San José, CA, like many cities across the U.S., is facing another year of budget shortfalls, with an anticipated deficit in the General Fund for 2012-2013 of $80.5 million. The city faces difficult choices as it starts the budgeting process and wanted input from its citizens on what city programs and services matter, along with feedback on cost-savings and revenue-generating proposals to fund those services. Not satisfied with surveys and other traditional market research techniques (click here to read about Feedback Fatigue), the Mayor’s Office asked The Innovation Games® Company to once again create and produce a serious game that would enable the city to get actionable, rich information from its citizens.

Budget Games vs. Buy a Feature

The Budget Games played by San José citizens work much like a typical Buy a Feature game — with one difference. In a traditional Buy a Feature game, players have a set and limited budget and reveal their preferences through purchases during gameplay. The Budget Games adds in the ability to increase the budget for all players through unanimous votes for cost-savings or revenue-generating proposals, such as a 1/4 cent sales tax increase or a reduction of staffing at fire engine companies. This mechanism allows city officials to gauge the community’s priorities for city services, along with their tolerance for initiatives to fund those services.

In Action

During the event,  community leaders from across San José gathered at City Hall, along with 30+ Innovation Games Trained facilitators, San José, CA, council members, the Mayor, City Manager and many subject matter experts, such as the Fire Chief, members of the Police Department, Budget Office and others. Across the room, a dozen tables debated, negotiated and ultimately came to a consensus on what their priorities were.

The conversations were often difficult and not always fun–not surprising since the game’s topic is so important. As Innovation Games Trained Facilitator Robert J. Stephenson observed after the event, “What struck me is the earnestness of the citizen volunteers. The general collaboration and civility did not come easily …  It was not all fun-and-games, but it was done cheerfully for a good cause.”

The Innovation Games team is currently post-processing the game results for the city and will be publishing more details about the event and the game results in the coming weeks. The San Jose City Council will begin studying the budget in mid-February, and the mayor’s budget message will be released in March.

Related Stories from around the Web

• San Jose Voters Take On Balancing The Budget, CBS Channel 5 (Video).
• Budget Game Puts Neighborhood Leaders, Youth in the Priority-Setting Hot Seat, NeighborhoodWebSJ
• Engaging Citizens Through Games: San José, CA, Budget Prioritization Games (2011-2012 Budget Games)
• San José Community Leaders Budget Games Results (2011-2012 Budget Games)

In this coverage from CBS Channel 5, Mayor Chuck Reed, Council Member Pierluigi Oliverio, TIGC CEO Luke Hohmann and community leaders all comment on the difficult decisions facing the city and how the community can come together to tackle it.

Pay for Performance

I understand — and generally agree — with Bruno Fey’s and Margit Osterloh’s assertions that “pay for performance” compensation models have serious flaws. However, sometimes there is no other way to accomplish an organizations’ goals without some kind of pay for performance scheme. Consider my company. The excellent growth we’re experiencing in Europe suggests that we should hire a European Business Development manager. Since we sell mostly to executives, that person must be experienced. Which means he/she will want a fat salary that he is likely worth — and one we can’t afford. Performance-based pay to the rescue! By offering a commission plan based on results, we can safely grow our business. And sales people love simple plans that put money in their pocket. So, for me, the more audacious idea, which is surprisingly not all that audacious, is to thoughtfully approach job and compensation-design with an awareness of what your company can safely afford and what truly motivates your workforce.

Patient VCs

Bruce Gibney and Ken Howery from Founder’s Fund have an entry about how VCs should  ”learn patience” and invest in companies that show real progress. While their article sounds nice, I don’t believe a word of it. I think VCs are just like any other buyer: they buy with their heart and they justify with their head. If they see a start-up they like, they find a way to fund it. If they don’t like the idea, no amount of demonstrated growth or proven results will convince them otherwise.

Fortunately, true commitment in a start-up has nothing to do with the VCs who might invest. Instead, the true commitment of a start-up is found in its employees and customers. When the employees gives up, you’re done. When the early customers don’t come back, you’re done.

I speak from experience. There have been plenty of times when my team should have quit. Like the time we had zero money for payroll. Or the time a key client threatened to cancel their company’s enterprise license because they were justifiably upset that our system crashed at 2:00am Pacific time and no one fixed the server until 8:00am. Which was a real problem since they had planned a large number of games out of their European office. I could go on, but why bother? Most every successful company goes through such challenges.

What matters is how the start-up team finds a way to overcome these challenges. The day we were going to run out of cash a large customer listened to my dilemma and pushed through a new contract for enough money to cover payroll in one day, for which I will be eternally grateful (and if you work in a F500 company, tell the truth: could you push through a contract in one day?). My European client rescheduled the game, and we improved our network monitoring and management systems by moving to Rackspace (full disclosure: and apparently Rackspace likes us too, as they are a customer).

My point? A patient VC is nice. A VC who is not just patient, but who genuinely believes in your idea is more than nice. But a more audacious idea, that frankly is not audacious in the least, is building a team devoted to solving your customers’ problems as best as you possibly can. In the process you might find yourself living a truly audacious idea (at least audacious by Silicon Valley standards): a start-up that doesn’t need venture capital.

