The Consensus Point solution has proven to be an effective tool for innovation management.  Read below about an effective innovation process and how the Consensus Point idea and prediction markets have improved the innovation process for corporations.

James Gardner, Chief Technology Officer at the Department for Work and Pensions in the UK and author of the blog, Banker Vision, explains the key components of corporate innovation.  Gardner’s “tools of innovation” also are aligned with the fundamental building blocks of prediction and idea markets. 

The Tools of Innovation – excerpts from James Gardner’s BankerVision 
Our commentary in italics

A.M Mills, the author of Hell Bent on Success asks me to explain what I mean by the “tools of innovation”. It is possible to summarise, I think, because everything you need to know about doing innovation happens in four stages.

1. Futurecasting
The first is futurecasting. This is the process of working out what is likely to happen in the future so you can guide subsequent iterations of your innovation process. In the book, for example, I explain a specific futurecasting process based loosely on a scenario planning methodology, but anything that gets structured consideration of the future on the table is a good thing. Why is this important? Well, firstly, you can never ask a senior person for support on something new, especially if that new thing impacts current business or revenue, without rehearsal. They need time to think over consequences, and making them think about the future helps them do that. The second reason is that random innovation without a guide won’t always result in new things that solve the strategic problems of the firm. Out of the box thinking is all very well, but if you are not only out of the box, but out of the ballpark, it is usually not helpful.  

For example, GE has run imagination markets successfully for several years, providing a vehicle for leaders to think about the future in the context of other options. GE imagination markets resulted in higher quality ideas than traditional methods.

• 60% of ideas rated as high quality
• Gathered valuable ideas and engaged employees in a fun way

2. Ideation
Ideation is the process of collecting ideas and deciding how good they are relative to all the other ideas that you might have. The thing is, if you’re running a programme, you’ll likely have far more ideas than resources to execute them. So you have to have a way of deciding what you’re going to work on. Of course, if you’re still thinking that the answer to your innovation challenge is getting the good ideas, then you have some work to do. Ideas are everywhere, and usually all you need to do is find a good way of collecting them. Anyway, you’ll have more ideas than you know what to do with, so one of the main tools of innovation is a decent way to prioritise. Usually, people create various scoring systems to do this, but crowd based methods, such as voting and prediction markets work just as well. 

For example, Motorola launched an idea market in 2007, powered by Consensus Point, for  employees to prioritize thousands of ideas on a quarterly basis. Motorola realized the following benefits, in addition to effectively prioritizing ideas: 

• Increased number of new ideas that are pursued from 11% to 22%
• Decreased number of duplicate ideas by 50%

3. Innovate
The third stage is what I call the “innovate” stage, which is really all about the tools and processes you use to work out – in detail – the stuff that has to happen before an idea is actually fundable.  Anyway, to get to the crux of the matter here, you need to answer three questions. “Can we do this?”, which is technically, operationally, and environmentally, is the idea actually possible. “Should we do this?”, which is primarily economic, i.e. can we afford it, and if we can, will anyone want it?. And, finally, “When?”, which is mainly about the response of competitors or internal players. Answering all that means you have a case which is a candidate for funding and delivery. As you’d expect, there are lots of things you do for each of those questions to get to decent answers for as little investment as possible. 

For example, GE employees participating in the company’s “Imagination Market” trade or buy “ideas” based on how closely they believe an idea is aligned to the business objectives, how an idea compares to other alternatives, and if the idea is operationally feasible. Most often, the ideas represent new technology or new product ideas.

4. Execution
Once you have money, the final stage is execution, which is all about building the thing and getting it out in the market. Key tools here include all the things you need to do to win over users, prove you know what you’re doing from an operational perspective (remember, it’s innovation, so its new, so no one will have made it work before), and a ton of other things. But I think the most important thing is you don’t even get to the Execute stage until you’ve done a substantial amount of groundwork first.

Gardner’s “tools of innovation” are a useful guide to effective innovation management, and idea/innovation markets enable several steps in his recommended process.

Prediction Market Reveals Answer Well Ahead of Results

April 28, 2009 – Ingenix.com - Ingenix Thought Leadership – When trying to determine whether a product is priced right, a project will launch on schedule or the impact proposed health reforms will have, health care entities are considering a methodology that relies less on expert opinions and more on the intelligence of hundreds of people with diverse vantage points.

