Harrah’s Entertainment Service Management Harrah’s Entertainment

The Loyalty Effect... A consulting study of a trucking company showed that reducing driver turnover 50% could increase profits by 50% A study of brokerage companies showed that increasing broker retention by 10% increased broker value by 155%. A study of retail stores showed that stores in the top third of employee retention were also in the top third in productivity with 22% higher sales per employee. Fast food stores with low turnover had profit margins 50 % higher than stores with high turnover.

Why Long-Term Employees Create Value Training: Wages paid during the training period yield little or no return. For long-term employees, training becomes a net benefit. Efficiency: Long-term employees are more efficient, require less supervision, and may be more motivated. Customers: Loyal employees are better at identifying, serving, and retaining the best customers. They are often a major source customer referrals. Employee Referral: Long-term employees often generate the best flow of high-caliber job applicants.

Financial Rewards Harrah’s Gainsharing: max $300/quarter, $1,200/year 5% of the lowest level of annual wages More symbolic than remunerative

Financial Rewards—獎金 「年終獎金」 “When using bonuses, the employer must be careful that workers don’t come to view annual bonuses as entitlements. This is particularly true when bonuses serve simply to bring total compensation up to or near market standards.” (Baron and Kreps, 1999)

Measuring Customer Satisfaction Customer satisfaction = profit? Customer satisfaction depends on How the customer does at the gaming tables How the customers can isolate their feelings concerning a PARTICULAR department The survey itself becomes wearisome for customers—purposefully downgrade the service?

Aligning HR Policy with Company Strategy— Customer-obsessed Strategy Previous HR practice: Concentrated on recruiting top executives and structuring their compensation Not with front line employees and supervisors Service Profit Chain—Building loyal customer-base by improving employee retention and by restructuring promotion and hiring criteria

Aligning HR Policy with Company Strategy— “Quick Quits” Program Resistance to Quit within the first three months of accepting a job at Harrah’s Why? Boost average employee tenure (which was an important element in increasing customer satisfaction) A quick quit points to an obvious failure in management (a bad hiring decision?) Improving communication between frontline supervisors and HR

Aligning HR Policy with Company Strategy— “Quick Quits” Program (cont’d) Better selection procedures Standardized tests; structured interviews Adding a realistic job preview to the selection procedure Doing post-hiring interviews “No one quits until we make sure there’s nothing we can do better to keep them. If they are unhappy, we try to save them, move them to another role.”

Aligning HR Policy with Company Strategy— Better selection and promotion system Potential problems Weakening the internal labor market: MBAs vs. positions require considerable firm specific skills and knowledge Changes in managerial influence Objective assessment exams took the promotion decision out of the hands of managers, taking away an important influence and political tool Increased data Tests created a tremendous amount of data

A More Adaptive Culture? Coaching—testing replaces managerial power from promotion decision; subordinates would seek managers for coaching Communication and participation—supervisors were evaluated by employee satisfaction Measurement—using objective tests and numbers

“Managers tell me that they recognize that they are evaluated differently in other ways too. They would say ‘I get heat if I have too much turnover. I made my employees take training seriously. I have to create an action plan if I get negative feedback from my direct reports. I have to make sure I hire using assessment tests even if I hate the tests.” —Marilyn Winn

Why “Customer Loyalty” Matters? Writing off acquisition costs over a longer period Growth in per-customer revenue Reduced operating costs Increased customers through referrals Premium pricing

Why “Customer Loyalty” Matters? Net present value of retention rate among industries: Software: 5% increase in retention rates 35% customer net present value Advertising: 5% increase in retention rates 95 % increase in NPV Frederick F. Reichheld (1996), The Loyalty Effect

Linking Marketing and HR: Service Profit Chain

Virtuous Cycle Derived from the Service Profit Chain