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Tomorrow’s business landscape could well be alien territory for today’s business leaders. At many companies, important decision making will be distributed throughout the organization to enable people to respond rapidly to change. A lot of work will be done by global teams—partly composed of people from outside the institution, over whom a leader has no formal authority—that are assembled for a single project and then disbanded. Collaboration within these geographically diverse groups will, by necessity, occur mainly through digital rather than face-to-face interaction.

What on earth will leadership look like in such a world—a world whose features have already begun to transform business?

Suspend your skepticism for a moment when we say that the answers may be found among the exploding space stations, grotesque monsters, and spiky-armored warriors of games such as Eve Online, EverQuest, and World of Warcraft. Despite their fantasy settings, these online play worlds—sometimes given the infelicitous moniker MMORPGs (for “massively multiplayer online role-playing games”)—in many ways resemble the coming environment we have described and thus open a window onto the future of real-world business leadership.

True, leading 25 guild members in a six-hour raid on Illidan the Betrayer’s temple fortress is hardly the same as running a complex global organization. For starters, the stakes are just a bit higher in business. But don’t dismiss online games as mere play. The best ones differ from traditional video games as much as universities do from one-room schoolhouses. In fact, these enterprises are actually sprawling online communities in which thousands of players collaborate with and compete against one another in real time within a visually three-dimensional virtual world—one that persists and evolves even while a player is away.

The organizational and strategic challenges facing players who serve as game leaders are familiar ones: recruiting, assessing, motivating, rewarding, and retaining talented and culturally diverse team members; identifying and capitalizing on the organization’s competitive advantage; analyzing multiple streams of constantly changing and often incomplete data in order to make quick decisions that have wide-ranging and sometimes long-lasting effects. But these management challenges are heightened in online games because an organization must be built and sustained with a volunteer workforce in a fluid and digitally mediated environment.

Getting a look at how leadership works in online games isn’t easy. To see the best players in action, you need skills that allow you to participate at the highest levels of play, and those can take 400 or 500 hours to acquire. When IBM commissioned Seriosity to study leadership in games, Seriosity used a team of a half-dozen veteran players, with more than 50,000 hours of cumulative experience, to observe and record the actions of leaders in this rarefied setting. The eight-month study also included interviews with more than a dozen prominent gamers about their leadership endeavors in this arena. A follow-up survey at IBM of people with both gaming and business leadership experience helped validate some of our findings and suggested how they might be translated to fit real-world corporate contexts.

A number of our conclusions about the future of business leadership were unanticipated. For one, individuals you’d never expect to identify—and who’d never expect to be identified—as “high potentials” for real-world management training end up taking on significant leadership roles in games. Even more provocative was our finding that successful leadership in online games has less to do with the attributes of individual leaders than with the game environment, as created by the developer and enhanced by the gamers themselves. Furthermore, some characteristics of that environment—for example, immediate compensation for successful completion of a project with nonmonetary incentives, such as points for commitment and game performance—represent more than mere foreshadowing of how leadership might evolve.

Adopting some of these signature qualities of the game environment could actually make it easier to lead people in today’s real-world companies. The startling implication: Getting the leadership environment right may be at least as important to an organization as choosing the right people to lead.

An Online Preview of Tomorrow’s Leadership

Multiplayer online games are an increasingly popular and particularly compelling form of entertainment. Some estimates put the current number of registered players worldwide at more than 50 million; World of Warcraft alone claims 10 million players, who pay a subscription fee of roughly $15 a month. Participants play for an average of 22 hours a week, according to researcher Nick Yee of the Palo Alto Research Center; their average age is 27, and about 85% are men. (For descriptions of some popular games, see the exhibit “Online Fantasy Games.”)

Although the games vary in theme and setting, many are similar in structure: Roughly 40 to 200 players form teams, or guilds, that undertake increasingly difficult tasks, whereby individuals acquire skills and tools that allow them to advance to the next level of play. Sometimes team members know one another in real life, but typically they form their relationships in the game world. Within teams, members adopt different roles and responsibilities to get things done on behalf of the group. Guild membership is often in flux, as players get fed up with colleagues or seek more attractive opportunities elsewhere.

Invariably, certain individuals emerge to set the team’s direction and lead activities, although the leadership often changes. The leader or leaders of a guild, who specialize in ongoing recruitment, creation of incentive systems, and player evaluation, don’t necessarily act as the leaders of a particular mission or raid. Raids involve a subset of the guild’s members and take place in a single session.