Using Innovation Games for Tough Conversations in the Conversation Project

Ellen Goodman’s article on the Conversation Project resonated deeply with me: we need to have thoughtful conversations about how we die. And motivating people to do this, and radically improve health care, strikes me as an inspiring, audacious goal. And while I think many people find the prospect of these conversations scary, or painful, I believe that by using Innovation Games® we can share conversations on how we die in ways that are engaging, uplifting, and even fun. Here are three games that you could play as part of the Conversation project.

• Knowsy®: Businesses make the mistake of thinking they know their customers’ priorities – until a failed product reveals their misunderstandings. Families make similar mistakes, assuming they know the priorities of their loved ones nearing death. Knowsy makes learning the priorities of others fun. And we can brand Knowsy so that business can learn the priorities of their customers through play (details here). By playing Knowsy on serious topics like death, aging, and health care choices, we can foster the crucial conversations that lead to better outcomes.
• Product Box Death: ask participants to imagine their ideal death – and then build a box to sell that death to their family. In the process, people creating the box will have the chance to explore their own feelings. And the projective teochniqueofthebox and the result will help them share this conversation with others.
• Remember the Future Afterlife: ask participants to imagine that they have died and that they are looking backwards on their last 6 months of their life. How will they have lived? What choices will they have made? By “remembering” their death, participants can have better conversations about their life.

I hope that Ellen or a member of her team will find this post, and take me up on the audacious idea that serious games can help create the conversations promoted in the Conversation Project, as I hereby commit that The Innovation Games® Company will create, free of charge, a version of Knowsy for the Conversation Project that can be used to foster conversations on life priorities.

What are your audacious gaming ideas?

The question at hand is how Gov. Scott will create the political support for these cuts. Forbes asserts at Gov Scott has used up his goodwill by slashing pay, privatizing services, and changing pensions. These actions have left him “more despised an ever”, with a “measly 29%” voter approval rating; this does not position him to make the changes he needs.

To improve his chances for success, Gov. Scott has been making some straightforward cosmetic changes:  new executive advisers, working harder at public relations, and even including good old fashioned “workdays”, where he can demonstrate solidarity with common folks by working the same kinds of jobs that they work. And while some of this is likely helping, in much the same way that icing can help improve the taste of a flat cake, it won’t work. We know that only eating cake isn’t going to provide the nutritional value that sustains us in good health, and Floridians are smart enough to know that PR stunts and dinners with lawmakers won’t give them the budget changes that are needed.

Instead of carefully controlled conversations with a few constituents, Gov. Scott should follow the ground-breaking leaders of San José,  CA, who have been using a specially designed version of Innovation Games® to engage ordinary citizens in making key budget decisions (see 2011 plans, results, testimonials, press). These games would allow Floridians to engage in substantive debates about how to actually prioritize the budget. In the process, Gov. Scott would find that the games cut across the simplistic labels of Republican, Democrat, Libertarian, or Tea Party that too often get in the way of real political progress. Instead of stalemates, he’d find that ordinary citizens are eager to be engaged as adults who are capable of making tough choices.

More importantly, Gov. Scott would find that this process creates the foundation for an ongoing dialog with citizens. On Saturday, January 21, 2012, we’re going to be playing our second round of games with the citizens of San José,  CA. These games are going to be tackling some very tough issues (details coming soon). And like our first round of games in 2011, we’re proud to say that we’ve been able to provide all of our services, and the services of more than 30 professional facilitators, completely free of charge. Yup. 100% pro-bono services. Citizens helping other citizens.

Gov. Scott, when you’re ready to play the kinds of games that will help you transform Florida, give us a call. We’d be glad to enlist our growing community of Innovation Gamers to help you make the substantive changes needed to help Florida succeed.

Community leaders and San Jose, CA residents participate in the first Budget Games on January 29, 2011.

The 2012 San José  Budget Games will be part of the City of San José Neighborhood Associations/Youth Commission 2012-2013 Budget Priority Setting Session. More than 100 community leaders will participate, along with officials from City government and agencies and more than 30 Innovation Games Trained Facilitators and observers.

Residents of the City of San José  who are interested in participating can register here.

San José Neighborhood Associations/Youth Commission 2012-2013 Budget Priority Setting Session
Where: City Hall, San José, CA; 200 East Santa Clara St, San José, CA, 95113, Wing 118-120 Committee Rooms
When: Jan. 21, 2012; 8:30 AM – 1:00 PM
What: In-Person Budget Prioritization Exercises
Who: 100s of community leaders and San José, CA, residents. 30+ Innovation Games Trained Facilitators and Observers. 30+ city leaders and subject matter experts.

Solution gives VersionOne customers enhanced collaboration and prioritization capabilities.

Mountain View, CA – Dec. 16, 2011. The Innovation Games® Company, the leading producer of online and in-person serious games for market research, today announced  the integration of its revolutionary Software as a Service (SaaS) offering, Innovation Games® Online, with VersionOne’s leading Agile Management tool. This integration enables customers of VersionOne to use the Innovation Games® Online platform to facilitate collaboration and prioritization of user stories. The online integration allows VersionOne customers use Innovation Games Online to solve one of the hardest problems in agile software developments—determining the priority of user stories with customers and stakeholders.

Select items from within VersionOne to be exported into Innovation Games Online.

Schedule your game and invite players.

Play Buy a Feature Online to prioritize user stories: The system records all discussion via the chat log, while also keeping track of the game's event stream, bids and purchases.

