Diamonds in the Data Mine

When Gary Loveman became Harrah’s COO in 1998, he implemented an evidence-based model of management where they used data collected from customers to develop new marketing strategies to enhance their bottom line.  Loveman created a culture where ideas were to be tested against the data before implementation. 

Their approach:

1. Obtain customer data

2. Analyze data to develop marketing strategies

3. Use life-time value to identify core customers

4. Gather specific information about customers and then use that data to create strategies/promotions to appeal to them

5. Reward employees for making customer service a priority

This approach of using data to develop strategies enabled Harrah’s to implement several successful changes outlined in the last blog post on Loveman’s role in taking Harrah’s to a new level.  The data collected through newly developed techonologies (which Harrah’s eventually patented), provided hard evidence for Loveman to base decisions on rather than using popular management theories or trying to mimic their competition.  This proved to be a very successful strategy for Harrah’s, and an effective leadership style for Loveman. 

Thus, Harrah’s is a case where evidence-based management was used and proved to be effective for their organization.  This article also illustrates how data mining can be an effective tool when used properly (i.e. letting the data tell the story rather than using the data to prove the story you’ve already created).

Loveman and Harrah’s…A Winning Pair

Phil Satre, the former CEO of Harrah’s was no stranger to making bold moves during his time at Harrah’s.   In the 1990s, while other casinos in the Vegas area were trying to  make their properties as big and outrageous as possible, Satre took a different approach in expanding Harrah’s casinoes into 10 states.  Similarly, in 1998 Satre decided to make another bold and risky move when he decided to hire Gary Loveman, an associate professor at Harvard Business School, to be Harrah’s COO. 

Loveman began developing a relationship with Harrah’s and Satre over the years as a service management consultant.  Through thee interactions, Satre saw something in Loveman that made him decide to offer him a position before even consulting with any of his stakeholders.  Loveman had the leadership skills and marketing know-how that Satre was looking for even though he didn’t have the practical management experience in the casino industry.  Nonetheless, Loveman took the job and made some critical moves within Harrah’s, which proved to be a great success.

During Loveman’s initial period at Harrah’s, he implemented several changes regarding Harrah’s employees and customers.  In order to generate a more loyal customer base, Loveman took advantage of the rich data Harrah’s had collected over the years regarding their customers.  The data was mined (evaluated and tested) to understand Harrah’s customer base, and develop marketing strategies that were relevant to the customers they had, wanted, and wanted to sustain.  In addition, Loveman created a tiered rewards program that openly showed customers distinctions between the service levels of the tiers in order to tap into the customers’ desire to try to achieve a higher loyalty level.

Also, Loveman made several changes for/to employees in order to ensure Harrah’s had the right people on board to not only fit within the culture they were trying to create, but also to ensure employees were providing a high level of service to customers to promote customer loyalty.  For example, Loveman created a bonus incentive program for the employees based on customer service ratings for teams who had high ranking scores.  What is great about this incentive program is that it promoted teamwork rather than promoting individual competition and employees could receive these bonuses even if their hotel did not have outstanding sales figures.  Another move Loveman made regarding employees was not only to make sure they were hiring people based on the “right fit,” but they also turned positions into a meritocracy.  Loveman believed that noone owned their positions, they had to work for them instead of allowing people to move into and stay in positions based on tenure and then become so comfortable (lazy) in those positions that they were no longer effective.

I think Loveman understood that its employees were its competitive advantage and he made sure they had the training and technology necessary to keep the employees happy, which trickled down to Harrah’s customers and was evident in Harrah’s more profitable bottom line.

The challenge for Loveman in the future is to sustain this success.  I think loyalty goes a long way when it comes to customers and employees.  If Loveman continues to treat its employees well, it will continue to help their bottom line, especially in times of recession when people are more concerned about where they spend their money.  Specific corporate culture is harder to replicate, which is why it has the capability of ensuring a sustainable competitive advantage.

Good to Great…Not so Much

In “Good to Great, or Just Good,” authors Bruce Niendorf and Kristine Beck evaluate Jim Collins’ book, Good to Great.  Although Good to Great was touted as being a great business book, Niendork and Beck point out that the book is based on false assumptions due to two fatal research errors: data mining and confusing association and causation amongst the five commonalities of success Collins finds in the chosen 11 firms. 

Rather than deriving the theory from the data, as Collins had intended, the authors assert that Collins’ use of data mining provided five random patterns among the 11 firms, but did not actually test that data against other firms to see if these are in fact determinants of success or just coincidence. 

In addition, although Collins attributes the five characteristics as being the cause of success at the 11 firms, he does not provide adequate research to do so.  According to Niendorf and Beck, it is unclear whether the success of the firms allowed these 5 characteristics or vice versa.  Thus, one cannot assume that this was the cause of success or rather a symptom of success.

It is interesting that even with these flaws, the book became a success amongst high profile managers.  Perhaps this goes back to my point in my previous blog regarding evidence-based management where managers/organizations try to find one-size fits all solutions to success.  Rather than reading a pop-culture book about management that provides solutions with no real evidence and take it at face value, managers would benefit more from seeking the knowledge ad then evaluating it to see the logic about whether these solutions really worked for the 11 firms, and more importantly, if it would work for their firm.  Managers also need to question whether there are companies who have these characteristics who may not be successful.  It is important to continuously work toward gaining knowledge, but if we do not question where the information came from, how it worked, why it worked, etc. then we are setting ourselves up for failure.

