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.

Our CEO, Linda Rebrovick, recently sat down with Erin Lawley of the well-regarded NashvillePost.com for an interview. Erin summarized the function of our Foresight platform nicely but also got Linda talking about our important role in the Nashville technology corridor.

Erin on what we do:

Consensus Point companies — clients include General Electric, Best Buy and Qualcomm — can post a question to the online market, such as whether a particular project will be completed on time. Participants then can answer the question, betting a certain number of points on an outcome depending on their confidence level. Correct answers return more points, lead to higher standings on the market’s leader board and possibly other rewards or incentives for the participants while helping executives more effectively manage the business.

And an excellent first Q&A:

How do prediction markets differ from other types of forecasting models or decision tools used in business today?

Traditionally, all these prediction models are algorithms that take historical patterns that say this is what happened in the past, and we’re going to extrapolate that this pattern will continue in the future. That’s how forecasting systems have worked forever. And they’re very successful when you have a historical pattern.

What they can’t do is detect early-warning indicators that, while this has always happened in the past, something’s changed. So that’s the power of what we have, the ability to be your eyes and ears on the ground  every minute, minute by minute. So as the leader of a company, I know I’ve got the facts as they stand today as I’m trying to make a decision.

Other good questions:

• What is the user experience like for market participants?
• What incentives do companies use to encourage participation and correct answers?
• Do you have any good examples of how a prediction market has helped one of your customers?

For Linda’s answers, go read the whole interview. But we’ll leave you with her thoughts on our local impact:

We’ve got to get more companies like this in Nashville. This is a traditional California company. The California [venture capitalists] understand these companies and put money behind them. The California companies network the executives and help each other get into other [opportunities]. We don’t yet have that here.

I was chair of the Nashville Technology Council, and I’m on the Nashville Entrepreneurship board. I’m trying to get us to become a hub of some sort as it relates to new and exciting innovative social media and enterprise 2.0 technology. This is the next wave, and we ought to have these companies in Nashville.

It’s fun to be at an exciting technology company with a great CEO! Especially fun because we have great customers. If you’d like to become a great customer, contact us.

Foresight, our enterprise prediction market platform, is a product under constant and steady development, based in large part on customer input and feedback. Between major releases, we frequently provide feature releases to get new developments and requests in the hands of our customers as soon as possible. We’re pleased to announce our June 2010 release of Foresight.

Our goals with this release are:

• continuing to make the user experience flexible to specific business situations and needs, as well as user preferences
• improving management analytics reports by turning data into information for business leadership

And here’s what’s new:

User Interface Updates

New Confidence Interface — For both point and stock metaphor markets, participants will have a new way to increase or decrease confidence in any question or stock, streamlined from the previous process. The entire participant interaction may now be done via a bidirectional slider that allows users to increase or decrease confidence and see the resulting consensus. The interface also dynamically provides feedback to the user on the impact of their vote in addition to their maximum payout or value potential assuming they are moving the consensus in the correct direction.

The Advanced option allows participants to enter a number of units/points directly. For stock metaphor markets, this is also where limit orders may be placed. Once the answer is submitted, the participant has the opportunity to enter a private comment regarding their trade.

Security Enhancements — System security has been enhanced with additional encryptions. As a result, users will no longer be able to retrieve their forgotten password, but rather will be asked to ‘reset’ their password.

Decision Dashboards — As part of additional reporting and analytics capability enhancements in the administrator application, specific users may be granted access to enterprise dashboards. The dashboards provide a snapshot view of the market’s activity, trends, associated business value, and comments.

Administrator Updates

Custom Fields — Administrators may now create and manage custom fields of information for traders, stocks and categories. These custom fields may store additional information beyond what is standard in the application. For example, a ‘Department’ field might be created to track which department the trader belongs to in the organization. The management of custom fields is located under the ‘Settings’ area of the admin application.

The addition of custom fields is important because now business leaders can run a range of reports on aggregated bits of business intelligence.

Reporting enhancements — Additional reports have been added to the reporting section in the admin application. To accommodate the additional reports, the reporting navigation has also been modified. The additional reports include the ability to view the data along several dimensions, including any custom fields that have been defined in the market.

