The Rise of Social Forecasting: How Employees Help Management Make Better Decisions

By Aleksandar Ivanov (@crowdworx) Dec 21, 2011

Social Forecasting is the aggregation of employee and/or expert knowledge and its conversion into quantitative business KPIs and forecasts. It is used for forecasting new product potential, sales figures, as well as strategic scenarios. This flavor of crowdsourcing with employees is being used by various corporations, which have embraced a simple insight: “Employees often know more about products, markets and competitors than you think”.

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In the late 1990s, the first adopters of Social Forecasting applied it in business to forecast sales, project deadlines and even the probability of a competitor entering the market. Nowadays, in a 2010 survey of 3,249 executives by McKinsey Social Forecasting, Prediction Markets has been named one of the Top 10 Web 2.0 tools in modern enterprises.

How does Social Forecasting Work?

Social Forecasting is based on a simple concept, which combines the approach of crowdsourcing with an incentive mechanism for users to contribute their best knowledge. Crowdsourcing participants are usually consumers or lead users. In Social Forecasting, a company utilizes its employees' knowledge of the market, the consumers, the competitors, etc. to answer complex strategic questions and generate quantitative forecast about sales, new products, new product ideas, etc.

Employees visit a Social Forecasting web application based within or outside the company. The single user can access specific topics and then pick a certain product to make a sales forecast about (by region and SKU, for example). The twist is that the user also has to place a stake of virtual play-money on every forecast made. The more confident the user feels about the prediction, the more play-money can be staked. At the end, if the user’s forecast turns out accurate, s/he will turn a profit. Otherwise, the stake is lost. This creates a significant incentive for users to forecast as accurately as they can.

The crowd forecast is then the aggregated result of all the individual forecasts. Each user input updates this crowd forecast, making it a live indicator of how external events impact the forecast. At any point in time the current crowd forecast can be downloaded and used to aid the business process further down the line, e.g. in the supply chain or as a support for management in strategic decisions.

From the employee point of view, Social Forecasting is a way to contribute to important decisions by providing one’s own insights. Based on one’s performance, the employees are also rewarded with prizes or other incentives. For management, Social Forecasting is a unique way to consolidate hundreds or thousands of employee opinions into a single number — the crowd forecast — making this a more actionable piece of information than endless amounts of corporate wiki articles and blog posts.

As an example, the following table compares Social Forecasting with predictions derived from election polls. As can be seen, the social forecast was more accurate than the corresponding survey 78% of the time.

Social Forecasting in Business

Numerous companies have begun to use Social Forecasting to predict business-relevant KPIs. The following chart provides a few examples across industries, including high-tech (GE), Consumer Goods (Henkel), Agribusiness (Syngenta), telecoms (Deutsche Telekom) and retail (BestBuy).