Aug. 30 (Bloomberg) -- To improve its aircraft, the U.S. Air Force typically relies on teams of seasoned engineers and bureaucratic procedures. But in December 2009, the Air Force’s Rapid Reaction Innovation Team at Wright-Patterson Air Force Base in Dayton, Ohio, tried an unconventional approach: It asked workers at the Air Force Research Laboratory with less than five years on the job to develop their own proposals. Then some 2,000 personnel voted on the best ideas; ultimately the Air Force awarded $75,000 for prototyping each of the two winners.
David Shahady, the deputy director of the Rapid Reaction Innovation Team responsible for the experiment, says the ideas resulted in better cameras in drones and a radar system that remotely detects human vital signs from 10 times the distance of previous systems. With demonstrations completed this summer, he expects to evaluate them outside the lab over the next year. “We have been trying to find different ways to inspire [our young scientists and engineers] to come up with new ideas ... within our own walls,” says Shahady. “[This project] allowed us to energize this workforce.”
To manage the idea generation and approval process, Shahady hired Lumenogic, a Westport, Conn., consulting firm that specializes in developing and customizing online systems for large organizations to use to gather so-called collective intelligence from their employees. A typical system is accessible via an online dashboard that looks like a simplified stock trading program, showing new ideas and data collected in real time. Lumenogic’s pitch: The data will help clients function better because they will be better informed. Thomas W. Malone, director of MIT’s Center for Collective Intelligence at the Sloan School of Management, says the burgeoning field -- first popularly explored in James Surowiecki’s 2004 book, “The Wisdom of Crowds” -- can offer businesses a competitive edge.
Like its approximately half-dozen competitors in the U.S., Lumenogic provides its clients training on how to use the customized online platforms, makes refinements, and collects and interprets the data, for fees that range from tens of thousands of dollars to hundreds of thousands of dollars. The information collected ranges from the open-ended, such as strategic directions a company should take, to the specific, like expected sales. Dr. Emile Servan-Schreiber, a Lumenogic managing director, estimates annual spending for collective intelligence is roughly $150 million to $250 million, with U.S. companies accounting for about 40 percent.
Online Prediction Markets
Besides harvesting good ideas, collective intelligence consultants often set up online prediction markets that employees can use to bet on crucial outcomes -- such as product delivery schedule, demand, or sales. Hewlett-Packard (HPQ) was one of the first technology behemoths to experiment with an internal market, dramatically improving the quality of its printer sales forecasts in the mid-1990s. Cisco Systems (CSCO), Google (GOOG), and Microsoft (MSFT) have since followed suit. Knowledge about complex issues is often scattered in a large crowd among different disciplines and perspectives, says Alpheus Bingham, who directed Eli Lilly’s (LLY) early experiments in prediction markets a decade ago and now consults for the pharmaceutical industry.
Rather than just sell software, like some of its rivals, Lumenogic also serves as a consultant, helping clients unearth beneficial information and determine how to analyze it and put it to use, says Edward Rhoads, another Lumenogic managing director. “Every company faces the challenge of [finding out] what our company really knows -- how do I access it, when I need it, how I need it -- to help drive decision-making or results,” he says. Lumenogic was established in 2008 when two managing partners from the New England Consulting Group, also in Westport, teamed with Paris-based NewsFutures, a prediction markets software pioneer co-founded by Servan-Schreiber. Rhoads says the five-employee firm, with clients including Johnson & Johnson (JNJ), Pfizer (PFE), L’Oreal (OR), Siemens (SI), and ArcelorMittal (MT), expects revenue of $2 million this year, double that of 2010.
MIT’s Malone says it’s a “puzzle” why more companies have not made use of prediction markets that have proved beneficial to early adopters. He notes one likely obstacle is resistance to sharing information internally within companies. That didn’t stop Syngenta (SYT), the $11.6 billion Swiss seed and crop protection company, from hiring Lumenogic in 2010 to improve forecasts for its chemicals. The factors affecting growers’ demand are far more than just fickle weather, and because production decisions must be made six months ahead of actual use, forecasting accuracy affects profitability and market share. Visala James, a Syngenta executive in Basel, says Lumenogic’s prediction market exercises are proving more accurate than forecasts the company made through traditional surveys that can take many weeks instead of days. The improvements in predicting growers’ demand by country and region, which will take a few years to confirm, would be “hugely valuable,” says James.
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