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Concept Auction Process
Markets
Concept Auction Decision Support Tool
When multiple new alternatives are being considered it is imperative to assess and prioritize them in a way that stands up to scrutiny. Without this, alternatives become an undifferentiated list and the collective insight of the organization is left untapped. Collective assessment of alternatives provides a leading indicator for potential and enhances traditional analysis, development and experimentation.
Past approaches to group evaluation and assessment have used mechanisms ranging from a simple vote to various ranking schemes including the famous (or infamous) post-it note techniques. All of these methods result in limited information. The richness and depth of the knowledge of the organization is left untapped.
A new technique using auction methods leverages recent research into the ‘wisdom of crowds’ and the power of markets to evaluate alternatives. Market-based mechanisms are often the most accurate means to determine the future value of an idea or concept. Market-based mechanisms rely on the aggregate intelligence, opinion, experience and instinct of diverse people making independent judgments. From these judgments comes the ‘Wisdom of Crowds’ – a phenomenon where the collective assessment of value is almost always more accurate than any individual’s, or even small group’s own judgment.
Inovo has developed an efficient and easily implemented method to apply market methods to evaluate and track alternatives. The Concept Auction can be used to determine the relative value of ideas, opportunities, products, experiences or any other entity where one is trying to determine the relative value of a number of future possibilities. The market dynamic of an auction provides insight into:
The Auction is more than just a way of prioritizing ideas – it’s also a way of taking the pulse of the organization. The auction should not lead policy, but can be a valuable source of information for future analysis and commitments. It is always wise to know what the organization prefers to support.
Auction Framework
The concept auction proceeds in four stages as shown in the figure below.
Depending on the sources and representation of ideas and concepts, this whole process can take from just a few days to several weeks. The actual bidding process, distributing the analyst reports, bid sheets and getting the bids in, takes very little time. The auction process is most valuable with a large and diverse community of bidders. Fewer people can be used but there should be at least twice as many bidders as there are concepts being bid on.
A typical auction has between 10 and 15 concepts. Each concept is presented as a one-page analyst report that takes about 5 minutes to read. It is important that each concept be represented with approximately the same amount of information otherwise you will get information bias (bidders will tend to bid on concepts that have more information).
Auction Bidding
Auction Behind the Scenes
The combination of each person’s valuation and bid constitutes the auction. In the calculations, each person starts with a fixed dollar amount (in this case $1M). Concept ‘shares’ are assigned first to those who bid highest. When all shares of each concept are assigned, then the auction for that item closes. Those who bid too low don’t receive shares and retain their cash holdings. Overbidding is always undesirable but so is underbidding for it can freeze the bidder out of an opportunity. The table below shows some of the calculated details.
Behind the scenes, the computer calculates how much each bidder values each concept and who gets which shares. In the example above, 'Bidder A’ is implicitly asking for 300,000 shares (60% of the investor’s $1M starting cash is $600,000. Asking for $600,000 of a $2M item is a request for 30% if it. A request for 30% of the 1M shares available is a request for 300,000 shares.) of ‘Item One’ at $2/share (An item valued at $2M with 1M shares outstanding has a valuation of $2/share).
Auction Results
The auction results provide a rich set of information on both the concepts and on the bidders.
The graphs below show sample results for a simple 3 item, 3 person auction.
[graphic from Auction Results]
[graphic from Auction Results]
These results (and others) provide a new insight consensus valuation. By analyzing the bids, it is possible to see which concepts were most valued, which were most clearly valued, which concepts captured people’s attention, and how much consensus there is among the group. These results are not the last word in prioritization but are a very effective way of understanding what is valued, by whom, and why – insight that often contradicts the response people give to the same questions when asked directly.
Concept Analyst Report
The concepts that are the subject of an auction can have wide variation in their level of detail, focus and specificity. The challenge is to develop these ideas into a descriptive and analytic framework to minimize information asymmetries among the bidders. This means translating and enhancing each raw idea into a Concept Analyst Report.
The Concept Analyst Report is a structured and consistent means of communicating a concept. It turns a raw idea into a formed concept allowing the bidder to make their own, independent judgment of what is being proposed and what recommends it to the organization. The concepts are described in short snapshots that allow comparison. Greater depth and detail are intentionally omitted.