The challenges undertaken by guilds can be complex, both organizationally and strategically: A raid on a dungeon in World of Warcraft, for example, may require the participation of dozens of players and go on for many hours. That competitive and goal-oriented environment makes these games very different from other immersive online worlds, such as Second Life. (For a comparison between these two types of online environments, see the sidebar “Online Games Versus Virtual Social Worlds.”)

Online games are, of course, an imperfect analog to real-world business. Not only do they involve lower stakes, but the problems teams face, difficult though they may be, are also sharply defined and structured. Instead of having to identify and frame challenges—a central element of real-world business leadership—gaming leaders primarily plan and execute tactics to achieve goals specified by the game. In this sense, multiplayer games are more akin to warfare than to business.

Another difference between play and reality is that gamers operate through characters, or avatars, that they have adopted and personalized for the game and that easily disguise their real-world identities. This surrogacy gives gaming relationships a distinctive wrinkle. It’s clear from laboratory research that players are highly invested psychologically in their avatars. That passionate attachment, coupled with the ability to act through an alter ego, makes heated disagreements both common and accepted. An atmosphere of intense honesty develops that many players say gradually makes them less averse to group conflict.

Nevertheless, our findings reinforced our basic premise that leadership in online games offers a sneak preview of tomorrow’s business world. In broad terms, that environment can be expected to feature the fluid workforces, the self-organized and collaborative work activities, and the decentralized, nonhierarchical leadership that typify games. In more specific terms, we found several distinctive characteristics of leadership in online games that suggest some of the qualities tomorrow’s business leaders will need in order to achieve success. (Online games offer an opportunity to develop not only these new skills but also many present-day leadership qualities. See the sidebar “A Leadership Simulator.”)

Leadership demands speed.

A game hour is unlike 60 minutes at your desk or in a meeting. Actions that might take weeks or months to unfold in real life are often compressed into hours or even minutes online. For example, in a World of Warcraft battle that we recorded, a hastily formed team of 10 players decided who would lead the assault, assessed the strengths and weaknesses of its rivals from another team, formulated an attack plan, and coordinated battle assignments—all before the game clock had counted down one minute.

The fast pace of leadership has some interesting consequences. For example, the need for ultraquick decision making may occasionally trump team consensus—a tension the leader must carefully manage because of the need to constantly motivate people who are free to leave the team on a whim. Another implication of speed: Decisions are nearly always based on incomplete information and then modified as more data become available.

The lightning pace of games is unlikely to become widespread anytime soon in the business world, except perhaps in selected contexts such as high-velocity financial trading. However, business decision making is accelerating, driven in part by the almost instant, if not always complete, availability of certain kinds of data. To keep up with rivals, real-world leaders will increasingly need to be willing and able to act on such information without pausing for long periods to weigh options. They’ll need to be comfortable with—and operate in a corporate culture that readily accepts—modifying decisions in response to contingencies and adopting iterative strategies marked by repeated course corrections.

Risk taking is encouraged.

Trial and error play a big role in accomplishing game tasks. Failure, instead of being viewed as a career killer, is accepted as a frequent and necessary antecedent to success.

In one incident that we recorded from EverQuest, seven guild members prepared for a brand-new quest that required them to get their team across a large lake protected by a gruesome and hostile creature. Although they had formulated a strategy based on information gathered in advance, everyone seemed comfortable with the high likelihood of failure, at least initially. After a first attempt, in which the whole team nearly drowned and was forced to retreat, members quickly began plotting a new strategy in the spirit of a fundamental gamer maxim (one not heard very often in business): “Let’s try that again.”

Obviously, the team members took the initial plunge because they knew they’d get another chance: Neither millions of dollars in shareholder value nor the livelihoods of thousands of employees were at stake. But it would be wrong to assume that nothing is ventured in such an effort. Games can exact severe penalties for failure, ranging from wasted hours of planning to the loss of hard-earned privileges and reputation. Although hard-core gamers don’t mind failure in the short term, don’t tell a hard-core gamer that failure in the long term doesn’t matter. In the words of one veteran player, “No one wants to be a member of a guild that always wipes out.”

Frequent risk taking allows players to practice the art of weighing odds calmly in uncertain environments. Confronting risk routinely and with a level head will be an important leadership skill as the real-world business environment becomes more uncertain and as success comes to depend more on innovation than on execution. Organizations can help prepare leaders by fostering a culture in which failure is tolerated. They can expose leaders to risk by mimicking the structure of games, breaking down big challenges into small projects. Failure, after all, is clearly more palatable for the individual and more affordable for the organization when it happens at the project level rather than on a larger scale.

Leadership roles are often temporary.