The games results are imported back into VersionOne, so that you can to prioritize your next sprint. The numer of games and number of purchases are are recorded.

The solution provides real-time, interactive, collaborative games—without the added cost or complexity of bringing participants physically together. First, VersionOne users select user stories and export them into Innovation Games Online’s virtual market game, Buy a Feature Online. Users and their customers and stakeholders then play the game to simplify the prioritization of user stories. When finished, the system automatically imports the Buy a Feature results back into VersionOne.

“Strategic planning is an important process enabled with VersionOne and expanding these capabilities is another step in fulfilling VersionOne’s vision,” said Robert Holler, VersionOne’s President and CEO. “Integration with Innovation Games^® Online provides our customers with an easy way to improve how teams and stakeholders come together to define and prioritize stories when planning agile projects.  Providing visibility into real stakeholder decision-making criteria helps teams to better prioritize functionality being delivered.”

“The Innovation Games® Company has long supported the agile community, and we’re thrilled to integrate Innovation Games® Online with VersionOne. Thirty thousand software development teamsof projects worldwide use VersionOne to increase productivity and speed time-to-market,” said Luke Hohmann, CEO and founder of The Innovation Games® Company. “The integration with Innovation Games® Online helps these teams effectively collaborate and prioritize, ensuring the product in development keeps pace with agile’s dramatically faster pace of development.”

Innovation Games® Online launched in July 2009, and was highlighted in a recent Forrester report as a leader in the serious games industry for helping businesses “do work.” The online game platform includes both real-time visual collaboration and virtual market games, such as Buy a Feature Online, Prune the Product Tree Online, Speed Boat Online and Design Your Own Visual Game. The online games are based on Luke Hohmann’s book Innovation Games®: Creating Breakthrough Products through Collaborative Play. Buy A Feature is an online prioritization game that brings together groups of users to collectively decide which product features are most valuable, while visual collaboration games Prune the Product Tree, Speed Boat and Design Your Own Visual Game function as visual wikis, allowing participants to visually collaborate on ideation.

For more information on the integration, click here.

About The Innovation Games® Company

The Innovation Games® Company is the only producer of serious games—online and in-person—for market research. TIGC helps organizations large and small get actionable insights into customer needs and preferences to improve performance, through collaborative play, having worked with such companies as Cisco, Reed Elsevier, Yahoo!, Qualcomm, SAP, Emerson Climate Technologies and more. To learn more about Innovation Games® Online, our online game platform for real-time, distributed collaboration and Knowsy, our brand engagement platform, visit http://innovationgames.com.

About VersionOne

VersionOne is recognized by agile practitioners as the leader in agile project management tools. By simplifying the planning and tracking of agile projects, we help teams deliver better software faster. Since 2002, companies such as AAA, Adobe, Boeing, bwin, Lilly, Lockheed Martin, NASDAQ, Qualcomm, Sabre and Siemens have turned to VersionOne. Today more than 30,000 teams from over 170 countries use VersionOne. Agile Made Easier @ VersionOne.com.

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While I can’t deny that pivots make sense, I’m definitely concerned about the blithe discussion of pivots (for example, as in this article from Forbes which promotes pivoting as a necessary key to startup success). As I reflect on 2011, I’ll describe some of the changes we’ve made over the past year or so, and you can judge for yourself to what degree we’re staying course, pivoting, or if the distinction even matters. I’m most proud that no matter what you call these changes, we’ve stayed true to our vision of creating breakthrough products and services through collaborative play.

What’s a Pivot? Common Sense By Another Name

Borrowing from a lot of very smart people (Eric Reis, Steve Blank, Stealthmode, Tristan Komer and Rob Go), I started this blog post by defining a pivot as “a significant change to your business model of product offering based on customer or market feedback.” More plainly, a pivot is a lot of common sense. If what you’re doing is not moving you towards a repeatable and sustainable business offering, you’re going to have to have to change something. And since most entrepreneurs have a bit of a stubborn streak (which we like to affectionately call “vision”), it is really challenging to know when to stay the course and when to change direction. The blogs cited above cite some great examples of when, and when not, to pivot.

At the risk of getting a lot of negative feedback from the Lean Startup community, I can’t help but wonder why there is so much energy around pivots. Pivots aren’t special or radical: They’re just common sense. Giving them a taxonomy helps us understand them, but let’s face it: most every successful product evolves through actual use. Before you flame me, please know that I’m all for the word pivot if it helps obstinate entrepreneurs adapt to customer feedback. I just don’t think “pivoting” is all that new and definitely not all that special. And if another entrepreneur tells me how they’ve pivoted their company – well, I’m just doing to hit them hard enough to shut them up, because it seems to me that a lot of the times these entrepreneurs are just losing their belief in their core ideas because they didn’t hit some special growth rate that indicates they’re magically successful.

In what follows, then, are three stories from our experiences in building a successful and sustainable business. And with a tip of the hat to pivot-hungry startups, first up is the story of how we changed our Value Exchange Model, which likely qualifies as a fully buzzword compliant pivot.

Changing Our Value Exchange Model From Transactions to Subscriptions

There are a lot components to a business model. One of the key components is what I call the “Value Exchange Model”, or how you trade money for value. I believe that there are seven atomic value exchange models that drive all business models. You can think of them as the “words” of the business model alphabet that allows you to develop interesting and compelling stories (I wrote about this in Beyond Software Archtecture; you can see an overview presentation on these here).