The Concept Analyst Report consists of the following sections:
Typically, in a raw idea description, these components are intertwined in the narrative. Often at least one is missing entirely. It’s the job of the facilitator to turn the raw ideas into the structured and consistent form so that each concept is on the same playing field. We’re in the process of doing this for the concepts that will be a part of this auction.
Concept Types
In the right circumstances, well functioning markets can be superior to small party transactions (e.g. individual opinion or 'gut-feel'), for accurately assessing the right price, value, or priority.of anything that people are concerned with (see 'Reinventing the Bazaar').
Market-based mechanisms can be effectively used to support decision making in cases where there is large amount of ambiguity and uncertainty. This is typical of the 'front-end' of the innovation process where new, creative, different and often disruptive ideas are being considered.
A market-based decision mechanism has the following attributes:
Market-based decision tools can be an important addition to existing decision support mechanisms. The 'market' in this case is the internal, and in some cases external, community that has a stake in the decisions to be made. Providing these interested parties with an independent voice on critical decisions not only gets them involved, but also leads to better insights and ultimately decisions.
Market-based mechanisms can be effectively used to support decision making in cases where there is large amount of ambiguity and uncertainty. This is typical of the 'front-end' of the innovation process where new, creative, different and often disruptive ideas are being considered.
A market-based decision mechanism has the following attributes:
- It allows comparison of diverse concepts
- It coalesces the knowledge and expertise of many individuals
- It identifies areas of consensus and support
- It avoids group-think and power influences
Market-based decision tools can be an important addition to existing decision support mechanisms. The 'market' in this case is the internal, and in some cases external, community that has a stake in the decisions to be made. Providing these interested parties with an independent voice on critical decisions not only gets them involved, but also leads to better insights and ultimately decisions.
Concept Auction Decision Support Tool
When multiple new alternatives are being considered it is imperative to assess and prioritize them in a way that stands up to scrutiny. Without this, alternatives become an undifferentiated list and the collective insight of the organization is left untapped. Collective assessment of alternatives provides a leading indicator for potential and enhances traditional analysis, development and experimentation.
Past approaches to group evaluation and assessment have used mechanisms ranging from a simple vote to various ranking schemes including the famous (or infamous) post-it note techniques. All of these methods result in limited information. The richness and depth of the knowledge of the organization is left untapped.
A new technique using auction methods leverages recent research into the ‘wisdom of crowds’ and the power of markets to evaluate alternatives. Market-based mechanisms are often the most accurate means to determine the future value of an idea or concept. Market-based mechanisms rely on the aggregate intelligence, opinion, experience and instinct of diverse people making independent judgments. From these judgments comes the ‘Wisdom of Crowds’ – a phenomenon where the collective assessment of value is almost always more accurate than any individual’s, or even small group’s own judgment.
Inovo has developed an efficient and easily implemented method to apply market methods to evaluate and track alternatives. The Concept Auction can be used to determine the relative value of ideas, opportunities, products, experiences or any other entity where one is trying to determine the relative value of a number of future possibilities. The market dynamic of an auction provides insight into:
- Depth and breadth of support
- Whether closely-ranked ideas are truly close alternatives
- The distributions of priorities
- The confidence in each ranking
- Consensus
- Where does opinion ‘cluster’
- Where do ideas and concepts ‘cluster’
- Who are the most astute ‘investors’
- Those investors who are best at estimating the future value
- Those investors who are best at anticipating organizational receptiveness
The Auction is more than just a way of prioritizing ideas – it’s also a way of taking the pulse of the organization. The auction should not lead policy, but can be a valuable source of information for future analysis and commitments. It is always wise to know what the organization prefers to support.
Auction Framework
The concept auction proceeds in four stages as shown in the figure below.
Depending on the sources and representation of ideas and concepts, this whole process can take from just a few days to several weeks. The actual bidding process, distributing the analyst reports, bid sheets and getting the bids in, takes very little time. The auction process is most valuable with a large and diverse community of bidders. Fewer people can be used but there should be at least twice as many bidders as there are concepts being bid on.