Perhaps the most striking aspect of leadership in online games is the way in which leaders naturally switch roles, directing others one minute and taking orders the next. Put another way, leadership in games is a task, not an identity—a state that a player enters and exits rather than a personal trait that emerges and thereafter defines the individual.

Don’t get us wrong: Leadership stars do exist in games. Some guild leaders have successfully led 100-strong teams for a year or more—an eternity in this new medium. As in business, players with exceptional relationship skills are particularly good at forming effective teams, delegating responsibility, and keeping groups motivated and moving forward. However, games do not foster the expectation that leadership roles last forever. Someone leading a guild today may grow weary of the stress and hand over the reins after a month or two. The leader of a raid knows that someone else’s skills and experience may be better suited to commanding the next effort. Even during the frenzied activity of a raid, the leadership role can be transferred as conditions change or because the person in charge doesn’t happen to be around when the need for a decision arises. Notably, choices about who will lead and who will follow are often made organically by the group—frequently because someone volunteers to take over—not by some higher authority.

The expectation that leadership is temporary has benefits and consequences. Leaders clearly must be—and often are—good followers because their experience equips them to understand what the person in charge is trying to accomplish. Frequent swapping of roles also helps leaders avoid burnout—a very real problem in the hyperintense environment of online games. One noteworthy consequence is that people who wouldn’t normally seek out or be chosen for leadership end up assuming it, sometimes simply to ensure that a specific task gets done. “My guild was struggling to merge with another,” one experienced and successful guild leader, a 27-year-old man, recalled in an interview. “When things didn’t work out to plan, our guild leader called it quits. No one volunteered to take over, so I stepped up to the plate. It wasn’t my desire to lead, but I knew if I didn’t, everything we had worked so hard to build would crumble.”

When otherwise reserved players find themselves acting as leaders, they can surprise even themselves with their capabilities. A 46-year-old woman, unsure of her fitness to lead a guild when friends recruited her, said, “Follow-up and assertiveness now feel more natural to me, even in real life. It has been an amazing opportunity to push myself beyond my boundaries.”

The idea of temporary leadership is alien to most business organizations. Companies usually identify people as leaders early in their careers. The selected few carry that designation with them through different jobs, each typically lasting several years, as they move up the corporate hierarchy. That model may not work well in the future. The growing complexity of the business environment means that no single leader will be an expert in every area. Beyond the obvious benefit of matching an individual’s expertise to a challenge, treating leadership as a temporary state can empower employees to volunteer to lead and, thereby, can unearth previously overlooked talent among the ranks.

Game Elements to Make Leadership Easier Today

Most writing about leader selection and development focuses on people’s backgrounds and natural talents. Whether leadership ability is inborn or acquired through training, the assumption is that expertise resides within the individual.

Our study provided us with an arrestingly different view: Perhaps the right environment is what really matters, whoever the leader happens to be. This concept, which as far as we know is absent from the academic and professional literature about leadership, wasn’t something that we set out to prove. The notion arose from the experienced gamers on our research team, who were puzzled by our initial preoccupation with the individual qualities of game leaders. “If you want better leadership,” they asked, “why not change the game instead of trying to change the leaders?”

So we began to focus on identifying distinctive aspects of online game environments that could improve leadership in business and other real-world settings. We pinpointed at least two properties of games that we believe facilitate and enhance leadership: nonmonetary incentives rooted in a virtual game economy; and hypertransparency of a wide range of information, including data about individual players’ capabilities and performance. These two elements—along with the rich mix of text, audio, and visual communication in games—make it easier for leaders to be effective. Players know exactly what they should be doing and, to a large degree, have the tools they need to manage themselves. This suggests that organizations can benefit by selectively “gamifying” their work environments in order to improve the quality of leadership—not in the future but right away.

Nonmonetary incentives.

A game leader faces important motivational challenges. Consider, for instance, having to persuade dozens of team members from around the world to leave their real-life activities and show up online at a specific time ready to participate in a raid that will last for hours. How do you motivate these players to contribute their time and skills to a coordinated activity that benefits the entire group?

The game leader is aided by an array of sophisticated incentive mechanisms—some of them built into a game by its developers, many created and refined by the leaders themselves—that reward the individual performance of players and their contribution and commitment to the team. The incentives can be either short-term (sometimes almost immediate) or long-term.

We studied one guild leader who offered bonuses—known in many games as dragon kill points, or DKPs—to raiding groups that were able to push performance to new levels. He was often able to make such offers on the spot—“I have an additional four DKPs for those that can clear the dungeon in under three hours!”—because of the capacity games give players to track individual achievement continuously during a mission. The immediacy of the incentive made it particularly compelling. The leader also used incentive systems to encourage sustained effort. For instance, he announced that players would receive additional DKPs for mining raw materials needed by the group in advance of a raid, thereby encouraging enterprising miners in the guild to perform an otherwise boring task over the course of days.