This release is now generally available with the Foresight platform and will be deployed to existing customer markets within 30 days.

We recently created a partnership with Brightidea, the global leader in on-demand innovation management, to integrate WebStorm as a social front end to the Foresight platform. In combination with Brightidea’s Switchboard for idea and investment evaluation, this partnership offers a complete end-to-end crowdsourcing solution.

As organizations move through later phases of the innovation process, costs and risks increase. Our Foresight platform can help mitigate risks in these later innovation phases and enable your crowd to efficiently and quickly prioritize the best investments that will yield the highest return for your company. In a later stage of Brightidea’s crowdsourcing solution, the ability to accelerate innovation provides a key competitive advantage.

We’re excited about having a successful case study of our open API for Foresight, and we’re also excited about partnering with an industry leader to be able to offer a comprehensive solution to an important customer need in an increasingly complex world, where successfully managing ideas is more important than ever. If you’re as excited as we are, we hope you’ll want to know more.

Last week, we attended the Front End of Innovation conference in Boston. We went in part because the agenda looked interesting but also because we were pleased and proud to see two of our customers—Tina Brown-Stevenson of Ingenix and Rami Levy of Motorola—as presenters/panelists.

We enjoyed Tina’s presentation on prediction markets, and we’re glad that someone reported back to the FEI blog about her presentation:

In a solid FEI Champions presentation to complement James Surowiecki’s keynote address, practitioner Tina Brown-Stevenson, Sr. VP Innovation and Information Group at Ingenix, talked through the implementation of a prediction market at Ingenix. As a lead-in to the details of the specific practical application developed at Ingenix, Ms. Brown-Stevenson drew upon examples from Mr. Surowiecki’s book The Wisdom of Crowds to outline the foundational philosophical elements for Ingenix’s overall approach.

We won’t complain when a neutral third party favorably compares us to Surowiecki. Tina shared some findings from several prediction market uses and confirmed that the size of the crowd is not what is important— as markets can be accurate with as few as 24 participants. Tina confirmed what Surowiecki talks about in his book— it is the independence and diversity of the crowd that enables prediction markets to be on average more accurate than a subject matter expert. Tina also shared the Ingenix approach to adjusting the interface to their constituent needs. While many public companies, such as Best Buy and Motorola, have found the traditional stock metaphor to be adopted well within their cultures, we adjusted the Ingenix interface to something easily understandable for Ingenix participants, both internal and external. Demonstrates the flexibility of our Foresight platform!

For Rami’s presentation, he shared his notes with us from the panel on innovation adoption. He described Motorola’s idea collection system and explained why an idea market was needed: to identify the best ideas by leveraging the “crowd.”

For Motorola, the value of our Foresight platform boils down to three ‘Rs’ in the enterprise:

• rewards: mostly intrinsic, e.g., collaboration, helping the company, helping others, forming relationships, learning)
• recognition: via leader boards in the market and built-in social media tools
• recreation: fun, like a game; easy to use with low barriers to entry; competition; social media access to enable “viral” messaging.

If you’d like a sense of the kind of bottom line value these three Rs offered Motorola, CFO.com has covered that topic.

We’re glad we went to the conference, and we’re glad that two of our customers are on the front end of innovation through their use of Foresight.

We’ve been corresponding with Per Mengshoel, the Head of Technology Groups at BEKK Consulting, who is pursuing an MBA at the University of California Berkeley’s Haas School of Business. For his thesis project, he has been comparing information gathering via a prediction market with BEKK’s existing process for predicting technology trends in the Norwegian market. Specifically, he’s looking at the use of prediction market tools as an alternative to existing decision making processes (typically expert-based or based on input from a small number of people) in a small- to medium-sized business. In addition to looking at the decision making process, Mengshoel is studying how use of prediction markets affects employee involvement. For his research, we provided him access to our Foresight platform.

His thesis is in progress, but he’s already revealed these findings:

• Prediction markets gather more information and more diverse information compared with BEKK’s existing processes.
• While BEKK’s existing process typically gets information for senior employees and top management only, prediction markets also allow junior employees to express their opinions.
• Prediction markets give feedback from a more diverse set of employees than the existing process.
• Prediction markets seem to be a a good supplement to the existing process — and a lot faster.

