Intralot blogInnovating in heavily regulated markets – The lottery case

* Article of Christos Dimitriadis, Intralot Group Head of Information Security, Compliance and Innovation, at iGaming Business.

Innovation has always been considered as a tool towards success, especially within an era of increasingly advancing business, social, and economical environments. According to the Oxford dictionary, to innovate is “to make changes in something established, especially by introducing new methods, ideas, or products”.[1] In business terms, innovation is the “process of translating an idea or invention into a good or service that creates value or for which customers will pay”.[2]

A primary enabler of business innovation nowadays is Information Technology (IT). IT has transformed many industries by providing the tools to innovate. Mobile devices and social networking have introduced new trends and habits changing the way people communicate, get informed and conduct transactions. They have also provided the means to enterprises for changing their marketing approaches and for doing business, not only by acting as channels for approaching potential customers but because consumers have become more informed through the networks they have built. Cloud Computing, the Internet of Things and Big Data act as disruptive innovation tools opening new markets and creating new business models.

While many focus on IT, some may claim that technology is not the right starting point for innovation. Innovation has always been about ‘thinking outside the box’, but before one manages to achieve that, one has to gain a deep insight on the target market and then identify the means to achieve innovation, whether this is technology, a strategic partnership, a process reengineering or a structural change.

The lottery industry

The multi-billion-dollar lottery industry is a growing and heavily regulated sector. According to the World Lottery Association, growth in global lottery sales for Q1 to Q3, 2013 has been calculated at 4.7 percent.[3] Moreover, lottery sales are being driven by retail/traditional channels, while many opportunities reside in the opening of the Internet gaming market in major jurisdictions like the USA.[4]

The industry is closely coupled with social responsibility. It is within the nature of the industry to be heavily regulated in order to protect public interests, ensuring that revenues collected through selling participation in games of chance are appropriately redistributed to players and the society for good causes.

Within that scope, it is the licensee’s compliance obligation to ensure that the games are fair, integral and transparent, are being provided through the channels permitted by law, and are being offered under well communicated rules to players. Forward to ensuring player trust, key success factors for securing the sustainability of the lottery sector are the attractiveness of the games and the retaining of a healthy customer base, preventing addiction through responsible gaming. Taking into account that innovation is an unstructured process that requires a level of freedom and that regulation usually lags behind innovation, the question is: how does innovation work in the lottery sector?

Creating an innovation framework

There are many methodologies and approaches that can be combined towards creating an innovation framework that supports the execution of the strategy of an enterprise. For example, the framework created by INTRALOT Innovation Labs targets providing state-of-the-art products and services to its customers, improving the gaming experience of players, while simultaneously developing internal operations. It adopts the Design Thinking Innovation Process and incorporates the establishment of an innovation culture.

Establishing an innovation culture requires the definition of innovation for the specific enterprise, the provision of freedom for the internal exchange of ideas and the establishment of the appropriate communication channels for the external exchange of ideas with partner organisations. Lotteries in each jurisdiction have the best understanding of the market in the country they operate. This expertise, in combination with the international experience of lottery system vendors and service providers, is key for addressing the basic innovation challenges. As explained in MIT’s webinar Systematic Innovation by Design,[5] Design Thinking consists of three phases: Explore, Create, Implement, while the three basic innovation challenges that should be balanced through the process of design thinking are:  Desirability, Viability and Feasibility.

Achieving desirability requires the understanding of the needs of player groups per jurisdiction. Market research and data analysis are important in order to make concrete predictions. The designer has to take into account several parameters related to player behaviour and expectations, societal culture and interests, religion, market trends, player experience per channel, etc. For example, creating Internet games has to address the need of the players to be able to play, get informed, communicate and manage their accounts anytime and anywhere in a platform and channel (Internet, mobile or retail) agnostic manner. This universal gaming need corresponds to the modern lifestyle and cannot be ignored.

Business viability is important for ensuring that an innovative idea can be sustained throughout the period it is designed for. For example, creating a novel lottery game must take into account the business strategy of the lottery, ensuring appropriate revenue streams for the lottery to be able to fulfil its purposes and return contributions to players and the society.