To determine the results of a key question – what will the employee engagement index be? — on an employee survey, Ingenix used the Prediction Market to gauge the outcome well in advance of the survey results being published. Within one day, the Prediction Market accurately forecasted the index.  Prediction markets provides Ingenix’s clients with early and accurate quantitative data points on future events.

This methodology, known as “collective intelligence,” uses a “prediction market” to “unleash the collective wisdom of organizations and helps them gain a more accurate picture of what is going on in their organization and the industry,” according to Ron Hoffner, associate, Ingenix Consulting.

Prediction markets, defined in a recent BusinessWeek article as “bets on ideas,” ask groups of stakeholders the following question: “What do you think something is worth, and more important, what will it be worth tomorrow?”¹ The groups’ answers have proven to be accurate most of the time, the article goes on to say. “When groups of people bet on something, their combined intelligence is often remarkably prescient.”²

Hoffner agrees. “There is an old Japanese proverb that states ‘None of us is as smart as all of us,’ and we are finding more and more that this is true,” he said. Recent academic research has shown that using a market to forecast demand results in a significant improvement in forecast accuracy when compared to traditional methods.³ The result, Ingenix believes, is that health care programs can better predict which programs are the most likely to succeed.

Another area where prediction markets can add significant value is providing quantitative data on the impact proposed health reforms will have on the industry. “What we are doing is asking a variety of people with different perspectives – who traditionally have not been included in the discussion – for their input,” Hoffner said, “For really the first time, we are going to have quantitative data on the impact of these proposed health reforms that participating organizations can use for planning.”  

Prediction markets harness viewpoints, intelligence

One of the flaws of traditional forecasting is that it generally relies on historical data to make predictions about upcoming events and results. Many years ago, a wise man once said, “You can never plan the future by the past.”⁴ Indeed, Hoffner asserted, using historical data to determine the future assumes that the environment stays the same. However, the health care environment is rapidly changing and traditional methods that use historical data do not account for these changes. The result is forecasts with greater uncertainty.

“To illustrate this point,” Hoffner said, “let’s assume historical data shows two variables are related, such as gas prices and sports utility vehicle (SUV) sales. When gas prices go up, the sales of SUVs go down; conversely, when gas prices go down, SUV sales should pick up. However, they haven’t, so the forecast of SUV sales ended up being higher than the actual SUV sales results. It is clear that how variables are related in the future can change.” These changes can come from a variety of sources, such as social changes or government regulations, he explained.

Prediction markets also may be more reliable because they aggregate and consolidate data “from many individuals, often widely dispersed, each with access to small, idiosyncratic bits of relevant information.”⁵ In a prediction market, companies ask stakeholders from across the spectrum to voice their opinions about future events and milestones by buying “stock” or using points to register their “vote,” according to Hoffner.

“Let’s say a company wants to determine how many people will sign up for their four health plans and if a new wellness program will decrease absenteeism. This is their prediction market. They give stakeholders points to assign to the different questions in the market based on their own views,” he said. “If they have a lot of confidence in the issue, they will assign more points to their answer, so instead of just a  ‘yes’ or ‘no’  answer from a survey where everyone has equal influence, people with more confidence in their view have more influence by assigning more points in the market.” 

Another improvement prediction markets offer over traditional surveys is that participants are rewarded for being right. The result of answering a question right is the participant earning points. At the end of a quarter, for example, those with the highest number of points would receive an award. This results in participants seeking information on programs, which leads to increased awareness of them. 

Further, because the information derived from these diverse sources is contributed on an anonymous basis, the data collected also may be more truthful than if solicited in person. A lower-level employee with relevant exposure to an issue being carefully tracked by the company likely would not feel comfortable telling – or even be invited to tell — his or her boss’ boss about existing problems that might affect forecasts. However, that employee likely would honestly report an experience-based lack of confidence in meeting a future target date in the prediction markets setting.

“Prediction market data fills a lot of information holes, especially when there are many unknown variables, because the diversity of ‘players’ leads to different views and different perspectives that can help reduce uncertainty,” Hoffner suggested. “It lets management know how confident people are in a given forecast while still retaining control over the final decision.”