It is important to align the exchange of value with how people want to pay, so that as customers derive more value, they feel good about paying you more money. It isn’t easy though, because everyone wants to pay as little as possible for the value they receive, and you have to make sure your value exchange model doesn’t inadvertently motivate less use of your product as customers try to save money.

Before we launched Innovation Games® Online, we asked several potential customers how they’d like to pay for the service. The overwhelming preference was on a per-game basis. This is transactional, where each transaction is based on a completed game. This also made sense, as the value in our system occurs when you play a game. Unfortunately, transactional business models often lead to variable pricing, which makes corporate buyers uneasy: How much will a project cost? And how can corporations easily purchase “all you can eat” use of the system? More insidiously, we learned that a transaction model works against our goals of having companies play lots of games with their customers, because the easiest way to keep costs low is to reduce the number of games played. We didn’t sell any transactional games, and though it was really painful at the time, it was probably a good thing in the long run.

So we went back to the drawing board and designed a Value Exchange Model based on subscriptions. These have the virtue of reliable and a-priori known payments on monthly and annual terms. They also make it very easy for our enterprise customers to purchase “all you can eat” access to our online platform (Reed Elsevier, MassMutual, and Rackspace are among our “all you can eat” enterprise customers). Subscriptions also allow us to create different subscription levels, so that we can more effectively tailor the features of our system to specific market segments. For example, a Product Manager who wants to play relatively small number of games can get by with a Basic subscription, while a professional Market Researcher or Portfolio Manager, who needs to play games with multiple facilitators, can purchase a Professional subscription. We’re now seeing very solid growth in our all of our licenses.

While we likely executed what the lean community would call a pivot, it wasn’t trivial, fast, or easy. Changing your Value Exchange Model is one of the hardest, least-Agile changes you can make in your business. For example, in the transaction world we had to make choices about how much a transaction cost, how to pay for them, and what actually defined the transaction (e.g., starting a game? ending a game? games are supposed to be tested – do we charge customers for testing?). When we switched to a subscription model, we had similar questions that required precise answers (e.g., what happens to game data when a customer upgrades their account? How do we handle refunds when an individually purchased subscription is converted into an enterprise account?). These took time to answer and implement.

Ultimately, this change was worth it. It made it easier to sell licenses in a way that enterprise buyers wanted to buy them. But this change wasn’t the change that has produced our hockey stick of growth that you see at the top right. And, as it turns out, neither did a pivot.

Driving Dramatic Growth Through Instant Play Games

I’m proud that our team has created an incredibly powerful platform that allows you to convert any image into a collaborative game (read more about this here). Unfortunately, the power to create your own game comes with a fairly steep learning curve in creating new games.

We’ve long suspected that most people didn’t want to create their own games when they were first using the system. Instead, they want to “instantly” play games created by other people. For example, they want to:

• Identify the people who can help you accomplish the really big things in your life through Deb Colden’s Circles of Influence.
• Envision a powerful future state for your company or product through Sunni Brown’s Cover Story.
• Create actionable results in retrospectives through Diana Larsen’s Circles and Soup and Learning Matrix.
• Prioritize their work through the Merrill Covey Matrix.

The list is literally endless, because there are an infinite number of images that we can use for a game. However, the actual set of games that people use is relatively finite. Paul Henderson, an Innovation Games Trained Facilitator at Clarify, once referred to visual collaboration games as tools that you use to accomplish a goal. And like a good tool set, you have some core tools that you use frequently, and some specialized tools that you use episodically.

I quite like that definition, because most of the time we’re not making our own tools. We’re using tools that others have created for us.

So, our dev team did the same. They took visual collaboration games, and with a bit of coding magic, created instant play games (our growing catalog of these games is here). These games are little snippets of HTML code (“widgets”) that you can embed in any web page and use with one click (embed them in your own web site or your employer’s web site to make it fast and easy to play games). Our instant play games provide the fastest and easiest approach to focused collaboration that you’ll find on the web: one click to play a game with others. More importantly, we’re finding that sharing these instant play games on partner web sites drives better growth than any Google-based SEO advertising campaign ever could.

This wasn’t a pivot, though. It was just a much-needed improvement in usability that has made our platform much, much, much more accessible to the world, without sacrificing any of the core, underlying capabilities that power all of our visual collaboration games. Our roadmap has a number of other similar improvements that customers have requested. None of them are pivots, of course. Just good old-fashioned listening to customers and observing them use our system.

For me, this is the most important area where perseverance is much more powerful than a pivot. The popular press seduces entrepreneurs into thinking that if they just find the magic pivot all of their worries will be over. They’ll suddenly have customers begging them to stuff their Ferrari’s with cash. A more realistic vision is that you’ll win by consistently working hard in service of your customer’s needs. No pivots. Just grinding it out. And sometimes, you need to have the guts to just stay true to your vision.

Knowsy – A Whole Slew of Pivots Rejected

I’ve presented one story that qualifies as a pivot and second story that qualifies as one kind of perseverance. However, there is another kind of perseverance that must be told – the true commitment of the entrepreneurial team to the problem their solving for customers.

