So it's no surprise that discerning corporate decision makers want to know what they'll get for their investment. What is often surprising, however, is the way in which they approach the equation.
Here's what companies often say:
This seems very promising, but I'm not sure it's worth the cost. What kind of returns can I expect? What is the value of this new information?
Here's the cost-benefit equation those comments imply:
Value = benefit - cost
ROI = benefit / cost
cost = price of Prediction Market solution + cost of internal time & resources
benefit = value of the information (generated by the Prediction Market)
Not to get hung up on the math, but these simple equations are missing at least three variables:
- the cost of not doing
- the cost of alternatives
- the multiplying factor of the company's management "skill"
Vital to Boeing's plan for keeping the 787 on track as it starts building the 850 planes on order is a space center-style control room -- officially called the Production Integration Center. One of the hub's wide glass walls overlooks the Dreamliner final assembly line, where the plane's body and wings come together. On the opposite wall, 24 big screens display information including overseas shipments of parts, urgent technical questions and even earthquakes around the globe, which could misalign factory equipment and cause delays. Suppliers as far afield as Australia, Italy, Japan and Russia can call in through translators and show Boeing engineers in the center close-up images of their components using high-definition handheld video cameras. Robert Noble, Boeing's vice president of supplier management who runs the 24-hour center, says immediate, multimedia communications have eliminated the problem of often unclear email exchanges between distant engineers who work on opposite ends of the clock. "That takes days out of problem resolution," he says.
One doesn't need to be a rocket scientist (or a jet engineer) to recognize that these efforts are major financial investments. From acquisitions up the supply chain, to an expansion of middle management, to the technology, staff, systems, and secure pipelines that power the communications hub ... Boeing has accepted a very high price for improved decision intelligence. Which, logically, means they have placed a very high value on course correcting the Dreamliner program.
Do they need to make all these investments? As an outsider, I can't answer that question. But one thing is clear. The costs of alternatives to Prediction Markets (assuming that increased communication vehicles, added SME's, and tighter ownership are alternative ways of giving leaders better information) is high. Very high.
Given that, my simple suggestion is that companies factor in those costs when evaluating Prediction Market solutions. Once leaders decide that improved intelligence is a must have, not a nice to have - the actual costs of a Prediction Market are likely to pale in comparison to most alternatives.
One can't help wonder whether collective intelligence tools like Prediction Markets could have prevented the Dreamliner delays in the first place, saving the company billions in write offs, reputation losses, and expensive fixes.
My final recommendation for the ROI equation focuses on the value of the market data. Prediction Markets produce collective forecasts and other assessments, delivering them in the form of dynamic market prices. Additionally, markets generate rich transactional data, which can help companies understand the who, where, and why behind the collective predictions. When markets are successful, this data is both unique and valuable to corporate decision makers. How valuable? In my experience, that depends on two things. First, the value of avoiding missteps and miscalculations like those discussed above. This should be the first calculation. And second, the actions of management in possession of the data. This latter variable is simple yet often overlooked in the ROI calculation. Unique information in the hands of passive managers may ultimately result in little value. Intelligence in the hands of aggressive, knee-jerk type managers may result in some value or may destroy value. Intelligence in the hands of the most skilled company managers can create significant value. Just like any other piece of data that companies capture, value is neither guaranteed nor quantifiable until someone acts on it.
In conclusion, enterprise prediction markets should be held to ROI evaluations, as long as both costs and benefits are fully loaded. In the case of Boeing, it seems a fair assumption that a relatively minor investment in collective intelligence could produce meaningful ROI. Especially when weighed against the costs of not doing anything and the costs of alternative solutions.