Taking the Gamble out of Business Intelligence: Lessons from Harrah’s Casino

With each new generation of software, the technology for implementing business intelligence is getting both more powerful and less expensive. If your organization is thinking about investing in business intelligence, consider the experience of Harrah’s casino. In a May 2003 Harvard Business Review article, Harrah’s CEO Gary Loveman describes how his gaming company reaped significant rewards through a strategy-driven business intelligence initiative.

Slicing the Dicing—The Harrah’s Business Intelligence Initiative

Harrah’s operates 26 casinos in 13 states and had revenue of $4 billion and net income of $235 million in 2002. Unlike its competitors, who build lavish casinos and derive a large percentage of their revenue from hotel rooms and restaurants, Harrah’s derives 87% of its revenues from its casino operations. Gary Loveman an MIT Ph.D. and former Harvard Business School professor, started as Harrah's COO in 1998 and became its CEO at the start of 2003.

Harrahs’s business intelligence success stemmed from a strategy-driven initiative. Loveman’s goal was to increase revenue by gaining a larger percentage of the gaming dollars of their customers. Based on customer focus groups, the company determined that its best customers only spent 36% of their gaming budget at Harrah’s. Loveman’s strategy was to increase this percentage through a combination of targeted incentives and better customer service.

To determine how to implement this strategy, Harrah’s analyzed its 300 gigabyte data warehouse. The data warehouse contains transaction data from Harrah’s player-card program, which has been in effect since 1997. Harrah’s customer’s swipe their “Total Rewards” card every time they play a slot machine. The card tracks their spending and provides incentives—free rooms, dinners, and chips. The data warehouse combines the transaction data with demographic and survey data collected from the customers.

Harrah’s “sliced the dicing” data to:

identify its best customers. They found that 26% of gamblers generated 82% of their revenue and that these customers were not the traditional ‘high-rollers.’ They were retirees and local workers who spent their discretionary time and income at the casinos.

run experiments to determine how to get these customers to spend more. They found that free chips worked better than free rooms or meals to get these customers to spend more.

create a three-tiered reward program—Gold, Platinum, and Diamond—based on the spending. Diamond customers got both better perks and better service, including separate lines at restaurants and check-in.

measure and reward employees based on customer satisfaction. All workers at each casino receive bonuses based on the casino’s customer satisfaction scores.

Cashing In The Chips—Lessons from Harrah’s

Both line and IT managers can learn from Harrah’s experience. Here are some key lessons:

Business intelligence initiatives can pay. While he did not mention ROI, Loveman noted that Harrah’s has experienced 16 straight quarters of same-store (casino) revenue growth. He attributes this record to the new strategy and the business intelligence initiative.
Data drives strategy. Harrah’s could not have implemented its customer-driven strategy without its Total Rewards program and its 300G data warehouse.
Strategy drives data. Harrah’s did not build an enterprise data warehouse. They focused their efforts on the customer data needed to implement its strategy.
Top management commitment is the key to success. Loveman’s knowledge of marketing and strategy and his application of “decision-science-based analytic tools” was the key to the project’s success.
Business intelligence data must be tied to execution and measurement. The data and analytic tools alone would not have led to success. Workers must provide excellent customer service so customers want to come back. Customer service results must be measured to continually improve.

In the past, business intelligence initiatives have often failed when IT managers take the “Field of Dreams” approach—“if you build it, they will come.” Loveman’s description of the Harrah’s experience shows that a focused, strategy-driven data warehouse can help your organization cash in on the diamonds in your data mine.