A little over a year ago a neighbor who worked as a Select Account Manager for Cisco finally relented to my incessant pitching of Innovation Games and agreed to a lunch date with me so that I could listen to his problems and propose game-based solutions. Two hours later, he agreed that our games were powerful, and then demonstrated why a SAM (aka Strategic Account Manager) couldn’t easily integrate the games into a sales call. What we needed, he concluded, was a game that helped SAM’s quickly and easily identify account priorities. And it couldn’t require a facilitator and must be really fun.

After a bit of design work I played the first prototype of a game I tentatively called “I Know What You Like” with our company over lunch. We loved it. I then asked my friend to play it. Except he decided to play it with his family. And they loved it. At his urging, I told my team that I’d play the game at our family reunion. And if the 80+ people from my wife’s family liked the game, we’d build it. And release it for the iPad. The family loved it, and a few months later we released Knowsy®. (I was very lucky to have César Salazar on our team. He’s not only an amazing visual designer/developer, he invented the name Knowsy – significantly better than “I Know What You Like”).

We released Knowsy after we had moved to subscriptions and before we had created instant play games (see timeline). This may not seem significant, but it is. Because it made us face a really tough question: Should we stay the course or should we pivot the company and focus on family friendly, consumer games? The question was not trivial. Although we had built up a good number of enterprise customers, the reality was that we were not realizing our growth targets. Perhaps a pivot to consumer mobile gaming based on Knowsy would be a good idea.

What gave me pause, though, is that while the mobile gaming market is large and growing rapidly, most mobile games are not multi-million dollar hits. It would take tens of thousands of sales of Knowsy to equal just a one enterprise license for Innovation Games online. And our team is comprised of enterprise veterans, not consumer-gaming experts. Pivoting in this way would not play to the strengths of my team.

On the surface, Knowsy is a really fun, family friendly game. Under the covers, Knowsy is a sophisticated choice modeling, brand engagement, and contest engine platform. And building enterprise platforms plays to our strengths. So, what could we do with Knowsy?

One option provide merchants like the Savvy Cellar Wine Shop in Mountain View, CA, who sell on expertise and customer relationships, a clear alternative to the money losing one-night stand phenomenon known as Groupon. We did this with Know the Savvy Sommelier, an fun iOS contest and brand engagement engine built on top of the Knowsy platform. Our success here motivated us to ask the question: Should we pivot into this space? It was a tough call. Although much has been written about the dangers of the “daily deal”, the reality is that that market is just too darn crowded with too many “me too” offerings. Although Knowsy presents a radically different alternative to a devaluing daily deal, pivoting the company into the merchant retail space didn’t seem like a good idea.

So, we stayed the course. We continued to make updates to Knowsy and Know the Savvy Sommelier because shipping working software was the best way to continue learning. Along the way, we continued to talk with large enterprises about ways in which the patent-pending Knowsy platform could help them engage customers. And we never lost sight of what Knowsy could do for SAMs. And through all of this refinement we discovered a progressive enterprise who has engaged us to create a version of Knowsy as I originally designed it: a fun, engaging, serious game that SAMs can use to understand account priorities so that they can sell bigger deals faster (view the overview here, and stay tuned for a lot more news about Knowsy in 2012, when we launch this version of Knowsy).

This is a different kind of perseverance than our commitment to improving our offerings based on customer feedback. This was staying true to our belief that SAMs will eventually be playing lots of serious games. And the right games will help them make lots of sales. It wasn’t easy, but we’re sure glad that we didn’t pivot on this one. For me, perseverance > pivot.

In this post, I will start a conversation on how you can develop an ROI model suitable for your use of the games. Over the next few months, we’ll supplement this post with additional tools that you can use to calculate the value of the games. Be forewarned, though, that I will challenging simplistic notions of ROI, and when and why you think you need to calculate it.

ROI Factors

On paper, ROI could not be simpler. To calculate it, you simply take the gain of an investment, subtract the cost of the investment, and divide the total by the cost of the investment. Mathematically, it is:

ROI = (Gain – Cost) / Cost

In practice, ROI is hard to calculate because it is based on what you consider the gains and costs used in the calculation. Let’s call these ROI Factors. Because ROI is often characterized as hard, or  or soft, the factors themselves must also be characterized as hard or soft. Examples of hard, or direct, ROI, include such things as:

• Meeting Time: The time saved by using an in-person or online game to reach a conclusion in a meeting faster than traditional brainstorming;
• Travel Costs: Using online games to eliminating the costs of travel, including such things as airfare, hotels, meals, and so forth;
• Time-to-Market: Using prioritization games such as Buy a Feature to eliminate unnecessary features, thereby enabling a product team to release products more quickly.

Soft, or indirect benefits, are based on less easily quantified, or second-order effects. Examples of soft ROI include such things as:

• Engagement: Companies who have asked their employees to participate in portfolio prioritization games have reported significant improvements in their employees engagement in the resultant projects: instead of questioning the priorities of the company and delaying work, these employees feel eager to get to work because they were asked for their opinions;
• Customer Smiles: “This was fun, thanks”. “That was a fun exercise”. “It was hard.  But lots of fun”. These are actual copies from the chat logs of customers playing our games. Playing games with customers brings a smile. Put another way, when was the last time your customers thanked you for asking them to take a survey?
• Sharing Tacit Knowledge/Experience: Games provide a natural way for the players to transmit tacit knowledge. Within a company, this tacit knowledge can help employees learn from others why a certain proposal is not optimal. When customers are playing games, we see them routinely sharing best best practices (“You really don’t want to buy the flibblebopper feature, because if you configure your system this way you can work-around the problem. What you need is the geeble, because it solves a problem for which there is no work-around”).

