This week, a sporting story. However, stay with me because this is an illustration of a real life dilemma. I am a rugby fan – I even played the game a few years back. The Rugby World Cup just ended last week-end and New-Zealand retained its title and became the first team to retain the trophy. The New-Zealand team, the All Blacks, under coach Steve Hansen, have won 51 games out of the 54 they played, a 94.4% success ratio, including a 100% success ratio for the whole of 2013. At the same time, host England crashed out in the group stages of its own World Cup while my home country, France, nearly matched the ludicrous 2010 football team on and off the pitch. I am looking at the way rugby operates in these three countries to find key success factors and potential lessons for our personal and corporate world.
Let’s talk about money
A first caveat here is to compare the competition setups. France and England have strong clubs and a relative weak federation while in New-Zealand, clubs are weak and the federation is strong.
In New-Zealand, this implies that the federation contracts the top players and can decide how much exposure to the game it wished them to have. Obviously the Federation cocoons them so they are available in peak form and mindset for the National team. In France and England, broadly, the clubs contract the players – the Federation can just hope they are released in good form for the National Team. However, this is not the only difference. Take a look at the following table.
England rugby dwarfs its peers in terms of budget. This is explained for one third by the fact that the Federation owns the Twickenham stadium, the national 82,000 seater. It can derive from this asset large hospitality revenues. The Kiwi and French federations rent their stadia when the national team play, a less lucrative option.
What is interesting is seeing how revenues progress and how they are spent. England has been very strong at creating new commercial opportunities, with the Kiwis operating well while France has struggled markedly, not being able to capture revenues from the lack of popularity of the football team.
In terms of spending, running expenses are pretty matched – they include staff expenses and the costs to raise income (a big expense for England Rugby), at half the income generated. The difference is in the allocation of the other half. While New-Zealand bid the house on the top-level teams, as a window-display for its income raising operations, France, at the other hand, subsidies heavily grass-root rugby.
Real life strategic decisions
The French strategy is to sprinkle the wealth all over the territory, in order to achieve a wide base uplift in rugby skills. New-Zealand is clearly choosing to focus on a smaller but stronger elite, while accepting that the overall rugby level suffer (in real life, this is not true, as I suspect the educational system cross-subsidize rugby, lowering the expense for the Federation – if you can confirm this, I would be glad). Think of it as real life strategic decisions.
For instance, imagine that you are a manager at work, with a budget for raises for your team the next year. Will you spend it all on a few individuals, encouraging their contribution or will you share the budget with everyone? Or, think of education systems: should we offer a basic level of education, say up to 18years old but also select a few cleverer pupils and give them more support so they achieve more?
Ironically, France and England Rugby federations chose to level spending. In education, both countries chose exactly the opposite route via the Grammar schools and the Classes Préparatoires.
Currently, the elitist strategy of New-Zealand is rewarded by strong performance on and off the pitch. The French federation is in doldrums, unable to grow revenues that can be injected in high level teams. England had chosen to go neither way and therefore is lacking focus. It is even underperforming more relative to the French counterpart since its budget dwarfs its rivals. Until these two federations change course (read management), New-Zealand will continue to dominate World Rugby. At least, they play excitingly well.
As in the corporate world, a focus on well-funded small teams also look appropriate to outperform your rivals.