A typical auction has between 10 and 15 concepts. Each concept is presented as a one-page analyst report that takes about 5 minutes to read. It is important that each concept be represented with approximately the same amount of information otherwise you will get information bias (bidders will tend to bid on concepts that have more information).
Auction Bidding
The auction format Inovo employs is a modified version of the Dutch auction first used in Holland for the Tulip markets. Each bidder is an independent investor, in charge of the resources of the company. Each is told that all concepts collectively are worth a fixed amount (e.g., $10 million), but not how much each concept is worth independently. Therefore, each person must assign their perception of relative value. This allows comparison of concepts that are in a ‘pre-valuation’ state. It ensures that investors stay in the same valuation ‘ball-park’, and focus thinking on relative valuation as opposed to absolute
Once the investments have been made, the bids are collected and reconciled by computer. The auction results and a deeper analysis of its implications are then provided for discussion and exploration
valuation.
The following table shows a bidder allocating $10M across three different concepts thereby defining their assessment of the relative 'value' for each concept.
Once the bidder has determined what they believe is the relative value of each concept, they then
allocates their funds (e.g., $1 million) across the alternatives as if they were investing the organization’s resources. Just because a concept has a higher perceived ‘valuation’ doesn’t mean it’s where all the resources should be deployed. Risk, appropriateness, and diversification are all considerations in this stage. The following table shows a bidder bidding on specific concepts by allocating their $1M.
The following table shows a bidder allocating $10M across three different concepts thereby defining their assessment of the relative 'value' for each concept.
| Bidder A - Valuation Sheet | |
| Concept Name | Valuation |
| Item 1 | $2M |
| Item 2 | $3M |
| Item 3 | $5M |
| Total | $10M |
Once the bidder has determined what they believe is the relative value of each concept, they then
allocates their funds (e.g., $1 million) across the alternatives as if they were investing the organization’s resources. Just because a concept has a higher perceived ‘valuation’ doesn’t mean it’s where all the resources should be deployed. Risk, appropriateness, and diversification are all considerations in this stage. The following table shows a bidder bidding on specific concepts by allocating their $1M.
| Bidder A - Investment Sheet | |
| Concept Name | Valuation |
| Item 1 | 60% |
| Item 2 | - |
| Item 3 | 40% |
| Total | 100% |
Once the investments have been made, the bids are collected and reconciled by computer. The auction results and a deeper analysis of its implications are then provided for discussion and exploration
Auction Behind the Scenes
| Computer Calculations | Bidder A |
| Investment in $` | % of Concept Desired |
| $600,000 | 30% |
| $- | 0% |
| $400,000 | 8% |
| $1,000,000 |
Behind the scenes, the computer calculates how much each bidder values each concept and who gets which shares. In the example above, 'Bidder A’ is implicitly asking for 300,000 shares (60% of the investor’s $1M starting cash is $600,000. Asking for $600,000 of a $2M item is a request for 30% if it. A request for 30% of the 1M shares available is a request for 300,000 shares.) of ‘Item One’ at $2/share (An item valued at $2M with 1M shares outstanding has a valuation of $2/share).
Auction Results
The auction results provide a rich set of information on both the concepts and on the bidders.
The graphs below show sample results for a simple 3 item, 3 person auction.
[graphic from Auction Results]
[graphic from Auction Results]
These results (and others) provide a new insight consensus valuation. By analyzing the bids, it is possible to see which concepts were most valued, which were most clearly valued, which concepts captured people’s attention, and how much consensus there is among the group. These results are not the last word in prioritization but are a very effective way of understanding what is valued, by whom, and why – insight that often contradicts the response people give to the same questions when asked directly.
Concept Analyst Report
The concepts that are the subject of an auction can have wide variation in their level of detail, focus and specificity. The challenge is to develop these ideas into a descriptive and analytic framework to minimize information asymmetries among the bidders. This means translating and enhancing each raw idea into a Concept Analyst Report.
The Concept Analyst Report is a structured and consistent means of communicating a concept. It turns a raw idea into a formed concept allowing the bidder to make their own, independent judgment of what is being proposed and what recommends it to the organization. The concepts are described in short snapshots that allow comparison. Greater depth and detail are intentionally omitted.
