Case Study: How an outsider institutes change

The story
In 1998, Gary Loveman left teaching at Harvard Business School to take up the role of chief operating officer at Harrah’s Entertainment (now Caesars Entertainment), the US casino operator. Mr Loveman, who had earlier undertaken some consulting and training for Harrah’s, was offered the job by Phil Satre, the chief executive, who did not tell his board or other senior executives about the appointment beforehand.

The challenge
Mr Loveman faced resistance from senior, experienced leaders who thought they should have the job for which he seemed manifestly unqualified.

He had to gain credibility and support while leading Harrah’s transition to a more marketing-focused company that achieved better financial results. As Mr Loveman says, “in Las Vegas, you could go to a 40-year-old casino that looked like a riverboat or go a few blocks down the street and play the identical games at the Bellagio, one of the most beautiful properties in the world”.

The strategy
In order to overcome internal resistance, Mr Loveman initiated the following:
◈ He identified critical relationships that just had to work and spent time and effort with those people. One was the chief financial officer, a talented executive who thought he should have had the COO job. Mr Loveman spent time every day in the CFO’s office. He sought his advice on decisions, kept him informed about what he was doing and how things were going, and made sure he and other senior executives knew that if Harrah’s became more successful financially, their stock options would be worth much more.
◈ Any mistakes were admitted to Mr Satre and others straight away. This built trust.
◈ Mr Loveman stayed out of any operational details or areas, such as buildings, where he had no  special expertise.
◈ Harrah’s recruited new people who could help turn it into an analytical marketing organisation.
◈ Mr Loveman enthused people with his energy – intellectual and physical – when he visited casino locations and talked to employees at all levels.
◈ Mr Satre, a very popular figure in the company, used his social capital to help Mr Loveman gain credibility.

Mr Loveman also signalled that Harrah’s had to operate at a higher level of intensity. So executives held planning meetings at night and weekends to show that the company was being run differently.

He also made sure he explained what was required when he met people at all levels of the organisation: what each of them could do on their next eight-hour shift to increase the chances that a customer would come back more often.

Harrah’s rewarded employees whose units recorded higher levels of customer satisfaction, regardless of financial performance, to signal that customer focus mattered.

Underpinning all this, Harrah’s implemented data analytics so it could identify its best customers – it found that 26 per cent of visitors generated 82 per cent of revenues, for instance – and focus on making them feel special: this included making sure they did not wait in queues to check in, and that they were visited by chefs in the dining room.

The outcome
Harrah’s financial performance improved, with the stock price rising from about $16 when Mr Loveman initiated his changes to $90 when Harrah’s went private in a leveraged buyout in 2007. Mr Loveman became CEO in 2003 and is now regarded as one of the best executives in the gaming industry.

Key lessons
First, pay attention to relationships that matter, and build trust even among people who do not like you.

Second, focus on aspects where you can add value, and keep your agenda simple: Mr Loveman sometimes asks people to list the Ten Commandments in order to show that even 10 is a lot to remember and that performance comes from focusing on the few areas of a business that are actually key to its success.

Last, build an evidence-based decision-making culture, as conventional wisdom about what drives performance is often wrong.

- Financial Times, Feb 18. 2013