Expanding use, value of prediction markets

Ingenix believes that prediction markets can help health care entities bridge data gaps so they can “see more and do more,” Hoffner said, so it has forged an exclusive partnership with prediction market pioneer Consensus Point to offer prediction market services to Ingenix clients. These clients either pose questions to an Ingenix prediction market or consult with Ingenix experts to build or improve a prediction market of their own.

“Although collective intelligence is not new, today we are taking that intelligence to the next level, where more value can be derived from it,” Hoffner explained. Ingenix Prediction Markets will combine prospective data from employers, brokers, consultants, providers, payers and academics with longitudinal data from Ingenix’s repositories of patient claims and consumer surveys to provide industry-leading market forecasts of how trends, such as health care reform efforts, will impact the health care industry.”

Prediction markets give Ingenix “the ability to let our clients know what’s out there and what’s coming down the road – in a way that is more accurate than any other trends method – so they can better manage their business,” Hoffner concluded. “Our approach to prediction markets is that Ingenix is providing clients with real-time focus groups that we are calling a ‘living leadership forum.’ Any changes in the views of the group and the marketplace are quickly detected, which means businesses are rarely caught off guard.”

¹ Kunz, Ben, “Prediction Markets Meet Wall Street,” BusinessWeek (Oct. 14, 2008)
² Id.
³Consensus Point
⁴ Burke, Edmund (1729-1797).
⁵ Consensus Point, “What is a Prediction Market?” (Web site accessed April 1, 2009). ,” uses a “prediction market” to “unleash the collective wisdom of organizations and helps them gain a more accurate picture of what is going on in their organization and the industry,” according to Ron Hoffner, associate, Ingenix Consulting.

Employees use prediction markets to vote up product ideas and productivity improvements they think should be selected for development

April 27, 2009 — CIO.com — The project: Deploy a prediction market to aggregate new business ideas suggested by Motorola employees and assess their viability. A prediction market is a system for forecasting the outcome of projects or events based on how willing individuals are to buy “stock” in them. Users buy shares to vote items up. Each item is evaluated based on how much it is “worth”: the higher the value, the more popular the idea.

The business case: Motorola sought to allow any employee the opportunity to propose ideas for new products, upgrades to current products, productivity improvements or cycle-time reductions, says Rami Levy, distinguished member of Motorola’s technical staff and a member of its open-source technology team, which manages the prediction markets for the company. In 2003, Motorola had built a system to collect ideas, called ThinkTank. But when thousands of suggestions poured in, the teams that were supposed to weed through them were overwhelmed.

Using prediction market technology, Motorola could engage employees in the selection process by letting them vote for the ideas they thought had the best business potential. The most popular ideas could then be selected for further study and eventually be developed.

First steps: Levy and his team worked with a variety of director-level managers, including senior VPs, to secure buy-in for the project. “ThinkTank was already being sponsored by an SVP,” he says, but they needed support from others who would have to produce the business-case and user scenarios for new product ideas. That sponsorship was crucial to obtaining cross-organizational participation and funding for the tool.

Once Levy’s team secured management support, they integrated prediction software from Consensus Point (called ThinkTank Idea eXchange, or TIX, internally), with its existing ThinkTank application. In a six-month pilot during 2007, they experimented with market parameters, such as how long to keep ideas in play and how to finance participants’ purchases.

Today, employees submit ideas to ThinkTank, where anyone within Motorola can vote on them. Ideas that receive at least five votes are eligible for TIX, where each idea is initially valued at $10 per share. Anyone who wants to participate gets $100,000 to start with to buy the stock of the ideas they like best. As employees buy or sell shares, the value of the idea rises—or not. After 30 days, an idea review team determines which of the top-valued ideas to pursue. Winners are judged based on their stock performance, and participants who hold stock in winning ideas get a bonus.

It typically takes 18 months to develop a product at Motorola, so the first product ideas vetted through TIX are expected to come to market this year, Levy says.

What to watch out for: Market parameters that work in one circumstance won’t necessarily work in another, says Levy. You have to fine-tune your system to your environment. Motorola decided to limit an idea to a month in TIX to ensure new ideas were always entering the market. Meanwhile, even though employees find participating fun, you need to get them involved and keep them engaged. Levy’s team ran ads on the company’s intranet, conducted user satisfaction surveys and incorporated social media into the system. “Socialize the experience,” he recommends, “by integrating user comments, tagging, recommendations and links to other information.”

By Kristin Burnham © 2008 CXO Media Inc.