Filing expense reports never sounds like a fun task. But Kris Duggan wants to help companies figure out how turning even the most mundane types of paperwork into games can help motivate employees, improving efficiency and cutting overhead costs along the way. Since his company Badgeville was started in 2010, it has gone through two large rounds of fundraising in 2011 and 2012, raising around $40 million in the process and helping put the term “gamification” on the map as something more than another Silicon Valley-esque flavor of the month. Still, gamification is not without its critics in the game industry and the business management world alike. During a recent trip he was making to New York City, I caught up with Duggan to talk about the future growth of his business and his thoughts on the potential of gamification to transform American businesses.

IB Times: Badgeville started with just $500,000 of investments. What have you been able to do now with several rounds of multi-million dollar fundraising that you weren’t able to originally?

Duggan: The main thing is hire people. We have about 90 people now; we’re trying to get to 100 by the end of the year and we’ll get to 200 next year. So we’re adding more than one person a week in perpetuity. That allows us to invest in all the things we want to do: product, engineering, services since some customers need help figuring out how to use this stuff. You’re just not able to do that if you don’t have the resources.

Over the next few years, we’ll probably scale to over a thousand companies using our technology in lots of different ways. Today we’re already doing billions of transactions in our system per month. We’ve raised about $40 million of capital now, and that goes directly back into the business to invest in headcount, infrastructure, and making sure we’re building out our expertise to help our customers.

IB Times: What portion of the company is focused on game design?

Duggan: About a third. I hired [Senior Game Designer] Tony Ventrice early on out of Playdom. Before that he was at Zynga where he did Zynga poker. We have a few folks from Zynga that we’ve hired. The guy that runs our services was at EA [Electronic Arts] for 10 years, but mostly our team comes from social gaming. These are people that actually understand real games, social games. But they also see that there’s so much potential for their knowledge beyond just games.

IB Times: Zynga itself has raised some concerns about the future of these loosely structured “casual games” built around social networking. Badgeville, however, seems a little different -- the gamified elements aren’t so closely tied to games themselves, which eliminates the need for constant engagement.

Duggan: Lots of the ideas that we have were Zynga-inspired, in terms of thinking about what we can do for onboarding, engagement, these types of things. But what you’re saying is almost, “Can we out-Zynga Zynga?” The writing is on the wall that there may be an end to that company at some point. But maybe it turns out that applying the psychology that they use not to games themselves but to the business process is going be sustainable.

Saleforce.com has 150,000 thousand customers. If you just take that example, they say that in all CRM deployments, they are about 50 percent utilized. 50 percent! If you add it all up, there’s been a trillion dollars worth of software that’s been sold [Note: Duggan is referring to a study put out by Gartner that estimated that the total amount of spending on information technology would surpass $3.6 million in 2012]. We’re talking about everything -- expense management software, review software, everything. And Gallup just put out a research report that said 70 percent of employees are not engaged at work. Just add all that up—a trillion dollars worth of software that’s been sold, 50 percent adoption, 70 percent of employees are not engaged at work. There’s real value that can be unleashed by companies that figure our how to incorporate game mechanics, psychology, techniques, on top of any of those programs.

I was talking to a CFO the other day who said if he could get employees to submit their expense reports on time, that would save them millions of dollars a year. When you get into a big company, things just don’t run on time or productively often. So imagine making that a little more fun, a little more engaging.  Think about the pharmacy store, how do you make the pharmacist focus on the right metrics they should be measuring every day. Store managers at Safeway; how do you make sure they’re measuring all the things they need to?

IB Times: What are the common areas that you see where businesses are particularly ripe for gamification?

Duggan: I would say that the ones are most successful are those that already have a sense of community. If you have no community, we can probably do some kind of system-based rewards. But it’s not really tapping into the full potential of gamification. If you have a community and people actually see what it means to be an expert in a field or topic, the work and commitment that’s required to achieve that, then that creates value in the leveling system.

IB Times: What doesn’t work well?

Duggan: The examples are where people think they can just bolt it on and it’s going to solve their underlying problems. It’s not a magic wand. If the underlying content is not good, if there’s no sense of community, gamification isn’t going to resolve that for you. But if you have good content and good community, using gamification can make it great. That’s what we’re talking about here—from good to great, not from bad to good. I kind of think of it as glitter. We’re putting some glitter on your stuff. But if your stuff is a turd, it’s just gonna be glitter on a turd!

IB Times: One thing I’ve noticed in covering video games themselves is that most people have a sense that a game has some sort of closed system of interaction. There are definitive “win” states and “failure” states within that system. I guess I still don’t understand where you move from just having bars that you fill up, numbers that you increase or decrease, to that suddenly becoming a game. How is this different than just having “employee of the month” programs, or paying staff members based on commission relative to their performance?

