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Saturday, December 31, 2011

Business Use Cases for Gamification

Every 4 years the entire world comes together to watch the Olympic Games and if this isn't testament enough to the allure of games then consider that actual wars have halted in order to watch the FIFA World Cup[1]. Games have the power to capture the imagination and enthrall our competitive spirit, but what does it mean to translate these concepts into the business world? The concept of "gamification" is formally defined as "...the use of game design techniques and mechanics to solve problems and engage audiences."[2]

Now, take game principles and apply them to real-world scenarios and you arrive at a much more interesting world to live in. Imagine a world in which people look forward to everyday activities (like work) as much as they look forward to playing games. And if you're unsure what this actually translates to in terms of time, according to Jane McGonigal, gamers have spent more than 5.93 million years playing World of Warcraft and have created the largest wiki in the world on the game -- all voluntarily. Most adult games spend an average of 22 hours per week playing games, basically a part-time job.[3] This is an amazing amount of productivity. I am passionate about McGonigal's dream of directing these efforts towards solving poverty and inequality, but in the meantime, consider some of the other ways that gamification is being used now:
  • Advertising: One of the most intricate and fascinating examples of gamification is Warner Bros. campaign for the movie Batman - The Dark Knight.  In the months leading up to its release an entire alternate reality game (ARG)[4] was created for fans that would play on the devilishly mischievous nature of the primary antagonist the Joker.  This included a Gotham Times newspaper with clues about the plot of the film, billboards and posters in different cities that tied together to contain clues about the film, and an army of websites including one for those who wanted to gather together to fight crime.  The entire campaign pulled in the likes of Hershey, Comcast, Nokia, Verizon, Kmart, MySpace, and other retailers to cross promote the film and brought together a world wide audience.  The website does a great job of walking through the various components.[5]  
  • Solving diseases: The game Foldit is a highly publicized game in which players - usually non scientists - come together to identify the correct structure of specific proteins.  This is no easy task and the answer is unknown, but by working together to identify patterns, gamers were able to uncover the correct structure of proteins that are involved in HIV/AIDS.  The success of this game has led to a revolution in how scientists work to solve the diseases of our day.[6]  
  • Crisis response: Brett Horvath outlines an excellent framework for the Harvard Humanitarian Initiative in which the small actions gamers are already doing in video games can be harnessed during crises (such as earthquakes and tsunamis) to organize massive amounts of information so that emergency responders can take action.[7]  
  • Terrorism: NPR recently did a piece on how "Islamic extremist websites have borrowed from the gamification playbook by incentivizing participation in terrorist activity."[8] As frightening as this is, it adds weight to the argument that there are an unlimited number of scenarios for leveraging this concept.  
Now consider some of the ways that it could be used:
  • Career performance management: It isn't hard to see how Google's new platform Schemer - a social network that allows users to share their personal goals - could be enhanced with a few additional game design features and then be implemented in corporations for employees to develop performance goals.  This wouldn't automatically make work more engaging, but with a little creativity and some employee freedom, an additional layer of fun can be added to what is otherwise often a boring and meaningless environment.   
  • Talent acquisition and product development: The giant cosmetics company L'Oreal currently uses a game called Reveal in which prospective employees compete to launch a new product. The success of the player helps the company understand skill sets from talent across the globe and determine a potential career path.  This platform could easily be extended to existing employees to test product launches and marketing campaigns, or even to work together to design completely new products.  It's a scenario that engages employees and creates loyalty and camaraderie while also providing a platform for enhanced knowledge sharing within the firm.  
  • Customer engagement: Loyalty programs have been trying for decades to enhance customer engagement and yet they often result in simply paying the customer (in points) to make specific purchasing decisions.  With the money and audience already in place through millions of credit card programs around the world, it wouldn't be hard to tweak these programs to make purchasing decisions more fun.  One of the most successful loyalty programs in the world, Nectar, is already experimenting with incentives not just for purchasing, but also for "green" behaviors such as riding a bike to work and bringing re-usable shopping bags to the grocery store instead of using plastic.  Imagine this being extended to entire sustainability initiatives across a company or across a nation.  
  • Health and wellness programs:  Currently, many corporate health insurance companies act like loyalty programs and pay employees to make healthy choices such as exercising regularly or quitting smoking.  And while people do respond positively to monetary incentives, other virtual currencies such as positive feedback from other users, "like" points (think Facebook and LinkedIn), and Facebook credits can be leveraged as well.  The game SuperBetter[9] for example would be an excellent platform for encouraging healthy choices within a broader health and wellness program.  
It is important to remember that using game dynamics to enhance business practices is no easy task and the ideas above don't even begin to scratch the surface in terms of game dynamics and their application.  Decades of trial and error have yielded principles such as virtual currencies, meaningful work, competition vs cooperation, and specific mediums for engagement.  Audiences can be picky, not all programs will work, and subject matter expertise has to come from a team of diverse backgrounds.

