Jack Boehm, new Director of the Colorado Lottery, talks about the many changes he’s making at the Lottery

Mark Jason, Public Gaming: Your lottery experience is extensive. How many years have you been in the industry?

Jack Boehm: I started seriously in the business around 1983, when I went to work for Syntech International, Inc., as Director of Operations for the Michigan Lottery online gaming contract.

In that time, you’ve served in many capacities, from Deputy Director and managerial consultant to Director of Operations for a branch of GTECH. What do you regard as your most significant accomplishment in the industry?

J. Boehm: I think the most significant accomplishment was in launching the Minnesota Lottery in 1989, and doing something no other lottery had done up to that time. We launched with a full capability to validate instant tickets at the retailer level from the start. We used an automated system with bar codes. We were the first state to come up with fully functioning systems through which retailer could validate through the use of bar codes and a dial-up terminal feed that came into our central system in Roseville, Minnesota.

How were tickets validated prior to that time?

J. Boehm: Primarily on the basis of a visual examination and inspection of the ticket by retailers. That’s why there are retailer codes printed on the ticket. Those continue to be printed on the ticket today, even though it’s not used as much in validation anymore.

Security is becoming an increasingly important issue. Is there a way, today, to automatically validate instant tickets and online games, and show the amount won, without involving the retailer?

J. Boehm: You’d have to modify the terminal extensively to display that information. It would probably be very similar to the way Grocery Store cash registers display the information on your purchases. That type of capability would have to be built into the gaming terminal. Right now it’s not there. The display is a fairly simplistic one. In Colorado, the display does tell if the ticket is a winner, but does not display the amount. We also have an audio statement made by the terminal, one that retailers cannot turn off.

In the press release announcing the change in logo, you say the new logo represents “a new era that will herald in new technology, new games and a new approach to branding.” Each of these areas is worth exploring. Let’s start with new technology.

J. Boehm: When I came to the Colorado Lottery a little over a year ago, the Lottery back-office was operating their system on a Wang computer platform. That technology was the same technology the Lottery started with 25 years ago. It was a decent platform back in the 1970s. The software is dated, the operating system is dated. Just the physical aspects of the system are dated. Its capacity is limited.  The Lottery could not launch a new online game, because the system didn’t have the capacity to handle it. So, while our online vendor, Scientific Games, could provide us with say a three-digit game, the back-office system couldn’t handle it.

All the information from the central system feeds back to the back-office system, which validates all the data. This ensures that we’re in balance, the right numbers of tickets have been accounted for, and the liabilities for the game have been properly accounted for. 

We’re in the process of upgrading the system. The Lottery had been working on this for six years. They had estimated that it would take roughly 80,000 man-hours to replace the Wang, re-write the programs and so forth. They hadn’t really gotten anything accomplished in the six years of planning, etc. The other problem that they had was a very contentious situation with the online vendor.

When I came in, I began the process by telling everyone that we were going to pretend that this was a new lottery. You can’t spend the amount of money that we’re talking about, close to $8 million, to rewrite programs with the Wang system as a base. We were better off completely overhauling the entire system.  This made sense because of what was available in the outside market, which I was very familiar with. 

I got a consulting company to review the entire back office system, with an eye toward finding best practices from an overall business perspective. They reviewed what other lotteries were doing as well as what other similar businesses were doing. That study took 10 to 12 weeks. One of the products from that was a document we could use to develop an RFP for the back office system. That was finished on June 30 of 2008. We put the RFP out in August, selected the winning vendor in September, and contracted with them in October for a full replacement of the back-office system. They’re using a system called “CLASS”. It’s marketed by a company out of Arizona called TB Consulting, which was formed by a group of ex-Andersen Consulting (Accenture) partners. These were the same individuals who helped me launch the ACCLAIMS system in Minnesota. 

Don’t the vendors’ central systems perform a lot of the functions you’re referring to with the ‘back-office system’?