Evidence-Based Management

In HBS article, “Evidence-Based Management,” Jeffrey Pfeffer and Robert I. Sutton explore how the practice of evidence-based medicine makes sense for managers in organization to utilize as well.  Often organizations and managers look for one-size fits all approaches to drive success within their organization, when in reality this type of practice makes little sense.  What works for a large multi-national corporation may not work for a small start-up business operating locally. 

Pfeffer and Sutton assert that under this model, managers can be more effective by seeking out new knowledge and evidence gathered from research performed inside and/or outside of their companies and using that knowledge to update their assumptions, skills, etc.  What I think is most critical about this statement is to look inside and outside one’s company.  Managers should ask themselves if the type of action/methodology they want to take is actually applicable to their company. 

When companies try to mimic the success of their competitors, they often fail to pinpoint the actual reason(s) for that success.  Generally the company will find answers on the surface when digging deeper would reveal much more.  Pfeffer and Sutton give some examples such as United trying to imitate Southwest’s success in the California market or companies who tried to emulate GE’s ranking system only to find that it had the opposite effect on their organization.  If managers at these organizations had further evaluated the solutions and asked questions about whether their organizations were similar enough for it to work and what the solution’s success rate may have been at various companies, they would have seen that one-size fits all solutions do not exist.

The Dangers of Groupthink

CBC News Online article, “United States Senate Select Committee on Intelligence: report on pre-Iraq war intelligence,” highlights the detrimental outcomes of groupthink mentality.  In this particular case, groupthink amongst top governmental agencies resulted in deciding to wage a war against Iraq. 

Groupthink occurs when teams or agencies have such a high level of trust/cohesion that rather than thinking through and/or challenging assumptions, everyone just goes with the flow whether there is sound evidence for that decision or not.  I think it is easy to fall into this type of mentality not just because of a high level of cohesion, but also perhaps laziness, and a fear of being the outsider. 

Often times when we have tough decisions to make that involve input from several people or groups, it can take quite a bit of time.  In order to avoid the hassle and time commitment, it may be easier to go along with what may be perceived as a group consensus.  While a consensus approach may sound more politically correct, it leads to poor decision making that neglects thoroughly analyzing assumptions and conclusions from different angles that multiple viewpoints provide.

These types of open discussions where members of the group(s) can analyze and question each other must be encouraged from the top down, which was not the case in this article.  Intelligence Community managers did not encourage their employees to challenge their assumptions, which proved to be a big mistake.  Managers should encourage their employees to embrace conflict and to question assumptions and outcomes in order to reach the best possible solution for the issue/problem even if it wasn’t reached through a consensus.

Strategies of Effective Team Leaders

The article “Strategies of Effective New Product Team Leaders,” by Avan R. Jassawalla and Hemant C. Sashittal, explores strategies of effective new product Team Leaders.  One of the aspects of the article that I appreciate most is that it points out that it is the change in behaviors of the Leaders from the top down in reaction to the environment that prove to be most effective in developing new strategies. 

Communication is key to successful new product development, this includes sharing information, but also learning from each other, the situation, and the environment.  Although product development is usually housed within the R&D department, the process could be accelerated by encouraging all functional groups to work together and share information, as well as making everyone accountable for the outcome.  The role of the Team Leader in all of this is to facilitate the communication/collaboration and learning process.  When all teams involved are able to have input AND are held accountable for their input, the process is filled with more creativity and expertise in all areas.

In order to ensure this collaborative process with the Team Leader as the facilitator, Senior Management must groom/select Team Leaders and then give them a high level of autonomy to ensure commitment of team members, build transparency within the teams, fuction as faciltators, strengthen human relations amongst employees, and foster learning.  In addition, Senior Management must encourage and support the process even if it involves a high level of risk and time in order to accomplish effective new product development.  This is especially hard in companies that feel pressure of shareholders for that bottom line because we’ve become so accustomed to quick fixes (gains), but long-term vision is necessary for success and sustainability of companies.

Sins of Commission

Jeffery Pfeffer’s excerpt, “Sins of Commission: Be Careful What You Pay For, You May Get It,” shows how commission/money incentive based systems do not work in the real world.  Time and time again these systems prove to go awry and end up costing more than they’re worth.  Money is a short-term motivator, it’s time for companies to think beyond that and work toward long-term solutions to employee satisfaction, which leads to a more efficient and effective workforce. 

Pfeffer uses several examples of failed programs that use money to incentivize their workforce.  One example is incentive pay for teachers, where student test scores on standardized exams are used to determine a teacher’s effectiveness.  Studies have shown that the easiest way for a teacher to obtain the incentive pay and prove that they are performing their job up to standards is to provide questions and/or answers to test questions beforehand.  This system not only cheats the teachers, but it cheats the students as well of truly learning the material.

One might suggest taking all of these corner cutting methods into account when developing incentive programs, but that is unrealistic.  One cannot predict all of the ways people might skirt the system in order to receive the prize, but as Pfeffer points out, the whole point of incentive systems is to simplify things.  When we start making them so complicated that not even the people who create them can remember all of the rules, what is the point? 

Why do companies have such a hard time getting to the root cause of problems?  It seems that we’ve become so accustomed to quick fixes that that’s all that we do these days, and quite often we even need a fix for the fix.  Companies need to move away from immediate gratification solutions and work toward finding ways to make employees happy without monetary incentives (because let’s face it, will it ever really be enough?).  Why is money the best we can come up with?  Work environment and solid leadership can make a world of a difference in motivating employees to perform their job to meet/exceed expectations.