The old way of doing business wasn’t working for MGM Resorts International.
After growing rapidly through acquisitions during the early and mid-2000s, the hospitality company was a loosely connected group of resorts and properties when the recession of 2008 hit, with no common vision or strategy. The company’s revenue per available room at its Las Vegas strip resorts fell from $154 in 2007 to $96 in 2010 as the economic crisis took a heavy toll on the tourism industry.
Company veteran Corey Sanders, CPA, CGMA, was promoted to COO by Jim Murren, who moved from his CFO position to chairman and CEO in December 2008. Murren immediately began an extensive reorganisation of the company and placed Sanders in charge of many key components.
Las Vegas — where 15 of MGM’s 20 wholly owned properties are located — is a prime tourism and business destination in the United States whose initial growth following World War II was fuelled by the early adoption of legalised gambling. Today, it is a complicated, competitive business market where glitzy resorts rise out of the desert to welcome 40 million visitors a year.
Competition reigned and co-operation was minimal when MGM began acquiring competing Las Vegas properties to build its portfolio. There was little emphasis on executing a company-wide plan. Sanders’s job was to help fix this problem and unite the properties under the corporate umbrella. The presidents of each of the individual properties report to Sanders, and the operations areas he oversees include advertising, hotel sales, human resources, IT, retail, strategic operations and strategic sourcing.
“One of the first things we did was say, ‘Look, the world has changed a lot,’ ” Sanders said. “ ‘The power of MGM as a whole compared to these pieces is much greater. Let’s organize this company to be able to not only get through the recession but to line it up for the future growth.’ ”
He began the reorganisation with an analysis to identify the strengths, weaknesses, opportunities and threats of the company. MGM declared a mission statement: “To entertain, engage, and inspire our guests and ourselves.”
The company articulated a vision to be the pre-eminent entertainment and hospitality company, with core values of teamwork, integrity and excellence. And it began engaging in organisation-wide strategic planning.
The stakes were high. The number of visitors to Las Vegas fell from 39.2 million in 2007 to 37.3 million in 2010, according to statistics from the Las Vegas Convention and Visitors Authority. Although the number of room nights stayed in 2010 was just 1.4% lower than in 2007, the number of rooms available in the city grew 12% to 148,935.
The increased supply and the lower demand resulted in a price war to attract tourists who were still travelling. The average room rate plummeted 28% to $94.91 from 2007 to 2010. Meanwhile, gaming revenue on the Las Vegas strip fell from $6.8 billion in 2007 to $5.8 billion in 2010. MGM’s company-wide net gaming revenue dropped from $3.2 billion to $2.4 billion during that period.
One of the best ways to succeed in such a competitive environment is to differentiate yourself from the competition. MGM’s 15 Las Vegas resorts had come together through acquisitions. The MGM Grand merged with Mirage Resorts in 2000, and the company acquired the Mandalay Bay Group in 2005. It was rebranded in 2010 from MGM Mirage to MGM Resorts International.
Despite being part of the same company, there was a desire for each of MGM’s properties to retain the individual character that makes them unique. In Las Vegas, guests often travel, for example, to the elegant MGM Grand for luxury and entertainment at the largest hotel in the United States; the Mandalay Bay for its child-friendly aquarium, wave pool, lazy river, and beach; and Circus Circus for the indoor theme park.
The resorts occupied different niches and had different cultures, and the economy was so good that they profited despite the inefficiency inherent in operating with a variety of systems and processes for sourcing, purchasing, human resources, talent development and recruitment. It was easy to profit when 94% of the rooms in Las Vegas were occupied and visitors had plenty of money to gamble before the recession.
But the recession forced the company to examine inefficiencies, including the disparate operating systems. Sanders sought to bring these together while allowing the properties to retain the culture and atmosphere that made them individually attractive to their customers.
“Our new chairman [Murren] came in, and he decided that the multi-company culture did not work,” Sanders said. “It was not in the best interest of the shareholders. We are in a recession, and we’ve got to stop fighting with each other and competing against each other. And how do we compete as a company?”
Establishing the mission
MGM’s first efforts at an enterprise-wide strategic plan occurred during a difficult time. Falling revenue during the recession resulted in painful decisions for MGM Resorts, as cost reduction measures included cutting about 20% of the workforce.
Meanwhile, debt arising from an $8.5 billion investment into a three-resort CityCenter development on the Las Vegas strip helped lead to a company going-concern warning in its 2008 annual report and required painstaking discussions with creditors to keep the company afloat. The business also was undergoing a fundamental shift, particularly in Las Vegas.
The growth of gambling opportunities in other locations across the United States meant that tourists no longer needed to travel to Las Vegas to play slot machines, spin the roulette wheel or get another card from the blackjack dealer. Further changes in customer preferences have also contributed to the business shift. Gaming accounted for more than 55% of MGM’s revenue when Sanders joined the company in 1994 as director of tax for MGM Grand. In 2013, about 39% of the revenues at MGM’s wholly owned resorts came from gaming as MGM has responded by growing its food and beverage, retail and entertainment event offerings, creating more diversified revenue.