As you can guess, hard ROI is easier quantify and calculate than soft ROI.  And while ROI isn’t perfect – it doesn’t include time, and trying to determine if an ROI factor is hard or soft can leave a team exhausted. Still, ROI does provide a useful tool for considering the use of the games, because it leads us to first determine the ROI Factors that we’ll use in the analysis.

Choosing the Right ROI Factors For Analysis

Because Innovation Games are played to solve specific problems, it is important to select the ROI Factors that are relevant to the games chosen and the surrounding context. And while there are many ways to organize the games (a subject for both a future post that is also part of a pending new web site design), let’s consider three types of games based on our Collaboratize Process, which follows well-known innovation and meeting processes. As you can see in this table, there are several ROI factors that you can use to help you frame your use of the games.

But Some of These Factors are Still Subjective!

I know. ROI Factors such as “Idea Quality” is a completely subjective concept. It depends on how you define quality. When you’re dealing with ROI factors, especially in areas like ideation, your best approach is to be completely candid with about what you and your company are willing to pay for an idea. This can be challenging, especially since no one can accurately predict apriori how many ideas will be generated in an ideation event or the quality of these generated ideas. But, it is helpful to try.

In one client project, we were working with a group of about 140 executives. The client felt that if they got 500 total and 50 “high quality” ideas from the 1/2 day session they would be happy. The definition of “high quality” was that these ideas would pass the first gate in their Stage-Gate New Product Development Process. This means that each executive would need to contribute 4-6 ideas and that each group of 8 executives would need produce between 3 and 4 high quality ideas. This seemed entirely reasonable to us, but… what would this cost? And would the costs be worth it?

To put numbers behind this, let’s say that the fully loaded costs of an executive are $200,000. Let’s further assume that executives work 50 weeks/year, or 250 days, or 2,000 hours, for an effective “executive rate” of $100/hr. The 1/2 meeting therefore cost them $100/hr/executive * 4 hr * 140 execs = $56,000. Let’s add in travel costs, meeting room costs, facilitator costs, and say that the 1/2 day meeting cost an even $100,000. That means that this team was valuing an “idea” at $200 and a “high quality idea” at $2,000. Based on on their New Product Development metrics, this client felt that these numbers would be very good. (And yes, the math here is simple, but trust me… all ROI is simple math. If your ROI ends up looking like a Collateralized Debt Obligation, chances are pretty good that you don’t have any ROI and you should avoid the investment).

When we finished the event, the client team claimed they had identified 560 ideas and 65 high quality ideas – about $1500/idea. They were very pleased with the “ROI” of the event. I’m not at liberty to disclose which of these ideas have materialized as actual products, but the result of this initial engagement is that this client continues to use Innovation Games® in these meetings.

Sometimes Hard ROI Isn’t Hard To Calculate

Product Managers and Product Owners in Agile Software Development teams use our games to prioritize their features. In Agile terms, an “Epic” is a really big chunk of work — something that you’d probably include in a press release! Epics are typically decomposed into smaller, more digestible chunks of work called “stories”. A story has the quality that it can be completed within a specified time box referred to as a “Sprint”. To see why Agile Teams work so hard on prioritization, let’s look at the hard costs associated with delivering a new epic into the market. This is an interactive spreadsheet, and I encourage you to enter your own values. As you can see, the point is that sometimes it can be quite easy to calculate the ROI of playing our games.

When ROI is a Substitute For Fear

There are times when a potential customers’ insistence for “guaranteed ROI” borders on the absurd: It is actually quite rare that business can generate ROI from collaborative activities without some degree of work and/or changes to their existing process. And these kinds of ROI come with risk. Unfortunately, not all people want to acknowledge risk, especially when it comes to investments. To see what I mean, consider a supermarket that needs to choose between repairing a broken rooftop compressor or replacing it with a new one. The comparison can be done quite straightforwardly, and depending on the payback period of the new compressor the supermarket manager can generally make a clear choice. This clear choice is not so clear when it comes to the kind of ideation and collaboration infrastructure created by the games.

I suspect the real reason that most people attempt to demand “guaranteed ROI” is not because they need a precise and accurate ROI, or even a perfect guarantee. Instead, I think their question is motivated by fear, such as:

• Fear of the unknown: The concept of serious games to solve business problems is relatively new. Early adopters may not need economic justification, but the early majority does.
• Fear of the word games: After all, aren’t games supposed to be fun? We’re a serious business. We do serious stuff. We don’t have time for games or fun.
• Fear of delayed ROI: Suppose you acquire an annual enterprise license for Innovation Games® online. What if you don’t get the “ROI” in the first 6 months? Indeed, how will you know which game your company played produced the ROI, as any single game could provide the requisite ROI.
• Fear of looking bad: What happens if we try a game and our customers or employees don’t like it? Will I look bad? Will my boss fire me? Better not try this until it is “guaranteed”.