J. Boehm: They do to some extent, but the problem is that it costs too much. They take a percentage of sales to provide these functions. This was one of the areas that the consultants identified for us. We asked them to review the costs of outsourcing versus in-house. What they came back with was that it could be done for about half the costs if done internally, by the lottery itself. 

So your internal system will, when up and running, perform many of the functions that vendors’ central systems perform in other lotteries?

J. Boehm: Well, yes only in the sense of the back office functions.  The target date for operation is May of this year. The Scientific Games contract will still be on a percentage-of-sale basis, but it will be a smaller percentage. We’re in the process of negotiating a new contract now.  But, remember that SGI will still do all of the on line gaming functions and processes.

Do you see technology changes out in the field as well, at retail locations?

J. Boehm: From the perspective of the industry as a whole, suppliers are going to have to come up with a better terminal. The focus is going to have to be making the product available at a check-out station rather than at a customer-service station. The industry has tried several different devices. I know there are some out there being marketed today. There needs to be a marriage between the cash register and the lottery terminal. When that happens, it will make handling the product much easier for the retailer.  Instant ticket vending machines have taken a major step forward in simplifying retailer ticket handling costs.

What exact needs would you see that technology addressing? Possibly removing the clerk from the process?

J. Boehm: That’s one possibility. The player-activated terminal has been on the market for a number of years, and has never really been well accepted in the customer environment. While some locations do extremely well with it, most locations average $1200 to $1500 a week in sales. That’s not enough to support the cost of the terminal with that functionality. Sales have to be up in the $2000 to $2500 area to pay for the cost of the machine.

Now I’m not talking about ITVMs. Most of those don’t sell the online games, just the instants. There are a few that sell both. What’s happening is that instant ticket vendors are coming up with ways to integrate regular retail terminals that sell online games through their ITVM. Both INTRALOT and GTECH have machines that are married in that fashion. But those are expensive machines, anywhere from $18,000 to $25,000 per unit.  You have to achieve a significant amount of sales per week at a retailer location to justify that cost.

How many retailers have you got in Colorado?

J. Boehm: About 2,900. Now, you wouldn’t put these machines in all retail locations. You wouldn’t put one into a convenience store, the counter of which is already set up to distribute lottery instant games. There would be locations that would do well with player-activated terminals, though.

Any other types of technology changes on the horizon that you believe will make a big impact?

J. Boehm: Certainly the use of the Internet and associated devices has yet to be fully explored. I think both the law and technology have to progress some before we as an industry can really explore this, though.

Colorado had a subscription program at one time, but has since dropped it. I think that is another opportunity to provide incremental sales.

But we are looking at another process, which is having players join together in pools. 

Would that be Internet-based?

J. Boehm: It could be, but it could also be initiated at the retailer level. For instance, when a player purchases a ticket, the clerk could ask if the player would like to get into a pool for an extra $1. For that extra dollar, you can join an anonymous pool of, say, ten players. The clerk would then hit a “POOL PLAY” key on the terminal and the terminal would print the players ticket with  ten quick-picks printed on the bottom of the ticket. If one of those hits, the player would win 1/10 of that prize amount.

Is this Pooling Plus?

J. Boehm: It’s that concept, yes. The reason that hasn’t been successful so far is that the online vendors will have nightmares trying to keep track of that. Their systems are set up on a one-to-one, one wager equals one win basis, a straight-forward prize amount. This would actually show a win to multiple tickets. It would cause confusion regarding how to program and keep track of it. It certainly can be done, with fairly minimal overhead, but it would mean software changes for the on-line vendors as well as our back office and ICS systems.

Technological changes just touch the surface of what I’ve tried to do here in Colorado, though. I found morale down somewhat, no five-year Strategic Business plan existed, and some other aspects that I believe are important attributes of a lottery weren’t here. I’ve initiated various plans and programs over the last year to address the many changes I believe needed to be made. So, when I talk about changing the brand and starting out anew, I really view this as starting the lottery all over again. The Lottery has done well, creating over $2 billion to beneficiaries in its 25 years. But there are other lotteries of similar size that generate that amount in a couple of years. We need to look at what other lotteries are doing and aggressively improve what we are doing.

