October 31, 2005

Harrah's CIO Bets Big On Caesars Merger

By Evan Schuman, Ziff Davis Internet

The $10 billion combined gambling empire envisions a future of RFID-wearing cocktail waitresses and slot machines smart enough to pay off the important gamblers first.

When multi-billion companies are involved in an acquisition with 100,000 employees and more than $10 billion in combined revenue, executives typically must use statesman-like diplomatic phrasing to show that both sides are valued equally. But with the fierce backdrop of Las Vegas and casino giants Harrah's and Caesars, little is typical.

The CIO of the acquiring firm—Harrah's Entertainment CIO Tim Stanley—began his meetings with the acquiree (Caesar's) staff on the typical assumption, which is that both sides want to retain as much of their technology, procedures and culture as possible.

But like a blackjack veteran deciding to hit on a hard 19, that first meeting had surprises for Stanley.

"We went into this assuming we were going to blend the two companies" from an IT perspective, Stanley said, but the Caesar's people didn't want that. "They actually didn't feel that great about their technologies," he said, adding that after a briefing on the Harrah's systems, the Caesar's people said, "Screw it. Let's go with your systems."

Why? "Part of the reason was technical but a lot of it was technological and managerial. They saw the upside: The systems that they had didn't really enable things very well," Stanley said. "Their reliability wasn't perceived very well and IT wasn't seen very well."

The reason for the merger had little to do with technology, though, and everything to do with the power of the combined revenue.

"The revenue upside is so compelling that it made sense to be running off the secret sauce that Harrah's has developed over the years, but it doesn't mean it's not messy as hell," Stanley said.

The start of that messiness was the merger and cleanup of backoffice systems, including payroll, financial and human resources. Although it may not be crucial to getting more gambling and entertainment dollars into the operation's bankbook, it needs to be solid to support everything else. "What do we compete on? It's not back-of-house prowess," Stanley said.

In merging back-office operations, the CIO had to deal with the typical mixture of company custom apps (software unique to each firm), industry custom apps (that almost every casino company would use) with standard and non-standard business apps and OS issues.

One group of company custom apps that he ran into was dubbed LawandaWare because it was a bunch of apps customized or built by a programmer whose first name was Lawanda. The software worked well but it depended on that one programmer.

Stanley's preference is to feed company-specific modifications to key software vendors and pressure them to incorporate those changes in their next publicly-available revision. "I do not believe that keeping all (apps) proprietary is of material business benefit," Stanley said.

The Caesars technology was a mix of "homegrown and vendor, but [Caesars IT] had a penchant for doing custom mods of—or on top of—vendor products, which was messy and inconsistent across their properties and was and still is a real challenge from a support and personnel perspective," Stanley said.

"They made lots of custom mods to the Infinium vendor product, as we had, over the years. However, we took the approach of more proactively managing that vendor and driving our mods into the core product and future enhancements," Stanley said.

By comparison, the Ceasars IT managers "were a closed, internally focused group and seemed to think there was value in keeping this stuff in-house and proprietary. We think and can quantify that the competitive value is way more in the front-of-house and customer-facing CRM and service-oriented capabilities so you can see why we converted them to our standard systems in both cases."

Much of the combined Harrah's network will be an IBM shop, running on AS/400 and a lot of AIX (IBM's Unix flavor), with a Stanley inclination to migrate to less AS/400 and more Unix. "AS/400 now runs a fair number of operations but Unix is generally the preferred choice" for the next moves, he said.

A Teradata system is used for CRM data analysis and, for traditional business functions, Windows is dominant. "There is Windows-based stuff out there, but it's usually not mission-critical. Most of our Windows stuff is in Point of Sale, PCs everywhere," Stanley said.

The network also has some small samplings of Linux here and there, but it's not likely to grow beyond that. "Yeah, we've got pockets of Linux, but they truly are pockets. Linux is interesting, but AIX has served us well," he said.

Some engineers have pushed for more Linux, but the business ROI arguments have not been compelling, Stanley said. "We've had meetings where engineers want to say, ‘Wouldn't it be neat to screw around with Linux?' We have bigger fish to fry."

What are those bigger fish? Figuring out how to leverage growth with the merged $9.5 billion company (they had to divest of billions of operations for legal reasons) and grow revenue and profits.

"In this particular deal, we've estimated that two-thirds or more (of the opportunities) are revenue upsides and one-third or less are cost efficiencies."

The casino industry today is a very complicated business, featuring the challenges of a casino, a hotel, a restaurant, a theater (some of the casino nightclub acts better the complexity of the largest shows on Broadway), a retail mall, golf courses and a limo and busing business.

"We have 80 to 100 plus systems of various complexity that are associated with the front of house alone," Stanley said. "We have 40,000 hotel rooms and nearly 80,000 slot machines. Outside of gaming, we have 500 restaurants, retail outlets, entertainment showrooms, a mid-afternoon magic show, Elton John and six golf courses around the country."

Asked how he manages the technology for all of those segments, Stanley paused. "I'm 39 years old and I didn't have a gray hair when I started this job" about five years ago, he said.

When Harrah's wraps up its systems' integration—which is targeted for the end of March 2006—the next phase of the integration focuses on potential technology-enabled customer service improvements.

One idea that Stanley says is being considered: embedding small RFID tags onto each employee's belt so the network can know their exact location at all times. This could be used, for example, to measure how long a cocktail waitress is at the bar, for example, or at any other location.

Stanley talks of increasing "differentiated services" that would allow high-value gamblers to be treated better than less-valued gamblers. At a slot machine, "a Diamond Customer would get paid before a Gold Customer would" and that RFID-tracked waitress could be instructed to serve preferred customers (whose cards might also be tracked) more quickly.

As a company, Harrah's has a good reputation for using its technology well. "Harrah's has led most companies with coinless slots, card readers and the tracking of customers," said Rod Petrik, a managing director for Legg Mason, an investment firm that tracks the gaming industry. "They've been far superior to everyone else."

Petrik said some Caesar's people were skeptical about what Harrah's could achieve. "I spoke to someone inside Caesar's before the merger and they were skeptical that Harrah's would be able to improve the casino and run it more effectively. But historically, Harrah's has reduced costs and improved margins primarily due to their assets," Petrik said.

Stanley's view of differentiated services is to truly try and take CRM to the next level, where the data is not only collected in near realtime, but is analyzed so quickly that it can be acted on in near realtime as well.

Such rapid customer service response is theoretically possible when a traditional CRM datawarehouse (in this case, provided by Teradata) works with messaging middleware (some custom code and Tibco) plus some rules engines that understand what perks are merited with what actions BusinessWorks from Tibco plus jRules by ILog).

Today, he said, his casino chain uses a customer's history to perhaps comp a room or deliver a coupon long after the deserving purchases have happened.

Stanley envisions slot machines that know who a good customer is and can instantly spit out coupon worth $100 if the customer has lost a similar amount, especially if the customer is visiting a new property and is trying to decide if he'll become a regular.

Or perhaps it might involve instantly dispatching an employee to greet the gambler and offer special tickets or cigars or whatever they are known to like. "While you're there in the moment, what can we do—right then and there—to help improve the customer experience?" Stanley asks.