We’re excited that our platform can support academic work of this nature, suitable for immediate application in the enterprise. Best of luck to Per on completing his thesis!

Deloitte, a global leader in financial advisory and risk management services, has a variety of resources for global executives, including a publication called CFO Insights. They recently published an article entitled, “Social analytics: Tapping prediction markets for foresight.” It’s an elegant summary of how a Chief Financial Officer can leverage prediction markets in the enterprise to gain foresight.

They start with a helpful description of prediction markets:

Prediction markets are online markets that build on the principle that markets serve to aggregate the beliefs of multiple traders to generate a forecast. For example, at any given time, a stock price is the aggregate collective belief of the traders of the company’s expected future earnings allocated to the share. Like the stock market serves to assign a price to the future estimated earnings of a stock, “prediction markets” assign a value to a belief about the future or a prediction.

The author of the article, Dr. Ajit Kambil, Global Research Director of Deloitte’s CFO program, quickly gets into how and why this concept can be of tremendous value to CFOs:

CFOs can use prediction markets to reduce uncertainty. Begin by considering the greatest areas of uncertainty that affect your organization. Is it the sales forecasts in a particular business segment? Is it the differences in sales across regions? Is it the cost of a critical resource such as oil? Is it the timely completion of a particular project? Is it uncertainly about whether a project will be within budget; and the variance if it is not?

More:

The first issue CFOs should consider is the value of resolv- ing a particular uncertainty. Can, for example, knowing the delay of a project enable cost savings or other benefits? Can having better sales forecasts enable the company to confidently pay down debt? Rank-ordering uncertainties that need to be resolved, based on the value of resolu- tion, identifies a priority list of potential prediction market applications.

Frankly, we’d encourage CFOs and even board members or other C-level executives to read the whole thing [PDF].

Dr. Kambil cautions:

The technology is easy and widely available. The design of a program with incentives, recruitment of participants, good forecasting questions, and alignment to a company’s culture may not be easy to achieve. While many prediction market vendors are probably too ready to sell you their market and technology as a solution, what is really important is their capacity to support the organizational acceptance of the technology.

We, of course, offer comprehensive services with our Foresight platform, as well as robust support.

Linda Rebrovick, our CEO, was happy to share her experience with Ajit as he prepared the article.

If you’d like us to share our experiences with prediction markets and foresight, just ask!

Though we’ve done our best to try to help people understand how prediction markets can drive business value, we’re always excited to discover when others explain it in a straightforward way. In this case, we found a helpful description of the “binary option” model of prediction markets in the CAPS community at Fool.com. I.e., the mechanics of how trading works in a prediction market.

So what are prediction markets? Prediction markets generally involve the trading of binary options. You may know what options are (the right but not the obligation to purchase a given thing), and the benefits of using them (nonlinear payoff profile i.e. fixed premium/cost vs variable profit). But binary options work a little differently, the standard binary option pays $1 if a specified event occurs by or on a specified date – otherwise it pays $0.

For example ipredict has a contract on the US Fed increasing interest rates by November (here): “FED.INCR.NOV10”. This contract pays $1 if the Fed increases interest rates on or before the 4th of November 2010.

You can both sell and buy binary options. So using the previous example, if you believe the probability of the US Fed increasing rates on or before the 4th of November is greater than 0 then you would buy contracts (e.g. if you bought a contract at $0.50 and the Fed increased rates before expiry you would receive $1).

Likewise if you believed that there was no way the Fed would lift rates this year then you could sell short the contract. So for example if it were trading at $0.50 then you would sell a contract for $0.50 and on expiry if the event did not happen you would get to keep the $0.50. But of course the converse is true, if the event did occur then you would have to pay $1 to the holder of the contract, but this would be offset by the $0.50 you sold it for.

If you want to participate in a public prediction market driven by our Foresight platform, check out Logica’s FutureScope project.

The CAPS model itself, based on predictions in the financial markets, is pretty interesting.