Agile strategy implementation with prediction markets

by Hubertus Hofkirchner -- Vienna, 5 Feb 2014

As an executive, would it not be great for you to have a live indicator of the likelihood of reaching your strategic goals, adjusting in real time to new information, changes and tactical moves? With prediction markets, this capability is actually at your fingertips. The exercise also fosters employees' deep engagement with your strategy and the formation of an expectation consensus which increases employee buy-in and commitment.

A barometer for company success

Prediction markets are an excellent tool to manage strategic initiatives with high intrinsic uncertainty. The application is quite straightforward: As the owner of a strategic initiative you share information about it, ask about its likely outcome and communicate intermediate results frequently. Your crowd will add their thinking, provide you with their best numeric predictions, their reasoning and further input.

Companies using prediction markets can capture and focus all internal knowledge towards achieving its strategic goals. They achieve a broad internal consensus about the real chances and employees' holistic understanding of its strategy. This instant feedback loop constantly updates predictions which increases agility and alerts management when changes to the game plan become necessary.

What are the preconditions to using Prediki for engagement?

The key to using the method is to define not only an implementation plan for the strategy but also to identify visible future success indicators: "How will we recognise that our strategic initiative was a success?" A participative leadership style is best: management must be willing to inform a pre-selected group of employees about its strategy, goals and intermediate results, their reward is better feedback and helpful input from thus engaged employees.

Prediki always asks for “What will be?” while traditional employee engagement surveys ask directly for “What should be?” Practitioners know that the latter question style frequently has disastrous consequences for motivation and morale, as employees' personal interests will dominate their responses and expectations instead of what is good for their company. Prediki's methodology provide an elegant remedy against these avoidable failures.

How can you use Prediki for engagement?

1. Result orientation – When devising a strategy (e.g. in workshops), you should also define measurable objectives to gauge the success of the strategy. For your prediction market, you then select the most important of those indicators. You may also track several indicators, however it is recommendable not to exceed a maximum of three indicators for the same group of respondents, or only in exceptional circumstances.
2. Market definition - Now you can set up your prediction market. Enter a prediction question asking for the likelihood to achieve the selected success indicator and define meaningful outcome scenarios. Then decide who will be invited to participate in your prediction market: it can be open for the whole company or limited to certain groups, e.g. from a certain region or a specific hierarchy level. Even the inclusion of stakeholders or external experts and advisors is possible and frequently advantageous.
3. Initial information - In the wiki part of Prediki, provide an information package describing the new strategy, the planned implementation tasks and management’s expectations for the success indicators. By linking to pages on your Intranet or by appending additional documents you can provide information to any level desired. Experience shows that many employees will study this material much more carefully than without the challenge of winning in a prediction market. Information does not need to be perfect from the first moment, the wiki can be changed later by you, as well as by any participant at any moment.
4. Prize money -- Before starting the trading and the aggregation of predictions, the question owner should incentivize the question with prize money - neither too high, nor too low - to signal management's esteem for participants and appreciation of their contributions. Once the outcome is objectively know in the end, this prize money is distributed to the participants depending on the success of their individual predictions. The earlier and the more precise their predictions, the bigger their share.
5. Start of trading -- Now the opinion and consensus formation starts. A kick-off meeting is highly recommended, either physically or by webcast. Half of this meeting should be dedicated to Prediki and the various ways to interact with the platform. In the other half you should present your new strategy and its task plan. For good consensus predictions you should aim for a minimum number of 20 or 30 traders. If you also want to stimulate an active discussion and encourage qualitative contributions, we recommend 50 or better 100 contributors. Participants can trade the answer “virtually”: they “buy” probable answers, which then rise in price, if they “sell” unlikely ones, their price falls.
6. Ongoing information and discussion – Make sure to stimulate your participants regularly so you keep the online discussion going. This works similar to social media or forums, although a prediction market will stay much more focused on the question topic. Off-topic or irrelevant discussion threads experienced elsewhere are very rare. A moderator or consultant should contribute new information or thought-provoking questions to the discussion section of Prediki about once a week. This keeps the market alive and causes new transactions to happen, which in turn produces updated predictions.
7. Conclusion -- As soon as the outcome becomes known, the result will be communicated to the participants and the question can be settled. The buyers of the true answer and the sellers of wrong answers will be credited with trading profits (in Credits), the traders with wrong predictions will lose their investment. Last, the “real” prize money will be distributed pro rata to the individual trading profits.

Summary

Prediki is a great method to produce a common, deep understanding of a new strategy in a company. You get a general consensus about expectations for the future which also improves fast tactical decisions. The decision-maker stays in charge at all times: decisions cannot and should not be preempted through market information. Prediction markets are the method of choice for improving employee participation and engagement.

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