Regular readers of MIT Sloan Management Review will recognize the name Gary Loveman.
Loveman earned a Ph.D. in economics at MIT and went on to become CEO, president, and chairman of Caesars Entertainment, owner of Harrah’s casinos and other resorts worldwide.
In MIT circles, Loveman is famous for saying that while theft is a firing offense at Caesars, so too is running an experiment without a control group. (See our conversation from last April with MIT Sloan’s Erik Brynjolfsson, “The 4 Ways IT is Driving Innovation.”)
In a new interview with MIT Sloan’s Michael Schrage for Technology Review, Loveman talks about the company’s continued focuses on data analysis and small-scale testing that can scale into company-wide initiatives. These tests run from the use of coupons to offers of free meals or hotel stays, all designed to get customers to spend more money during their playtime.
Two key questions and answers excerpted from the interview:
What makes so many executives prefer to rely on their experience and analysis over simple experiments?
There’s a romantic appreciation for instinct and, frankly, an absence of rigor for the application of more scientific approaches. What I found in our industry was that the institutionalization of instinct was a source of many of its problems.
. . .What do you like to tell your academic colleagues about the challenges of real-world experimentation and innovation?
Honestly, my only surprise is that it is easier than I would have thought. I remember back in school how difficult it was to find rich data sets to work on. In our world, where we measure virtually everything we do, what has struck me is how easy it is to do this. I’m a little surprised more people don’t do this.
And yet, this “no brainer” is tricky business. Many companies do resist any kind of aggressive trial-and-error.
Why? Partly, it seems, because of simple aversion to change. In a Harvard Business Review column last April, Dan Ariely, a behavioral economics professor at Duke University and the author of Predictably Irrational (HarperCollins, 2008), outlined some of the resistance to experimentation that he’s come up against.
“I’ve often tried to help companies do experiments, and usually I fail spectacularly,” Ariely writes. For a company struggling with getting a good bonus system in place, he suggested experiments or even just a survey. Management, he says, “didn’t want to add to the trouble by messing with people’s bonuses merely for the sake of learning. But the employees are already unhappy, I thought, and the experiments would have provided evidence for how to make them less so in the years to come.”
Along with Loveman, one company leader who also embraces experimentation — along with its inevitable failures — is Intuit founder Scott Cook.
Ariely writes that Cook, who now serves as the chairman of the company’s Executive Committee (and on the boards of directors of eBay and Procter & Gamble, among others), “tells me he’s trying to create a culture of experimentation in which failing is perfectly fine. Whatever happens, he tells his staff, you’re doing right because you’ve created evidence, which is better than anyone’s intuition.”