MGM’s strategy (see “Five Keys for Successful Strategic Planning”) needed to reflect these changes and also incorporate the company’s newly articulated mission — to engage, entertain and inspire — and its vision to be the recognised global leader in entertainment and hospitality. The company would seek to develop consistency in service, accountability and leadership in what was branded as a “One Company Culture.”
Excellent service is key for any hospitality company. MGM Resorts developed and trademarked in 2013 seven pillars of service: standards, goals, measurement, communication, training, recognition and accountability.
Each property can set its own goals, accountabilities, rewards and training to fulfil those principles, but building upon that foundation is required.
Building employee engagement
Employee performance is essential to providing excellent service. So training and development initiatives have been a key focus area for the company:
- A daylong, experiential corporate orientation called “Navigating Our World” introduces new employees to the One Company concept and the seven pillars of service. Previously, corporate orientation was shorter in duration and less comprehensive. At an additional orientation at the resort they join, new employees learn how the principles are put into place at their location and in their position.
- Additional training and development is offered through the company’s MGM University, which employs 27 full-time training professionals and on-call staff for employee development. Classes are provided to develop skills such as computer proficiency, communication and public speaking, and management training.
- An intensive programme of professional development is offered to a select group of top talent to cultivate executive leadership.
At a basic level, some actions are absolutely required on every property. “You are going to smile,” Sanders said. “You are going to say the guest’s name. You are really going to show interest [in the guest]. … You’re going to talk about all of the service amenities of your property and the corporation. That was the corporate umbrella.”
The company monitors its progress closely, and not just through the financial results. MGM emails surveys to customers and tracks the results. The company also monitors social media channels, particularly travel-oriented TripAdvisor and business review-oriented Yelp, to watch for potential negative feedback from customers.
Social media teams at corporate headquarters and the individual resorts respond to customer feedback and engage the appropriate personnel to address complaints.
Improving service through standardized employee development was the most important part of the strategic planning process, but it wasn’t the only one. The company consolidated marketing functions, standardised recruiting and created uniform job classifications to assist in transferability. The company also unified and expanded its customer loyalty programme.
Sanders said the company takes a scoreboard/dashboard approach to its key metrics, focusing on:
- Market share and revenue.
- Operating costs.
- Employee teamwork and engagement (measured through employee opinion scores, turnover, retention and recruitment indicators).
- Reputational barometers, as measured by stakeholder relations in established markets and markets the company is being invited to enter.
The strategy seems to be working. MGM Resorts International grew revenues 7% and EBITDA was up 18% in 2013. The company experienced growth in revenues for its casino, hotel room, and food/beverage operations that significantly outpaced its growth in operating expenses in those areas from 2011 to 2013. The company’s expansion into China (as a 51% shareholder of MGM China) also has delivered results, including dividends announced in early 2014 that brought MGM Resorts International approximately $320 million. MGM is poised to start work on a resort at National Harbor in Maryland and another, if approved, in Springfield, Massachusetts. And MGM’s stock price in late April was $25.23 — almost triple the $8.79 it sank to shortly before Murren became CEO.
“We think these results are a reflection of good operating management and the employee dedication that we have to executing on our company’s goals, both for revenue and for cost containment,” Murren said during a conference call to discuss MGM’s fourth-quarter 2013 results. “And … we have significant operating leverage in the recovering economy.”
Five keys for successful strategic planning
A lack of robust strategic planning is not unusual. In a 2013 survey, 44% of CGMA designation holders said their organisation did not spend enough time on strategic planning. MGM Resorts International COO Corey Sanders, CPA, CGMA, created a strategic planning process geared toward aligning the company’s various properties with common goals. Here are his five keys for strategic planning:
- Follow the SWOT. The strategies need to address the company’s strengths, weaknesses, opportunities and threats. Opportunities and threats are the biggest areas of focus for MGM. But ensuring that the company’s strengths continue to provide competitive differentiation (eg, through ongoing investments in amenities, upgrades and new venues) also is key.
- Keep it simple. The number of strategies should be minimised. “If you have any more than five or six, it’s very hard to stay focused,” Sanders said.
- Make the strategies measurable. It is difficult to gauge progress without measurable data. “You have to constantly look at how you’re doing and provide feedback,” Sanders said. Guest service feedback is a key measurable at MGM Resorts. Based on these metrics, high-performing teams are identified and receive rewards. Their best practices are replicated throughout the company.
- Align operations and management to the strategy. “Those are their goals for the year,” Sanders said. Having executives develop their own tactics to accomplish the strategies can create motivation — and so can tying their bonuses to how well they meet those goals.
- Be flexible. If the strategy is not working or conditions change, there has to be an allowance for the strategy to change, Sanders said.