We often say that organizations don’t understand the true value of their employees and treat them as a simple pair of hands… instead of a source of knowledge, creativity, ideas, and experience. Although Best Buy doesn’t exactly have a stellar record of treating employees right, it does appear they recognize some of that less tangible but still very real value.
When executives at electronics retailer Best Buy Co. want to know if a new product or idea is likely to succeed, they can seek the opinion of rank-and-file employees by turning to the company’s "prediction market."
The market, called TagTrade, allows Best Buy’s workers to trade imaginary stocks based on answers to managers’ questions. The market’s judgment has often proved to be more accurate than the company’s official forecasts.
The concept of prediction markets isn’t new. There are a variety of "markets" available to predict everything from sports scores to the presidential election, and they can be uncannily accurate… far more than simple polls. Why? Because they are in effect knowledge aggregators, or "group think" to use a term from the last century. So how exactly does this work at Best Buy?
TagTrade is open to all of Best Buy’s 115,000 U.S. employees. The roughly 2,100 of them who choose to participate get $1 million in fake money to trade for a nine-month period. The top trader in the period wins a $200 gift certificate.
How about a concrete example of the market in action.
In January he [Jeff Severts, chief of Best Buy’s Geek Squad] asked both his management team and the market to predict sales of a new service package the company was offering for laptop computers. A week before the company began selling the product, the market’s guess was 44% lower than the team’s office sales forecast. It subsequently sank further. When initial sales figures confirmed the market’s prediciton, Mr. Severts ended the offer and began redesigning the package. He listed a TagTrade stock to gauge the revised package’s chances of starting on time, in mid-September. The stock rose, and Mr. Severts says he took "great comfort from that."
Best Buy isn’t the only company tapping into employee knowledge with prediction markets.
Web search giant Google Inc. uses them to solicity forecasts on everything from how many users its Gmail service will attract to whether products will launch on time. Other companies that have experimented with them include General Electric, Intel, and Microsoft.
Leveraging the power of group knowledge can create problems, as Best Buy learned while developing TagTrade.
Inspired by Mr. Surowieckie’s [The Wisdom of Crowds] thesis that a crowd, collectively, can make better decisions than individuals – even experts – Mr. Severts decided three years ago to test whether Best Buy’s workers could outperform its bosses.
He emailed hundreds of Best Buy employees asking them to guess how many gift cards the electronic retailer would sell in February 2005. As a group, the employees’ guess was more accurate than Best Buy’s official projection. But, Mr. Severts recalls, the forecasting director for gift-card sales said her team felt humiliated.
As a result, Mr. Severts says he learned to keep his experiments from seeming like personal attacks on the competence of his fellow managers. He explains his work at employee gatherings, comparing Best Buy to a centrally planned economy like the Soviet Union and feature portraits of Joseph Stalin and Maz Zedong. Those leaders, like many managers in big companies, were prone to bad decisions because they were too far from the front lines, Mr. Severts says.
Is your company like the old Soviet Union? What do your employees know that your managers don’t? Perhaps it’s time to tap into that knowledge.