Feasibility relates to technology, but in the lottery sector especially, it relates to compliance with licence provisions. Tablet computers, for example, are part of our everyday lives. When it comes to compliance, in a number of jurisdictions playing over the Internet is prohibited.

In that case, innovation can be achieved through applying state-of-the-art technology in retail for transforming the player experience. Gaming tablets in retail shops create an interactive environment, engaging with the player, sharing content and providing a familiar modern interface. Security-enabled wireless protocols that confine playing within a retail store, also permitting the player to access her/his account history over the Internet, could also address compliance concerns in certain jurisdictions. Balancing the three innovation challenges is crucial, and Design Thinking through its phases can provide the answers. The first phase of Design Thinking (explore) is about understanding the needs; and as previously described, collaboration is key for identifying all the different perspectives and points of view.

Technology is also key in assisting decision making. As Herbert A. Simon [6] said, “Wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it”. Information technology acts as an enabler in this phase by providing clarity through the analysis of huge datasets. Most importantly, since each lottery knows its customers best, the exploration phase requires strong interaction between the game vendor who can provide the international experience and the lottery sales, gaming and marketing departments.

The second phase (creation) regards the design of several solutions based on the results of exploration. What differentiates this from common design approaches is that innovation can be born through the combination of several different design alternatives. Collaboration and the existence of an innovation culture are crucial for this phase, but again, this phase must not be perceived as solely technological. Partnerships, the use of existing technologies rather than the creation of a new one, and the use of social networks in which players already participate in, are some of the alternatives that a designer could consider towards innovation.

For example, as explained, lotteries have a very strong social responsibility nature, and thus, they are heavily regulated. At the same time, according to P. Kotler [7], marketing has evolved from “selling products” to being “customer-centric”, and nowadays to being “human-centric”, addressing the need of consumers to contribute to the creation of value. Having identified this need during the exploration phase, a designer could create a collaborative environment for players to design games themselves that are both fun and serve a cause or use existing technologies like NFC in mobile phones in order to establish a paperless lottery which is more environmentally friendly and matches the modern lifestyle.

The final phase (implementation) is about turning design into a product, dealing with all the technical, business, compliance, responsible gaming and marketing aspects in detail.

Conclusions

The lottery industry operates under strict compliance rules, offering games of chance for a cause over retail and Internet channels. The modern lifestyle has become more virtual, while Internet habits are being adopted in retail as well, creating a blended environment.

Compliance requires square thinking, strict interpretation of the rules and appropriate governance for minimizing risk. Innovation requires freedom, ‘thinking outside the box’. However, lotteries innovate; proving that compliance is not opposing innovation if the latter is structured through the appropriate framework. After all, the lottery industry is well trained in managing risk. It would be difficult to accept the risk of not innovating.

 

Christos K. Dimitriadis, PhD, CISA, CISM, CRISC, is Group Head of Information Security,  Compliance and Innovation of Intralot. Dimitriadis is also Director of the International BoD of ISACA, Chair of the Knowledge Board and member of the Strategic Advisory Council. He is a member of the Permanent Stakeholders Group (PSG) of the European Network and Information Security Agency (ENISA).

[1] http://www.oxforddictionaries.com/definition/english/innovate
[2] http://www.businessdictionary.com/definition/innovation.html
[3] http://world-lotteries.org
[4] http://btlj.org/2013/04/22/online-gambling-in-america/
[5] http://executive.mit.edu/mysloan/links/detail/?url=http%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3D7l2Am-SUAjw
[6] Simon, H. A. (1971) “Designing Organizations for an Information-Rich World” in: Martin Greenberger, Computers, Communication, and the Public Interest, Baltimore. MD: The Johns Hopkins Press. pp. 40–41
[7] Kotler, P., Kartajaya, H., Setiawan, I.:Marketing 3.0: From Products to Customers to the Human Spirit

Tags: , , , , , , , ,





Leave a Reply

Your email address will not be published. Required fields are marked *

*  

  

Current ye@r *