Duggan: I think it’s actually closer to that than it is to a game. We’re not saying we should create “ReporterVille” or something like that to have you clicking all day long. You could go to the extreme and say that applying gamification inside your company is about being really effective managers, it allows you to automate some of those things. But what do really effective managers do? They give really good feedback, they measure the right metrics, and they compare you against your peers. In a lot of these companies, the metrics aren’t clear. The definition of a game doesn’t have to have fun in it. A game just has to have a score and an outcome, and rules to influence your score. That’s what you want to know.

This isn’t just that the employer gets all the benefits, I do think that there’s a win-win. The employer gets more productivity, and the employee gets a sense of winning, a sense of accomplishment. The Harvard Business review published a study that says the number one detractor of motivation in the workplace is a lack of a sense of progress. It’s not about monetary incentives; paying me more is not going to make me working harder. But guiding my actions, given me a sense of achievement, progress, and recognition, that’s what’s going to motivate me.

Let’s brainstorm this continuum. If I said: “walk across the street,” you’d probably walk across the street in a minute or so. Then the second time I said, “I’m gonna time you when you walk across the street.” The third, “what’s the fastest you can walk across the street?” And the fourth, “That guy down there, he just did it in 38 seconds. Can you get close to that?” And then finally, “If you get to 35 seconds you would get some special recognition for that.”

IB Times: Yes, but all of these products and services are being sold to employers rather than workers themselves. So how do you stop it from becoming a situation where employees just get “gamified” rewards instead of actual rewards? I see your point about how increasing satisfaction and productivity depends more on having these tangible feedback loops, but I’d feel short-changed if I just got a Foursquare badge instead of a bonus after a really productive month. 

Duggan: I think it’s an unfair criticism of gamification to say that virtual rewards are just extrinsic motivation. When designed correctly, they’re more intrinsically motivating rewards. If I just said that I’ll pay you four bucks to walk across the street really fast you would say that’s not enough to make me run. There’s been lots of studies that talk about how once you put things in terms of financial incentives, they can actually be demotivating. Virtual rewards, because they demonstrate expertise, growth, or progress, can be much more intrinsically motivating than extrinsic factors.

But all of this has to be designed in the right way. What we see a lot is companies that want to combine virtual rewards with their career paths. So it’s not like: If you get 500 article impressions, we’re gonna give you a thousand bucks. It’s more saying that as you get more successful articles, that allows you to “level up” within the organization. Over time, that’s how you make your way to a senior writer or editor. Tying everything together is the key. It’s not just about simple cash rewards, or simple virtual rewards. A modern enterprise will think about all the incentives they want to offer their employees.

IB Times: Ok.

Duggan: Do you buy that?

IB Times: I wonder how you assess the social or ethical responsibility of game’s progression system when it enters the real world. Writing on the web, “progress” is usually taken to mean the number of page-views you get. But publications are also starting to realize that chasing traffic alone can be dangerous because it changes the entire editorial mindset of your organization. After the iPhone 5 launched, [Endadget Editor in Chief] Tim Stevens said that “There is definitely a dangerous game you can play where you cover everything that Apple does because you know it's going to give you better traffic."

Duggan: That’s a fair point. The way I would interpret that is that you have to be very thoughtful around the metrics that you want to drive. Part of gamification is thinking about anticipating the unintended consequences of the systems that you designed for behavior. And the reason that that’s so important is because gamification is actually really effective. Whatever you decide to do reward and recognize people for, that’s what they’re going to do.

If you’re not measuring any traffic today, it’s probably not a bad idea to start measuring performance by traffic. But after you’ve mastered that and people have started to game it, they’ll just choose topics that are high-traffic generating but are also probably bubblegum journalism. To me, that’s a simple example. If you’re a sales team, should you measure the number of sales calls a day, or the duration of the call? Because each of those will get a different unintended consequence.  But most businesses don’t have the luxury of fine-tuning the metric; they’re still in an earlier phase.

IB Times: Critics of gamification have said that it’s just a gussied up form of Taylorism. Ever since “The Principles of Scientific Management” was first published, critics have said that that applying these very strict, data-driven policies to a community of workers creates a harsher climate of competition. How do you keep competition a positive or healthy aspect of a workplace?

Duggan: Gamification doesn’t have to have competition associated with it. It could just be everyone working for rewards. We don’t necessarily have to rank you explicitly; maybe we actually want to hide from others what you’ve accomplished. Some might respond extremely well to it, and others might be extremely de-motivated by it. In your case, there might be that one pain-in-the-ass journalist that’s hopping on everyone’s story. Competition-based ranking wouldn’t be a great solution because that one guy would always be on the top and everyone else would be written off. But let’s assume a healthy distribution of players. I think you could probably look at other types of ranking -- maybe doing a ranking period that resets so that everyone has a chance to win.