Some of the most pervasive and sophisticated incentive mechanisms are those used to distribute the loot that a team accumulates during a successful raid. A leader needs a way to dole out to raid participants what may be only a handful of plundered items, themselves not always divisible—say, the Axe of the Gronn Lords or the Helm of the Fallen Defender. One method involves an auction in which team members bid using DKPs they have earned for their participation and performance in the current and past raids.

A leader needs a way to dole out a handful of plundered items that are not always divisible, such as the Axe of the Gronn Lords.

Listening in on a DKP manager conducting an auction can provoke snickers if you’re not a gamer: “OK, bidding is now open for the Salamander Scale Pants.” But the reward system may involve sophisticated algorithms that measure an individual’s input, ranging from attendance to quality of play, as part of a group process. Each guild member’s DKP totals are posted and kept current—often automatically, using game-provided or plug-in software—on a guild’s website.

A point system like DKPs, used by leaders to motivate team members, is also part of a broader game economy. Players use synthetic currencies, such as virtual gold pieces, to buy and sell items of value to one another—everything from weapons to information to an agreement to collaborate on a particular task. (Players can also use real-world currency to purchase valuable items, such as skills or tools that others have earned in the game world, at numerous online auction sites. One of a leader’s tasks when putting together a team is to sniff out players who have tried to buy their way to a certain level of accomplishment.)

Incentive systems used by leaders affect motivation in several ways. Dividing up the winnings from a quest immediately after it’s completed—or, occasionally, awarding loot to someone even as the battle rages—creates a strong connection between effort and reward. Furthermore, DKP systems enable individuals to see in advance what they are likely to get when their team succeeds (more DKPs equal greater access to team booty), sharpening the incentive to join the effort. Even when it’s clear they’re unlikely to share in the spoils of a raid, players know that their participation will earn them points for future use. Finally, because individual compensation is based on objective performance data that can be automatically gathered and processed, and then publicly posted in real time, the reward system is generally viewed as fair.

The sorts of contributions people make to a corporate cross-functional team aren’t, of course, as easy to precisely quantify, track, and reward as are contributions that game players make to their guilds. Still, we believe that game-inspired incentives have the potential to dramatically improve leadership effectiveness in business organizations. Companies might devise ways to shorten the lag time between successful outcomes and the monetary compensation for those who contribute to them. For instance, instead of getting an end-of-year bonus, people in certain businesses could be rewarded for their contributions to a project as soon as it was completed—a prospect likely to galvanize their efforts. Also, before the launch of a group project such as a prolonged cross-functional sales effort, people might be given a breakdown of how rewards for a successful outcome will be divvied up.

One of the most powerful takeaway messages about game incentives is that those built around synthetic currencies have tremendous value. As Indiana University economist Edward Castronova has noted, economies have always been a game, with currencies the mechanism for keeping track of success and failure. Online games give us the further insight that people care a great deal about virtual gains and losses, even if the currency that records them can’t be exchanged for dollars. That reality opens up entirely new ways of thinking about business incentives, including how we document and value people’s contributions to group efforts.

One major impediment to group collaboration in business is uncertainty about whether an individual will get credit for contributing useful information, especially digital work that can be easily forwarded or repurposed, after it is passed around the organization. Take the case of someone’s e-mail notes that end up in a widely circulated internal document. A virtual currency system that identified the source of digital information and tagged its subsequent use could ensure that the originator would receive credit—formal acknowledgment or some more tangible reward—when those data were forwarded, reused, or cited. That would create a strong incentive to share.

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We have seen virtual incentives affect digital communication in other ways. In a study done at a Fortune 100 company on methods for reducing information overload, employees received an allotment of a virtual currency, which they could use to indicate the relative importance of e-mail messages they sent. Attaching a large amount of the scarce currency to a particular message would draw attention to it or even serve as a feedback mechanism: You send me an e-mail you value at 100 units, and I respond with one valued at 200, giving you a credit of 100 units to validate the usefulness of the information you sent. One experiment showed that the currency, as a marker of information importance, in fact influenced how quickly colleagues opened and read different messages in their inboxes. Other gamelike elements were also tested: For example, the ability to win publicly visible digital badges in return for efficient communication helped reduce unnecessary e-mail.

Hypertransparency of information.