Note that I’m not backing away from the need of these people to calculate an estimated or potential ROI from the use of the games. Calculating a game-based ROI is definitely a way to reduce these fears. And these ROI calculations, when used as a precursor to playing the games, can help sharpen the focus on producing actionable results, which we consider a great use of ROI. However, ROI can’t overcome the fear of changing the way you work or the fear of the unknown.

Using ROI to Compare Options

There are times when ROI is used to compare different ways of achieving the same goal. In these cases, your first step is to determine the full set of costs associated with the project before considering the potential gain. In many situations, our clients find that the costs associated with using the games are the same or lower than costs of other techniques. But watch out! You’ll find that these kinds of ROI analysis can’t really be done as easily as you’d like, because choosing a different way to achieve the goal actually changes the goal you’re trying to achieve.

For example, let’s suppose that you’re using the games to prioritize potential features for a new product and you’re comparing traditional surveys with Buy a Feature online. Some costs that are the same, regardless of the tool:

• Developing the participant screener.
• Recruiting participants.
• Paying a research incentive.

Some costs that will be different:

We have had a mixed set of experiences with customers who calculate comparative ROIs. In some cases customers were expecting certain categories of costs to simply disappear (e.g., “What? You mean we still have to develop a screener? Uh, yeah, if you want to get the right people playing your games.”). When these costs didn’t disappear, they decided to go with their tried and true method. While this is disappointing, a far greater disappointment occurs when the ROI for the games is better than traditional approaches but the customer still decides to go with a traditional approach. This isn’t a rejection of the ROI, but a fear of the method (see previous section).

Fortunately, most of the time a comparative ROI calculation opens up more meaningful conversations about the merits of games vs. traditional approaches, which inevitably leads to discussions of “Business Value” vs. ROI. There are a large number of actions that we take in business where the individual ROI of any one action is either unknown, impractical to calculate, or negative, and yet we continue to do them because the accumulation of these actions produces sustainable business value. For example, every month I wrote this blog and Tami Carter publishes our newsletter. These are the actions of a company who is committed to the long term success of its customers and has a similar commitment to success of a new industry. However, I’d never ask Tami to calculate the ROI of single newsletter. It just doesn’t make sense.

It is really quite exciting when customers change their conversation from ROI to business value, because this means that we’re getting even closer to determining how games can help them accomplish their goals, and, typically results in customers using the games.

When ROI Is Absurd

Many years ago, I was hired by Qualcomm to help them create an ROI tool for their FleetAdvisor System. As I was developing this tool, one of the Qualcomm executives I interviewed said “I never believe the ROI shown in these ROI tools. They all demonstrate absurdly large ROI after the second year. Our customers aren’t stupid, and telling them to expect an unrealistic ROI from our systems insults them.” He was right, so we worked on several ways to present a realistic ROI.

This, then, is my own concern with calculating the ROI of Innovation Games. It can be absurd. We’ve seen teams playing Product Box generate the seed idea for a multi-million dollar revenue software product platform. What portion of the ROI should we claim when the idea is clearly shown to be an outcome from playing the game? While some companies might try claim the complete ROI, we can’t, because we know that good ideas are not enough. Smart Product Development, Effective Marketing, Efficient Sales… the list goes on. All contribute to the total ROI.

We’ve seen globally distributed teams playing Buy a Feature online eliminate more than $10M of unnecessary projects from the project portfolio. Amazing, stupendous, and yes, a bit absurd, ROI. But if that helps you make the case to your management team, go ahead and use it.

What’s the value of a new idea? What’s the value of avoiding unnecessary work? Tell us your numbers for these and we’ll show you how Innovation Games can exceed your ROI requirements. Without being absurd.

Don’t miss out on these sessions by Innovation Games Trained Facilitators:

• Business Analysis and Requirements Workshop, Ellen Gottesdiener, et. al. (Nov. 7-8, 2011)
• Product Discovery with User Story Mapping, Jeff Patton (Monday, Nov. 7, 2011)
• Scaling Agile with the Lessons of Lean Product Development Flow, Cory Foy (Tuesday, Nov. 8, 2011)
• Starting up Great Agile Teams–or Resetting Existing Ones, Lyssa Adkins (Tuesday, Nov. 8, 2011)
• Design Patterns Explained: From Analysis through Implementation, Cory Foy (Tuesday, Nov. 8, 2011)
• Nonfunctional Requirements: Forgotten, Neglected, Misunderstood, Ellen Gottesdiener (Wednesday, Nov. 9, 2011)
• Avoiding Over-Design and Under-Design, Cory Foy (Thursday, Nov. 10, 2011)

Other great sessions you should check out:

• Project Assessments, Knowing Where You Stand, Payson Hall (Monday, Nov. 7, 2011)
• A Visual Management System for Enterprise Agile Projects, Arlen Bankston and Bob Payne (Tuesday, Nov. 8, 2011)
• Beyond Business Analysis: Becoming a Trusted Business Advisor, Kent McDonald (Wednesday, Nov. 9, 2011)

Root Causes of the Corporate Spring

Early in the article, Kirkpatrick quotes Marc Benioff, CEO of Salesforce.com, in comparing the empowerment of employees to the Arab Spring, in which employers will be forced, through social technology, to show authenticity, fairness, transparency and good faith. Sadly, Kirkpatrick spends the vast majority of his article extolling the virtues of social media to enable embattled workers to rise up against corporate oppressors. While social media can (and should!) help correct for some of the most egregious corporate offenses, and while reporting about it can help sell magazines, it’s more productive to examine some of the root causes behind this “Corporate Spring”, and then explore how serious games can productively tap a corporation’s employee power.

