'Red Flag' Predictions: Using Frontline Employees to Assess the State of Operational Capabilities

This conceptual article introduces a new way to predict firm performance based on aggregation of sensing among frontline employees about changes in operational capabilities to update strategic action plans and generate innovations. We frame the approach in the context of first- and second-generation prediction markets and outline its unique features as a third-generation prediction market. It is argued that frontline employees gain deep insights when they execute operational activities on an ongoing basis in the organization. The experiential learning from close interaction with internal and external stakeholders provides unique insights not otherwise available to senior management. We outline a methodology to agglomerate these insights in a performance barometer as an important source for problem identification and innovation.