I had three or four meetings with all the employees. In these meetings I stressed the way in which all employees viewed both the lottery in general and their jobs in particular.   

So your approach with the back-office system stretched to all aspects of the lottery, starting fresh with the question of what a lottery should be, questioning all aspects of the Lottery’s operation?

J. Boehm: Absolutely. We went through every one of our business functions, identifying 64 of them. These went from cashing and claiming a ticket to the pick-and-pack at the warehouse, to posting of general ledger accounts. Every process that we identified we then went back to the staff, communicating to them that they own the process. It is up to them to figure out how to make the process more efficient and more effective, to reduce the number of steps, to simplify. All of this is with a specific goal of automating wherever possible. We have cut literally thousands of hours needed to get things done from the processes that were in place. That’s the focus we’re in right now. We’ve just completed the review and rework of the last five processes. Now we’re going into the automation and implementation of the CLASS system armed with these simplified processes.  Remember, it makes no sense to automate a process that is overly complex and not simplified to that which is actually needed to achieve the overall goal or mission.

How did you identify these 64 processes?

J. Boehm: We began with the consultant’s study, which identified some 25 application areas. We then identified all the processes within those application areas. I can tell you right now that the Lottery’s employees have done an absolutely marvelous job of both identifying and simplifying the processes. The reaction of the people to the expectation of that they review the processes has been amazing. The excitement that they feel in owning and feeling a sense of both responsibility and authority over the processes has been critical in the success that we’ve had. They came up with idea after idea. We just turned them loose, and you could almost see them growing in place, in terms of their attitudes, their morale, and their leadership.

How many people have you got working at the Lottery?

J. Boehm: We have 120.

And I’m willing to bet many are long-term employees. Despite that, it doesn’t sound like you had much of a fight over revamping, radically changing the process?

J. Boehm: Some staff have been here since day one. And they completely embraced they entire process. It’s important to look at why that is. They had never been asked for their ideas or for process improvement. They had always been told what to do and how to do it. I threw all that out. I told them to think of each process, each job, as their own. I asked that they think of it as a business process. If it were your business, how would you do it? And make sure you have controls and security within the processes.

Let me guess: You had people flowcharting every step they took.

J. Boehm: You got it. Writing procedures and flowcharting. I can’t tell you how many grease board processes I saw them conducting in the conference room. They went through everything on the board, this step and that, lines going everywhere. I thought: “This is great. This is what change an organization is all about.”  We definitely were “moving the cheese”.

That must have been exciting for you, to have motivated them to work hard to improve their own efficiency.

J. Boehm: Absolutely exciting. I told them it’s not about me and what I’m doing or not doing; it’s about them and what they are doing. It’s just exciting to be a part of that, see how that’s come together. My next step was to start the Strategic Planning process.  We took time in August and went to all the groups. We asked each of the managers to pull their groups together and tell us what they believe our strategic plans should be over the next five years. They sat down and wrote so much stuff, provided so much input, that we then had to go into three sessions during August and September to break these down into workable groups. In October we staged a two-day offsite, got a facilitator involved, and built this input into four major goals. Within those goals, we set objectives. Within the objectives, we set strategies. Within the strategies we set action items. We put people’s names and dates on these action items. We sent that back out to the staff during an all-employee meeting in the first part of November as our Five year Strategic Business plan. The comments we got back all related to excitement at the vision of the future.     

So you’ve been there a year, the first four months of which as the COO was spent immersed in the technology and the second half as the Director immersed in people and processes.

J. Boehm: When I first came I stood in front of the entire staff at an all employee meeting and said we could do all of this in a year. Everyone looked at me and I could see they were laughing inside. I was told there is far too much bureaucracy, and no money. Well, with some creative arm twisting, we got the money, we wrote new contracts, and we are well on our way to getting it all done.

So when you refer to a ‘new approach to branding’ you’re really talking about overhauling the entire internal structure of the Lottery?

