Tuesday, June 12, 2007

The Value of Data

Sometimes we forget that our current knowledge base is built on previous work of some excellent minds. I am reminded of an article in the May, 2003 issue of the Harvard Business Review entitled "Diamonds in the Data Mine" that was written by Gary Loveman. Gary was a professor at the Harvard Business School and after some consulting took over the job of CEO for Harrah's Enterainment. Since becoming the CEO of Harrahs Gary has dramatically increased the value of the corporation. That translates into having the best financial performance among all the casinos in the US entertainment industry. For example when the local market in Laughlin, Nevada increased only 1% in 2002, Harrah's Laughlin property recorded a 14% gain in revenues.

Gary's secret was to change the focus of the business from getting the most out of a customer during a visit to a new focus of persuading customers to return. This was done very methodically by mining the vast database of customer information and using that information to develop compelling customer incentives and then focus on superior customer service. At Harrahs good customer service is a daily routine. One rule that Gary implemented (and which is often the first rule broken by many businesses) is that meeting budget at the expense of service is a very bad idea. His rule is that if you are not making your numbers you don't cut back on staff.

Gary also implemented a bonus system that was NOT based on profits. It was based on a score-driven customer satisfaction measurement. The bonus plan was aimed at hourly workers and provided them with extra cash for achieving improved customer satisfaction scores. If the overall rating rose 3% or more, each employee could earn $75 to $200. Since its inception, the reward program has paid out more than $43 million in bonuses. The key is that the reward is based on the overall score so that it depends on everyone's performance. Hence, a property could achieve high profits but miss a bonus because their customer satisfaction scores were mediocre.

The bottom line is that mining data will provide the insight into how to differentiate a brand from the competition. Understanding customer characteristics is the first step in building a successful business strategy that will be successful against the competition. Gary closes with his tactic that Harrahs will just keep drilling into the customer data and making sure the regular customers are more than satisfied. Seems obvious!

2 comments:

Paul Schwartz said...

Dr B.

Thanks for presenting the Harrah's case study. It's a great example of how the proper customer focus can really improve a business. It appears that Harrah's had the right staff in place to go from "getting the most out of a customer during a visit" to "persuading customers to return."

In my client work in financial services it has often been a challenge to get staff to go from "order takers" to "advisors" or "customer advocates." Do you have any thoughts on how one can determine if the current staff is the right staff to implement a change in customer strategy prior to making a huge investment in the change?

Great blog - thanks!

Paul Schwartz
www.customeru.net

Dr. B said...

Paul,
Sorry, I missed seeing your comment until today. I will get back to yuo next week with some ideas.

 

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