Casino Consulting | The Real Reason Casinos Lose Money (staffing)
Casino Consulting | The Real Reason Casinos Lose Money
How a casino’s approach to staffing can affect the whole business
How slashing your workforce and promoting junior staff to senior positions saves cash flow in the short term …. But irrevocably and negatively affects the business as a whole in the medium to long term. OnSite look at how to take proactive steps to managing your workforce.
In the current economic climate, casinos – like all businesses – are having to contemplate cost cutting. With labor costs representing the highest area of consistent spend, casinos are slashing workforces at all levels, including senior management with significant salary packages. Employee benefits are being removed without explanation and salaries are being reduced. OnSite recognizes that communication and strategy are critical if workforce redundancies are being contemplated. Whilst the sudden relief to the cash flow can feel like a success and the business does not suffer immediately, the medium and long term damage can be irretrievable.
Casino after casino, from tribal gaming sites and card clubs to Nevada hotel and casino properties, are suffering. Financial positions are weakened with the economy taking the blame and in a panic attempt to restore profitability, poorly thought out redundancy programmes are often being rolled out, often causing more harm than good. As total business consultants brought in to turnaround the entire company, OnSite know that gaming and player loyalty are only a small section of the casino business. Many sites have strong F&B programs, lodging facilities, other customer attractions and a whole back office which are the backbone of the business and the majority of the work force. Staff are the main cost but not necessarily the main cause for concern.
We recognize that a casino business has many variables which can dramatically affect its financial position. We know that slot analysis and hold percentages are a factor requiring attention and that poorly planned multi-tier reward programs which do not appropriately reflect customer spend can be a key driver when reviewing losses in a business – but all these issues are intertwined with workforce management and the use of skilled talent within a site.
If a casino is looking at labor reductions, it must do so strategically and having regard to the whole business. With a focus on the turnaround of casino properties, all too often OnSite see venues taking a blanket approach to cost cutting and sites subsequently suffering from ‘the unskilled epidemic’. We believe this is never a means to an end but rather the beginning of a downward spiral, dragging down all business units with it.
As you slash the workforce, your all important customers will begin to feel and see the difference: With reduced staff on hand your venue is likely to offer a reduced quality of service and a declining player experience. Importantly, the company will likely be struggling to evolve: With a poorly thought out redundancy strategy, the casino will then left with a reduced ability to innovate and lacking the ability to dynamically react to the customers’ needs. This is a business struggling to stay afloat and trapped in survival mode. This sets out the logic behind our belief – this has reduced immediate cash flow spending but is evidently detrimental to the business.
The lesson to be learnt here is that taking a proactive and measured approach to reducing your labor force is never a waste a time. For economic reasons you may have to make changes to your business and fast – but at OnSite, fast does not equate to haphazard. We work with our clients to apply a lean strategy to identify how to change the workforce to reduce costs as well as seeking out those other issues which can have a dramatic and positive impact to the business. Sometimes small changes to a business can release profit – changing margins, looking at supplier costs, evaluating whether the plethora of third parties trying to sell their services and products to you are indeed value add. It may therefore be the case that the first step to reducing your cash flow issues is looking at staffing combined with releasing profit into the business as opposed to simply cutting a cost, especially as the aim is to improve the business and not stifle it. We have seen it all.
Other cutbacks to employee benefits, salaries and bonuses is also relevant. Clearly a business making no money has to make immediate changes but again, the question is how these are made and ensuring that this carried out in the most sensitive manner whilst securing the safety of your business. Some casinos in trouble introduce a mandatory salary reductions across all employees until revenue returns to a satisfactory state. The perception here amongst staff is often that the workforce is having to to bear the brunt of senior management’s mismanagement. This is naturally not always the case but perception here is important. People become disillusioned with their job and good employees question drastic changes which do not come with any clear message about the future and opportunities for growth.
Disillusioned employees who perform well often leave – simply to be replaced by their assistants or other junior level employees. In times of crisis, losing your best people, who are your best asset, is the worst outcome. Employees who are performing over and above must be rewarded or shown how, when the site improves, they will benefit – it is that simple.
Hewlett Packard avoided layoffs in the mid 1980’s with a successful mandatory pay cut strategy but it was implemented with an excellent communication strategy which employees understood. When announced, it was introduced as being for a limited time (6 months) and engendered strong employee morale through a marketing program which ensured no one felt isolated or hard done by. Instead, employees generally felt delighted to be a part of protecting the company and their jobs because they were all in the same boat and could see how they could ultimately return to their original salary – that being to grow the company.