IB Times: Do you play any video games?

Duggan: When I have time. [Laughs]

IB Times: I think what makes video games engaging to so many people is that they can be difficult because there’s nothing at stake. You can lose all of your troops in XCOM, but you’re not going to lose your job, nobody in real life is going to die. You’ve spoken about the winning element of gamification, but part of what’s interesting about video games is how they teach people to accept failure in mature and responsible ways.

Duggan: I think that there’s a bigger difference between gamification and games there. Gamification is about everybody feeling like they’re almost winning, not feeling like losers. That’s why you have to be careful about these competition-based rankings. If one person’s going to win, that means everyone else must lose. I don’t think that’s the right tone to set in a community necessarily. That requires some thought—what motivations are we tapping into? Fear of failure is good. But actual failure is probably not that desirable.

The degree to which people take their virtual rewards seriously is overwhelming. [Laughs] Clearly now the psychology of gameplay has expanded beyond games. Now what we’re seeing is that it has to be designed well. It has to tap into the right psychological motivators.

IB Times: Sure, but in games as in work, failure is a very clear reality. We’re in a recession right now. A lot of companies aren’t growing; they’re laying people off and shrinking. Failure in any workplace scenario is never something that anybody wants to hear. But do you see a way that gamification can help facilitate or improve that as well?

Duggan: That’s an important question. I think that people will end up using gamification as a way to not only reward and retain their highest value users and also turn their medium players into higher value players. It’s also a way to weed out the low value players. What we’re really talking about is accountability. We have to be careful of how we rate people, but if we see that one writer isn’t hitting any of their metrics regardless of quantity, quality, or anything, then it’s time for them to go! Hopefully gamification also gives them the tools to see what’s important, and gives them proper feedback to see what’s actually successful. But if they’re not complying with that, then it’s probably time for them to leave.

I was meeting with someone at GE recently and he asked if Jack Welch would like gamification. And I think the answer is yes. He was all about retaining your top people, showing your medium people how to be top people, and getting rid of the bottom people. Gamification is a powerful “how” for achieving that.

IB Times: Are there certain things that gamification can’t really reach yet? Artistic or creative content are difficult to quantify.

Duggan: There are so many departments that can benefit from the metrics-oriented approach that you don’t have to tackle the art department first. We’re not saying that you should just push the art out or measure the number of drawings. I bet there are some creative ways to encourage the artistic groups to perform, but it might not be based on quantity-based metrics. Like, we wouldn’t pay for journalism per word. That wouldn’t make sense. But there’s already so much opportunity for a metrics-oriented approach that’ll keep gamification people super busy for the next few years.

IB Times: Ian Bogost wrote a famous essay titled “Gamification Is Bullshit.”

Duggan: Yeah, we had a counter-argument called “Gamification isn’t bullshit.”

IB Times: In the essay he writes, “gamification is marketing bullshit, invented by consultants as a means to capture the wild, coveted beast that is videogames and to domesticate it for use in the grey, hopeless wasteland of big business, where bullshit already reigns anyway.”

Duggan: Doesn’t he already discredit himself to begin with? It’s somebody being contrarian for the sake of being contrarian. I don’t think that he actually has any valid criticisms of gamification. And his quote substantiates that; he’s basically saying, “There’s bullshit rampant in business already, let’s add more bullshit.” I don’t think that’s very credible.

IB Times: But he goes on to say that “using games earnestly would mean changing the very operation of most businesses.” You mentioned how gamification has more in common with corporate management than it does with actual games, which therefore allows it to seamless laid over existing businesses. Wouldn’t actually using gamification to its full potential require a more substantial restructuring of many businesses?”

Duggan: What’s comical here is that he and I are actually saying the same thing. I’ve already admitted that bad managers are not going to be good managers. He’s saying that [gamification] has to be really thought through and implemented deeply -- adding it as a thing on top of something is not going to be successful. And I’m agreeing with that! The only thing I’m disagreeing with is that he would go so far as to say that they shouldn’t even have access to these kinds of things.

He might rationalize it by saying they wouldn’t know what to do with it if they had it. But I think it’s more elitist than that, it’s saying that [gamification] shouldn’t be used for those kinds of things. That’s not a criticism of gamification. That’s just a criticism of, say, marketing. The fact that there’s going to be good marketers and bad marketers is not an argument for whether or not those techniques should be made available to marketers. The morality of it is not an effective argument. These are just tools. So should the tools not be available to the people that want to engage, experiment, see what’s available in the constructs of their business?

IB Times: I think another way to frame the argument would be to say: let games be games and do what they do well, and let marketing be marketing.

Duggan: And there’s no gray area in-between? Psychology here and technology there, we’re not going to mix the two?