Procurement Futures the new predictive markets service will help procurement executives forecast future events by tapping into the collective wisdom of groups.
In his 2004 book The Wisdom of Crowds, James Surowiecki demonstrated that large groups of average people can out-predict and outperform experts.
It is a theory that lies at the heart of prediction markets, which call on the collective minds of a group of people to work together, communicate and, ultimately, predict the future with an impressively high level of accuracy. For example, instead of sitting around a conference table debating the savings projections for the next quarter, you can ask the market for an honest, accurate and unbiased forecast.
A prediction market is a very old and simple concept. At its heart, it is a futures market, where users trade contracts with each other to hedge the risk of an unknown result. The difference is that instead of trading on the price of oil or grain, users trade on the probability that an event will happen or a specific business number. This could be the chance that you'll hit your next quarters' savings targets, or the number of deals your team will get done in the next month.
Accurate forecasting
Why is this relevant? There are two reasons. The first is that prediction market forecasts are remarkable. If the market gives an event an 80% chance of occurring, it will happen 80% of the time. Events with a 5% chance of occurring will occur 5% of the time. Prediction markets are better and more responsive than any other forecasting method and are able to forecast metrics previously considered unforecastable.
Second, prediction markets are a completely new way to communicate. Leaders, through the market can stay in constant contact with people throughout their business. They can detect problems and opportunities in their business much faster, and directly from the source.
Blue chip companies using prediction markets include Google, HP, Best Buy, Eli Lilly, Siemens, Lockheed Martin and General Mills. HP proved in experiments that prediction markets produced better forecasts than when using traditional methods. When Best Buy ran its initial prediction market trials, the market identified a problem with a new project four weeks before the issue was raised on the executives' dashboard.
How much is that information worth? If something is going wrong on a key project, leaders need to know now rather than four weeks from now. More time equals a better and less costly response. Prediction markets can also identify where targets were too low, and where projects could achieve an outsized return with a small addition of resource.
Forecasting value
The launch of Procurement Futures, a marketplace developed by State of Flux with partner the Procurement Leaders Network, provides a platform where purchasing professionals can prove how well they know their industry, as well as a useful forecasting resource. Trades can be made on many key industry metrics, such as the Purchasing Managers' Indices, unemployment figures and important current events. By trading successfully, and often, individuals can demonstrate their capabilities with the best performing predictive minds climbing the leader board.
So, we invite you to prove exactly how much you know about your field of work. And by doing so, you'll be able to contribute and learn from others, gaining valuable industry intelligence in the process.