On the issue of annual bonuses and employee benefits, again these require a strategic approach. Here, we are not just talking about financial benefits but also staff meals, parking, snacks available in staff rooms or venue traditions such as cakes on birthdays – often, the smaller the benefit in fact the greater the impact of that retraction to the employee.
Try telling a minimum wage employee that the cookies are gone because of managements poor performance. He did his job, he was never late and he just lost out. The lost loyalty and commitment of that employee through the removal of such minimal benefits costs more than the cookies ever would. Is that the right approach?
Instead, OnSite advises clients to use a redundancy programme as opportunity to show compassion and understanding through communication. A lack of communication with staff puts everyone on edge – ‘am I next?’, ‘what’s happening?’, ‘what’s the overall plan that management or ownership is not sharing with me?’. This does not lead to a strong and dedicated workforce willing to go the extra mile but instead an atmosphere of tension and a demoralized workforce.
Getting out of survival mode requires leadership with strategic and long term vision as opposed to a shoot from the hip mentality. A quick decrease in spending on the P&L can mean an equally quick decrease in turnover and profits.
The sites that we turnaround require a fundamental change in management style and a new approach. Our view is use the challenging economic climate as an opportunity to increase business through clever planning. What is our plan for growth and what steps must be taken to attract customers and realize profitability? This is an opportunity for employees to be a part of a success story and they need to understand in so doing, that their effort is appreciated and they will be rewarded. Incentivisation is critical to any business.
We are certainly not suggesting that your payroll is perfect! On the contrary we have rarely seen a lean payroll. Casinos should be seeking to find the “cost sinks” – the identification of revenue centers, processes and controls which through analysis will have an immediate effect on costs and the significantly swing revenue margins. Your employees are the only ones who are needed to execute the new vision and provide assistance in identifying such weaknesses.
We seek cost cutting opportunities in every site we visit: This often results in overall savings to the business of many millions, time and time again.
IS LACK OF TALENT THE ANSWER TO THE PROBLEM?
Often, decision makers in businesses have not lived through a challenging economy such as we currently find ourselves. Often the team has limited experience in turning around a business, may not be savvy with budgets and financial information. Additionally, and as a result of large scale redundancies, management is often poorly performing poorly due to lack of experience, training and/or ability. Now the entire company will suffer another blow as this individual, who is for whatever reason not qualified to ‘save’ the business, further damages the brand and the operation. OnSite works hard to ensure clients do not allow this to happen and instead focuses on finding the right areas to make cost cuts whilst supporting the best elements of the management and staff teams.
The trickle down effect of poorly resourcing your business can be seen at every level. When an executive is removed the loss begins. The position is often overlooked and not filled by ambitious management who wish to be able to ‘save that salary’ and add it to their savings analysis. But what about the unqualified staff being passed a workload he or she is not equipped to handle? This can ultimately set a company back months. Perception wise the business is still running – however this is superficial. Ultimately, the employee will make errors because he or she is unqualified – and if that person is a division head or in a management position, his or her decisions can affect the whole company.
This process is repeated constantly at casinos and businesses with high staffing requirements. A manager is terminated or leaves and is filled by an existing employee who is not a truly qualified candidate. So now as a casino, you are stuck with an upgraded employee facing a daily battle that lasts several months of how to do their job or make it seem like they are doing their job. The trickledown effect is simple to see to an outsider – a halt in the lifecycle of the department, the halt in effective new strategies, efficiencies and processes and a breakdown in the leadership of the department leading to autonomous workgroups and jobs not being completed correctly or with the overall long term vision of the casino in mind.
The site now suffers directly from an eager employee seeking a promotion and a poorly trained executive who thought it was a good idea. The trickle down continues as the casino now maintains a “status quo” whilst customer attrition continues and the team attempt to apply band aid solutions to deep wounds. The perceived benefits the casino thought it was getting by hiring from within – Kathy knows how to do Dave’s job it will be fine – has now turned into the casino paying more for an employee with no additional skills.
Hiring from within can be positive as the employee knows the business and staff may have good skills that make them worthy of promotion. Hiring from within simply because someone has been made redundant and that employee is vaguely familiar with the job required is, however, a death sentence for a business. How is a poorly trained executive to know better? One could liken it to the difference between manslaughter and murder – same result, different path.
What talent brings is innovation, strategy and a constantly dynamic business model meeting your players needs. What internally promoted and unqualified ‘upgrades’ bring is the huge loss in revenue from not being able to adapt. When hiring from within all we ask is you complete a SWOT analysis because knowing your business is not enough.
OnSite Consulting is a nationwide hospitality and consulting company to the casino, hotel & restaurant market. Providing immediate solutions for sites seeking turnaround, insolvency and concept repositioning. www.onsiteconsulting.com