The Concept Analyst Report consists of the following sections:
Description – 100 to 200 word description of the concept emphasizing the essence of the idea and relevant information (history, existing technology/product relationships, etc.).
Technology Effects – The possibilities of the technology expressed purely as measurable effects, while removing specific manifestations (e.g., removing the applications or possible product descriptions). This section describes the essence of the technology and allows the reader to project possible extensions and other uses.
Community Wants – Specifically identifying the needs and desires of a potential market – essentially, what is this opportunity going to solve and for whom? The opportunities addressed are based on the needs and desires of people who will potentially experience the technology in one form or another.
Solution Concepts – Specific ideas for potential products, services, operations, or new business models. This includes ideas on how the technology would be applied or the opportunity exploited, as well as ideas on potential markets and competitive replacements.
Typically, in a raw idea description, these components are intertwined in the narrative. Often at least one is missing entirely. It’s the job of the facilitator to turn the raw ideas into the structured and consistent form so that each concept is on the same playing field. We’re in the process of doing this for the concepts that will be a part of this auction.
Concept Types
Concepts consist of everything from very 'immature' initial 'notions' and preliminary ideas, to more mature, thought out and analyzed constructions. All are valid for consideration but one issue is, how to look at and compare them to one another. One useful way to organize and evaluate concepts is by their effects upon, and the way they are affected by, the innovation forces.
Often when new ideas, and even some well developed ones, are described, these forces are mixed and commingled so that it is unclear when a technology, an opportunity or a solution is being discussed. Greater clarity and precision can be achieved if a concept is broken down into these three components. Some concepts will have only one component, others will have all three.
Opportunities - Community Wants
An opportunity is a need or desire on the part of an individual or community (a market is a mature community). Community wants (needs and desires) are what create opportunities. Articulating the specific wants of a community is a great way to clarify what human imperative the concept is trying to satisfy.
Possibilities - Technology Effects
A technology concept is based on a discovery or invention that makes something possible. This is the most common form of concept, but often the most problematic. Just because something can be done, doesn't mean that anyone will value it. In describing the technology component of a concept, it is very useful to describe the effects of the technology rather than how it works..
Solutions - Outcomes and Experiences
Solutions are specific concepts that create an outcome or experience in specific opportunity space. An example of a solution concept could be ‘Image Mapping’ for IPTV. It is a solution that allows someone watching a television show on IPTV to click on any image on the screen during the broadcast and be able to receive specific information about that item – news information or even the opportunity to purchase that item.
Notice that in this solution concept description for 'Image Mapping' neither the opportunity (what need or desire is being satisfied) or the technology effects (item identification, item persistence) are mentioned.
[taken from New Auction Design.ppt]Often when new ideas, and even some well developed ones, are described, these forces are mixed and commingled so that it is unclear when a technology, an opportunity or a solution is being discussed. Greater clarity and precision can be achieved if a concept is broken down into these three components. Some concepts will have only one component, others will have all three.
Opportunities - Community Wants
An opportunity is a need or desire on the part of an individual or community (a market is a mature community). Community wants (needs and desires) are what create opportunities. Articulating the specific wants of a community is a great way to clarify what human imperative the concept is trying to satisfy. Possibilities - Technology Effects
A technology concept is based on a discovery or invention that makes something possible. This is the most common form of concept, but often the most problematic. Just because something can be done, doesn't mean that anyone will value it. In describing the technology component of a concept, it is very useful to describe the effects of the technology rather than how it works.. Solutions - Outcomes and Experiences
Solutions are specific concepts that create an outcome or experience in specific opportunity space. An example of a solution concept could be ‘Image Mapping’ for IPTV. It is a solution that allows someone watching a television show on IPTV to click on any image on the screen during the broadcast and be able to receive specific information about that item – news information or even the opportunity to purchase that item. Notice that in this solution concept description for 'Image Mapping' neither the opportunity (what need or desire is being satisfied) or the technology effects (item identification, item persistence) are mentioned.
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Latest page update: made by Inovo
, Jun 17 2008, 8:24 AM EDT
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