• As Kirkpatrick points out, social tools are everywhere. They’re easy and effective and can’t be stopped or controlled.
• The Millennials who are entering the workforce are expecting more than just access to social tools — they are expected to have their voice heard.
• As product release cycles decrease, managers have less time to assemble “formal” or highly analytic data on each decision. They need to find ways to make tough decisions, fast. Put another way, “actionability” is more important than statistical significance.
• Millennials and workers are putting less stock in “making” the previous decisions work. Instead, they’re adopting more Agile practices, responding to changes instead of following comprehensive plans, and reconsidering prior decisions and making new ones more frequently.

It’s important to note that these are not isolated trends. Instead, they’re related to each other in complex ways that are driving change. And, if it feels like these forces and the changes they’re creating are increasing … they are.

Twitter, IM and Blogs Aren’t Enough

Twitter, chat, blogs, Flickr, Facebook — They’re all great. They provide more mechanisms for every member of the corporation to have his/her voice heard. Employees can share information and, as Kirkpatrick points out, use social media to quickly identify, and at times even correct, corporate wrong-doing.

While this is great, it is woefully insufficient for what corporations need from the internet and social media. Let’s assume that most of the time our corporations are not engaging in nefarious plots. Instead, let’s assume that they need to engage in a variety of activities that perpetuates their existence — activities like:

• Creating new products
• Improving existing products
• Understand customer problems and priorities
• Marketing and selling products
• Managing complex project portfolios
• Allocating resources to projects
• … and a whole host of other activities.

Engaging in these activities requires goal-directed, real-time online and/or in-person collaboration, often with a facilitator who can answer questions and draw out the best ideas from the participants. And, it turns out, each of these activities can be accomplished through games. Let’s see how this can play out in one of the most demanding aspects of corporate life: portfolio prioritization.

Portfolio Prioritization through Innovation Games

Project portfolio prioritization is a tough job. Even when times are good, you can’t take on every project. When times are bad, you not only have to take on fewer new projects, but you also have to reevaluate your portfolio and stop ongoing projects. Stopping projects, in turn, is a part of commonsense portfolio management. Whether you practice rigid gates, flexible gates or funding by the seat of the CEO’s gates, project are started and stopped all the time. It’s easier to stop a project when you have clear data that the project is not going to result in appropriate financial returns. It is a lot harder when swirling macroeconomic forces motivate us to scrutinize each project more carefully, resulting in more aggressive choices (cuts) in a corporation’s portfolio.

How you make these choices has a profound effect on how your organization will respond to the news concerning which projects will receive continued funding and which will be cut. Jack and Suzy Welch discussed critical aspects of effective decision making in the age of the Internet in their article The Connected Leader. Pre-dating Kirtkpatrick’s article by a few years, The Welches write:

“We would suggest that it can be just as damaging for a leader not to respond to feedback as it is not to ask for it at all. In the old days, layers of management filtered out too many good ideas from below, but they also filtered out nattering. In the era of Internet communities, leaders will have to find, largely on their own, ways to process the good and bad alike.”

At Innovation Games, we can’t agree more. Our experience is that the worst approach to portfolio prioritization is to have a small number of “senior leaders” close their doors and make the choices of which projects are funded in secret, without input from their internal and external stakeholders. Sure, decisions are made, but those affected rarely implement the changes with the speed and clarity needed in these tough economic times.

Senior leaders making decisions by fiat is what is driving Kirkpatrick’s and Benioff’s to equate corporate decision-making to the Arab Spring, in which citizens demand representation in complex decisions that affect their lives. A far better process, and one that is advocated by Kirkpatrick and the Welches, is to have modern leaders leverage the many tools that the Internet provides to help them engage with their employees to make better decisions. One such tool is Buy a Feature, which enables groups of internal and external stakeholders to collaboratively prioritize project portfolios. (I’ve created an extensive overview of how to use Buy a Feature to prioritize project portfolios, including case studies from VeriSign, Cisco, and HP, here.)

By enabling others to actively participate in a decision-making process that requires trade-offs, leaders can gain a better understanding of which projects are most important, why they are considered to be important, and how they can be improved to have greater impact. Ultimately, the leadership team may not agree with the results of the collaborative prioritization process, and choose to fund or cut a different set of projects than chosen by the team. That’s OK, because there are times that the leadership team may possess unique information not known to the players. The benefit to the leaders is now they know which of their choices requires more elaborate discussions with the larger organization before execution.

Much more likely, however, is that the leaders will endorse the choices of the employees. And it is here where you see the power of engaged and involved employees. Because employees were engaged in the process, they support the choices. Execution starts faster. There is hustle — extraordinarily hard to measure on a quarter-by-quarter performance report, but easily quantified as the organization finds a way to win.

Are You Ready for the New Game?

Like social media, the use of games to solve complex problems is growing. We’re seeing our games used by strategic account managers who seek to understand changing customer priorities to software development teams who want to improve their process. And the use of games dovetails nicely within the forces that are driving change within corporations. After all, it is a pretty safe bet that the millennial you’ve just hired has spent more time actively playing video games than passively watching TV. Are you prepared to play this new game?