Game environments make a broad array of information, conveniently organized on data-rich dashboards, immediately visible not just to leaders but to the entire team. The information includes detailed statistics on individual and group performance, real-time status reports on operations, and relevant facts about players’ capabilities and performance histories. All of these make leading easier.

Real-time updates about a team’s mission help a leader choose a strategy in the heat of the action. Data about individual players allow a leader to quickly locate guild members who can bring needed skills and weapons to a raid and then to assign them to suitable roles. As we noted when discussing incentives, transparent and quantitative score keeping, which governs the distribution of rewards and the assignment of roles, encourages players to see the system as fair and to buy in to a leader’s goals. In fact, most games are indeed meritocracies: The chances of getting preferential treatment simply because you’re a friend of the boss are relatively low.

Dashboards, or cockpits, display both status and communications functions on the same densely populated user interface and often on a single computer screen, eliminating the need to open and close different software applications. Constantly visible during play, the cockpits allow a leader to stay within the narrative of the game while acquiring necessary information about players and communicating instructions to the group. Unlike a corporate dashboard that is located on a handful of computers at headquarters, with access limited to the senior executive team, these personal, view-as-you-go game cockpits give people in the field access to information as soon as it is available. That, in turn, allows game players to act on it without waiting for instructions from a guild leader. What’s more, the information allows players to assume impromptu leadership roles as needed. In many of our video clips, we see three or four people barking orders to team members during a raid, briefly taking the lead in the improvisational style of a jazz ensemble.

Most real-world companies are already working on capturing and integrating real-time information about people, activities, and results. Certainly, the concept of an überdashboard that would synthesize and display all current company metrics is something CEOs have long sought, although fitting them all on one screen might be difficult. A more relevant issue is whether leaders might benefit from relinquishing control of some of that information, in order to provide employees with better tools for making their own decisions and to spur group insights that would never occur to a single leader.

The kind of game information that may be particularly applicable to business is the detailed data about players. Unlike a relatively static employee file, which provides a snapshot of someone’s past experience and training, player data are constantly and automatically updated. They thus provide a kind of streaming video of a player’s résumé, including information about what he or she is like right now. This approach to employee information could transform how managers and their subordinates collaborate. An employee’s profile could include a wide variety of voluntarily provided information about the person’s informal skills and personal passions, all of which could be put in a searchable database. Someone looking for a sales manager in Thailand might unearth a worker with, say, a Thai spouse (whose local knowledge could help the manager be more effective there) or a longtime dream of living in Thailand (which could enliven a person’s work assignment).

But even this tool would lack the dynamism of a gamer’s constantly changing profile. Envision, for instance, a system in which all kinds of actions and interactions are, with the employee’s permission, automatically tagged and fed into a personal “tag cloud”—a visual schematic of the employee’s contacts with people, activities, and ideas. To a leader who is assembling a team in an evolving business environment, such a real-time, composite view of a person is likely to be more relevant than formal certification of an employee’s mastery of rigidly defined and probably outdated skill sets.

The Future Is Here

Even if they buy into the argument that game elements can make leadership easier, most business leaders will remain skeptical that a business can adopt them—unless, that is, these leaders themselves have spent time playing multiplayer online games.

To get the reactions of managers who regularly visit these online leadership labs and then return to the world of business, IBM surveyed 135 of its employees who had led business teams and had also been a leader or member of a guild in a multiplayer online game. For the most part, they found games to be surprisingly relevant to their day-to-day work. Three-quarters of the respondents said that environmental factors within multiplayer games could be applied to enhance leadership effectiveness in a global enterprise. Nearly half said that game playing had already improved their real-world leadership capabilities, particularly for managing teams whose members didn’t fall under their formal authority.

Among IBM managers with experience in multiplayer online games, nearly half said that being a game leader had improved their real-world leadership capabilities.

Many said, however, that widespread adoption of the leadership approaches found in online games would require a change in most organizations’ cultures. Failure to achieve a goal on the first try is generally viewed as a learning experience in multiplayer games, after which you “reattempt with new knowledge,” according to one respondent. That’s in contrast to the corporate world, where, he acknowledged, “reattempting is hard.”

But games, and the generation that has grown up steeped in the game environment, may end up being catalysts for change in business leadership. This new crop of workers will bring with them—first as followers, then as leaders—game-informed notions about the best methods for leading.

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Ultimately, the entire workplace may begin to feel more gamelike—with game-inspired interfaces becoming 3-D operating systems for serious work—which could enhance not just leadership but all sorts of collaboration and innovation. At the very least, digitally enabled environments and techniques could increase productivity by making many aspects of work simpler, less tedious, and—dare we say it?—more fun. That wouldn’t necessarily be a bad thing.