 technologies. Adoption within global corporations has risen from less than 1% in 2007 to 8% in 2009.

We were delighted that prediction markets were identified as a key Web 2.0 technology. However:

Respondents who report that Web technologies have strengthened their companies’ links to customers also cite blogs and social networks as important. Both allow companies to distribute product information more readily and, perhaps more critically, they invite customer feedback and even participation in the creation of products.

Similarly, among those capturing benefits in their dealings with suppliers and partners, the tools of choice again are blogs, social networks, and video sharing. While respondents tell us that tapping expert knowledge from outside is their top priority, few report deploying prediction markets to harvest collective insights from these external networks.

This disconnect is puzzling to us. Prediction markets offer an efficiency of consensus that is not delivered by enterprise social networks. Platforms like Foresight offer effective leading business indicators that convert straight to actionable decisions.

Respondents, have you considered requesting additional information from us so that we can help you harvest collective insights from your external networks?

Andrew McAfee shares a “teaching moment” demonstrating the real-life application of prediction markets.  McAfee’s example shows that, even in its simplest form, prediction markets are very accurate and have a wide range of uses. 

Prediction Markets: A Teaching Moment 
cross posted from the Harvard Business blog by Andrew McAfee
2:14 PM Tuesday December 1, 2009 

Here’s a brief video about TagTrade, Best Buy’s prediction market.  It’s an introductory video that was produced last year in advance of their market rollout.

A great quote from the video:

“Big companies are like communist countries – we all know how well communist countries worked. At some point they fell apart, not because the leaders were dumb, but because nobody would tell the leaders at the top, who had to make decisions, what decisions to make.”

Jeff Severts, EVP, Best Buy

UPDATE: Here is a video of Brad Anderson, Best Buy’s CEO at the Zeitgeist ‘08 conference.  He starts talking about their prediction market at 9:50.