This is a transcript of a presentation given to MBA students at London Business School on 2nd October 2024
Introduction
I think large, incumbent organisations can and do innovate and I want to show examples in this presentation of why they do, from my experience of the two sectors that I am involved in – Sport and the Leisure Sector.
First, I want to explore why it is that it is said that people can’t innovate in large organisations? What might be the reasons why they can not innovate?
- Ossified decision making.
- Constricted Governance. Endless committees and approvals are needed especially where financial support is required or a variation to budget is needed.
- Historical remits and precedent value.
The question assumes that this restriction holds back innovation. It seems to suggest that only entrepreneurs have the freedom and lack of formality to drive strategic innovation and the ability to be nimble and take more risks. Is this true?
I am the Chair of two long standing, “ossified” , heavily governed businesses. In fact, there are some that would say that I am Chair BECAUSE they are heavily governed.
The first is a Sports Governing Body – the Rugby Football League.
The other is SIS , a privately owned B2B supplier of 24/7 live betting services to global bookmaking and sportsbook operators.
I want to explore how it is that Sports and multi stakeholder businesses are indeed able to innovate within their restrictions.
Innovation in Sport
The first industry in which I want to consider strategic innovation is sport. Admittedly, it is not easy to innovate with sport. The rules are the rules. You can not suddenly transform the rules and create something new.
Your only flexibility is in extraneous factors- the format and types of competition, the timing and how it is run.
Cricket is an old traditional sport. The concept of bowling at wickets is the same and there is no variation to how you are out or how you score – whether that is a single, a four or a six.
So Cricket has innovated with new formats. T20 is the best example. It started in England and was designed for a shorter Television format and a younger audience. It has grown to be the dominant commercial format and is huge in India. It is the same game but with fewer overs. It has led to new techniques, different skills and many would argue it has begun to affect the traditional long form game in terms of tactics and technique.
The ECB took innovation one step further with the creation of The Hundred. This was an even newer format, with a different way of counting the overs, but the same concept. It was widened out into an entertainment format at the venue and created an equal competition for women to run alongside. It also for the first time used city franchises rather than the traditional county structure on which the game has traditionally been based.
These are examples of format changes that came from within the ossified, ponderous, heavily governed Sports National Governing Bodies.
Tennis found that it could not innovate from inside. It had to be stimulated by external actors to create new formats, and the end result is that these are competing with rather than complementing tennis. These are Padel which is huge in Southern Europe and Scandinavia. The second is Pickleball, which came out of the USA. Both are double games, played largely indoors on smaller courts with underarm serving and they have spread the franchise of tennis. In fact, many tennis clubs are now trying to embrace Padel, and incorporating Padel courts into existing clubs as part of the offer.
Innovation in Rugby League
Let me turn to Rugby League and consider innovation. The sport is 129 years old. Originally, it was a breakaway from the old RFU in 1895, as the Northern Union clubs were in dispute over their ability to pay their players. Already, it changed to create a point of difference, the main one being the number of players and other changes to scoring, the numbering of the players, and other technical changes all emerged over the years.
The biggest innovation was not to the format or the Rules. It was to when in the year the game was played. In 1996, as part of a bumper new TV deal with SKY, Rugby League changed from a winter sport to a summer sport. Instead of the season being from September to June, it moved to a February to October season. This allowed games to be played on dryer pitches, with more daylight and warmer conditions. It transformed attendances, the skills of the athletes as well as the broadcast interest.
Fast forward 25 years, and broadcast revenues have now plateaued, crowds are struggling, costs have gone up and income is tight.
One of the few levers we had to make strategic change was how we are governed, and so we made changes that are unique in sport and have aided decision making.
We created a new commercial JV, Ruby League Commercial, to exploit ALL of the games commercial assets, rather than them being split between Super League and the RFL. The idea is that all boats rise together. The revenue from all assets is divided amongst the games’ stakeholders in accordance with a fixed formula. RL Commercial also entered into a long term commercial partnership with IMG to drive the revenue of the game and to support the digitalisation and revenue diversification of the sport.
On IMG’s advice, we have moved to a grading system whereby participation in the top division – the Super League – would be determined on the points scored through grading – where on pitch performance is one of 4 pillars – including fandom, finance, stadium facilities and community. These are perhaps not quite innovations, but a radical change to secure our future.
SIS
The other company that I chair, SIS, is over 30 years old.
It is a private company, owned by bookmakers and two financial shareholders , and was originally set up to licence and supply pictures, commentary and betting data relating to horseracing and greyhounds to UK betting shops. It was a monopoly provider at the start and it threw off huge dividends in the early years for the bookmakers.Over the years it widened the number of races it offered from around the world and supplied to bookmakers worldwide. As digital operators sprang up, they became customers too.
Originally it was monopoly – and remains subject to an OFT ruling on conflicts of interest around the Board table. Of course, over the years, there a developed a competitive market.
In 2018, seeing a horse racing market that was declining and where profits were reducing , – high turnover, low margin and declining, our CEO realised that for the company to have a profitable future, it needed to innovate and add new revenue streams.
We came up with competitive gaming – betting on E Sports. We created a product called the H2H Global Gaming League.
It is part of our new Competitive Gaming option. It offers the opportunity to bet on E Sports basketball and football games. We have real players, competitively matched, with referees overseeing each match for integrity. We offer pre match and in play betting markets.
It is now licensed in 10 States in the USA and all over the world and is a product mainly designed for online bookmakers but is also capable of being put on digital terminals in retail establishments. It has the potential to massively extend the betting market.
It provides regular content, with multiple streams of content allowing for multiple betting markets and trading options. We have the same integrity elements carried over from our HR and Greyhounds coverage to provide comfort to operators. As a result, it is licensed worldwide. We are finding now that our bookmakers and sports books customers are putting our content alongside the betting markets that they offer on the actual sport. As a product in the P&L it is currently relatively low turnover, but profitable and growing.
So, this is an example of a company pivoting its business, using an innovative product to make a strategic shift in the company’s direction.
It opens up new opportunities for us as to create shareholder value and has the potential to transform the company.
Conclusion
You will determine if any of what I have shared falls into your definition of strategic innovation.
But I hope I have shown how even the oldest, most complex and moribund companies can innovate and create strategic change.