Yet the potential for gamification to completely revolutionize the world in which we live is huge by changing our every behavior.  And, hopefully, this goes beyond just influencing consumers, but that the technology actually extends towards making us better people[10].  Whatever the changes, from problems of poverty to worker boredom to gaining a competitive business edge, there are both economic and philosophical reasons to implement these programs.

Thursday, December 01, 2011

Monetary Policy and Business

The US Federal Reserve (The Fed) recently announced that it would cooperate with the European Central Bank (ECB) to lower the borrowing rate of swaps in order to help ease liquidity in the European markets.  "The plan is to reduce the cost of loans between central banks -- these are known as liquidity swaps -- so that dollars are cheaper to obtain.[1]” In the face of uncertainty, local currency credit markets are tightening in the Euro area and the dollars are meant to help allow banks continue operations.

It is these types of actions by central banks that can have significant impact upon businesses and in fact have become more common since the start of the global recession in 2008.  Think of the Quantitative Easing programs (QE) that the US, the UK, and EU have undergone[2], or the US contention that China keeps its currency artificially low.[3]  

All of these programs cause exchange rates, and therefore the price of goods, to fluctuate rapidly and unpredictably causing significant impact to supply chains, payroll checks, loan repayments, capital expenditures, and other aspects of normal operation.  "In 2006, a survey ...found that 80% of corporations surveyed acknowledged that their businesses were exposed to significant foreign exchange risk. However, only 42% of these corporations indicated they employ currency hedging techniques to manage risk."[4]

Even worse, the recession provides an incentive for central banks to engage in these programs as a method of making domestic goods cheaper abroad in order to obtain growth, effectively "stealing" growth from other countries as those products become more expensive.  Occasionally, this may result in "economic warfare"[5] where countries react to the monetary actions of another.  Again, this means increased uncertainty for global firms and academic studies suggest that even in the best of times, currency risk is not compensated with higher returns.[6]

In order to mitigate these currency risks, global firms should:

  • Perform a complete supply chain analysis.  Firms can use technology and business intelligence to identify key components of their portfolio of raw materials.
    • Look for over-exposure of raw materials from one country or one currency and then analyze the risk of that currency due to domestic policy as well as economic stability.  Also included in that risk are ripple effects of policy/ economic variables in markets that the supply market is dependent on. 
    • Identify materials in the supply chain that may be dependent on the value of a currency, like oil, that will require hedging strategies such as futures and options.   This may also be a good time to perform a sustainable supply chain analysis in order to identify raw materials that are risk from environmental impact or regulation. 
    • Finally, if the firm itself is a step in someone else’s supply chain then they need to analyze how currency risk can affect their customer’s desire or ability to continue purchasing. 
  • Perform a customer segmentation analysis.  Again, technology and BI can help a firm segment their customers to identify if large portions are in markets at risk and how it may impact sales.
    • Identify overexposure to clients that pay with volatile currencies. 
    • Just because customers may be using the same currency as the manufacturer, if the manufacturer’s customer’s customers are unable to operate because they are tied up by currency swings, then that will impact that manufacturer as well.
  • Identify other parts of the firm that operate abroad or are dependent on foreign exchange. Many firms today have divisions, such as call centers and manufacturing plants, which operate in a different market than HQ.  Firms need to analyze the risk to these operations in the case of a significant currency price swing that may affect payroll or capital expenditures.   
  • Look at the balance sheet to determine specific assets and liabilities. Firms that have borrowed money or lend money (even within their own firm but to divisions in other countries) face challenges with currency swings.  Using standard financial services principles, a firm can look for risk to Accounts Receivable or identify liabilities they may need to renegotiate. 
  • Maintain extra cash on the balance sheet.  Successful companies in past recession have kept "3 to 10 times the normal level of cash assets on their balance sheet[7]", but those recessions were neither as deep nor as long, and did not have the increased volatility of system of tit-for-tat by central banks.  Maintaining extra cash is a necessity in order to prepare for shocks. 
  • Hire a risk mitigation specialist.  Whether in-house or external, if the firm buys or sells goods in multiple countries, has operations, borrows or lends money, stores money in banks, or invests in multiple countries, then they need a specialist who knows how to use hedging tools such as derivatives.