J. Boehm: The Colorado Lottery has a strong brand, a very positive image. Now we’re saying that we’re giving it a new look, that we’re going to accomplish a whole lot over the next couple of years. Like, launching new games and increasing aggressiveness on recruiting retailers. There are, for instance, 1700 plus retail liquor establishments in Colorado and roughly 350 sell lottery tickets.  I think this is an opportunity for growth of our retailer base. 

There has been a lot of discussion about adjusting the retail model in order to have access beyond C-stores. Is there any of that going on in Colorado?

J. Boehm: It’s in the strategic plan to review the retail model and see what improvements we can make. We will certainly carefully evaluate what other lotteries are doing in this regard. For instance, we are trying to do more work with both the Denver and the Colorado Springs airports. We’re looking right now at the way in which the Georgia Lottery has constructed an owned kiosk in the Atlanta Airport. We’re working with our retailer in the Denver Airport, the World Money Exchange. The owner really wants to expand. We’re trying to get her to expand the storefront so we can increase our presence there in all three of the major terminals, not just one. We’re even thinking of rewrapping our ITVM to make it look like an airplane.  

There’s a lot of talk about how to engage the ‘Millenial’ generation. What new games do you see on the horizon?

J. Boehm: I don’t see a lot of change in the traditional games that will achieve that goal. I think every lottery should have a three, four and five digit game, as well as an internal Lotto game. Going beyond that, we’re looking at a game called Match Play, which involves matching symbols and numbers on multiple lines. We’ve done enough study groups and research on it to know that players like the concept.

The central idea there would be to provide more play, more options?

J. Boehm: Yes. One of the other things we’re looking at is a Texas Hold-Em type game. The ticket would have two cards on it. The Lottery would draw three cards, and the player would have the option of bringing back his card and playing again, buying a second ticket which would effectively be the ‘turn card’. That would be drawn the next night. This game would be played over a number of nights, in a series of draws. This would be an online game.

We don’t have any restrictions in terms of doing a Keno game, monitor games. But, in order to do that we’re going to have to get political approval.

You’ve talked about things the Lottery could do but hasn’t yet, for instance with retailer expansion and Keno, or monitor games.  It seems as though you’re looking at many opportunities that arise because of what the Lottery hasn’t done in the past.

J. Boehm: We haven’t had a new online game in almost eight years. And we just began to offer twenty-four instant games to the market at one time. Prior to this point we’ve never offered more than eighteen instant games at any one time.

We instituted an incentive program for our field reps to recruit liquor stores and place more ITVM units at retail locations.

Is the Colorado Lottery a state agency?

J. Boehm: We are a division of the Department of Revenue.

Any final comments?

J. Boehm: We’ve covered a lot of ground here. But then again there’s been a lot going on in the last year. I’m kind of a no-nonsense kind of guy. Part of that goes back to my work in the industry, seeing different states, but that attitude also goes back to my work with American Express. That’s a no-nonsense organization. They expect you to build a strategic plan. They expect you can continually ask what you’d do if you owned the business. That’s the type of attitude I’ve been trying to build into the staff here. If you stop and ask that question, when you look at these processes with that viewpoint, that’s going to provide a strong indication of what you want to do. What will make things better, reduce costs? Pushing that attitude, which the people here at the Lottery have wholeheartedly embraced, is what makes this both fun and very successful.

One thing I should note is that I hired my replacement Chief Operating Officer from outside the industry. I wanted someone with a knowledge of best practices in business generally, a broad base of business experience outside of the lottery industry. The gentleman I found, JE Lewellen, has experience with EDS, General Motors, Big Eight accounting firms, and a history of installing major IT technology projects in Asia and all over the world. He’s a guy who’s going to bring a fresh look at the business, without the baggage of expectations and assumptions regarding how things have been done in the lottery industry.  My philosophy is from a leadership perspective you have to bring in new people now and then to keep the organization on their toes and moving forward with fresh ideas.  We have a great management team now and that will lead to great sales and revenues for the State of Colorado.