The End Of Management?

With experimental markets, workers are betting on their company's future--and moving in on the boss's domain

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Inspired by such results, researchers at Microsoft started running trials of predictive markets in February, finding the system inexpensive to set up. Now they're shopping around for the market's first real use. An early candidate: predicting how long it will take software testers to adopt a new piece of technology. Todd Proebsting, who is spearheading the initiative, explains, "If the market says they're going to be behind schedule, executives can ask, What does the market know that we don't know?" Another option: predicting how many patches, or corrections, will be issued in the first six months of using a new piece of software. "The pilots worked great, but we had little to compare it to," he says. "You can reason that this would do a good job. But what you really want to show is that this works better than the alternative."

Ultimately, "you may someday see someone in a desk job or a manufacturing job doing day trading, knowing that's part of the job," says Thomas Malone, a management professor at M.I.T. who has written about markets. "I'm very optimistic about the long-term prospects."

But no market is perfect. Economists are still unsure of the human factor: how to get people to play and do their best. In the stock market or even the Iowa prediction market, people put up their own money and trade to make more. That incentive ensures that people trade on their best information. But a company that asks employees to risk their own money raises ethical questions, so most corporate markets use play money to trade and small bonuses or prizes for good traders. "Though this may look like God's gift to business, there are problems with it," says Plott, who ran the first HP experiments. Tokyo-based Dentsu, one of the world's largest advertising firms, is still grappling with incentives for an ad forecasting market it will launch later this year with the help of News Futures, a U.S. consultancy.

And even if companies can figure out how to make their internal markets totally efficient, there are plenty of reasons that corporate America isn't about to jump wholesale onto the markets bandwagon. For one thing, markets, based on individuals and individual interests, could threaten the kind of team spirit that many corporations have struggled to cultivate. Established hierarchies could be threatened too. After all, a market implies that the current data crunching and decision-making process may not be as good as a gamelike system that often includes lower-level employees. In a sense, an internal market's success suggests that if upper managers would just give up control, things would run better. Lilly, which is considering using a market to forecast actual drug success, is still grappling with the potential ramifications. "We already have a rigorous process," says Lilly's Bingham. "So what do you do if you use a market and get different data?" Throw it out? Or say that the market was smarter, impugning the tried-and-true system?

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