MGM Mirage's business strategy and competitive position in hospitality

MGM Mirage and Strategic Management

Today's companies strive to achieve, maintain and consolidate a high competitive position within the market and within their industry. They manage this through a full satisfaction of the customers' needs and wants. The organizational clients have become the core of corporate operations simply because they are the determinants of success. They decide if they like the product or service and if they will return within the organization to solicit it again, ensuring as such the economic agent with sustainable revenues.

Therefore, the full satisfaction of the customers' needs is crucial in all organizations, but even more so within the service sector, where the provider does not offer a material product and can only succeed based on the quality of the delivered services. A most relevant example in this instance is given by the restaurants and hotels industry.

MGM Mirage is a successful representative of this industry and this paper will focus on several aspects of their business, including features such as challenges and strengths, financial performances or future strategic steps they could take. MGM Mirage takes great pride in the quality of their services and the dedication of their staff members. Their mission statement provides: "Our dedicated staff of over 70,000 employees are committed to providing an unsurpassed experience for every one of our guests. We are actively expanding our presence globally, with potential developments in a number of domestic and international markets. At MGM MIRAGE, we are all striving together to deliver our enticing blend of entertainment to every corner of the world" (Website of MGM Mirage, 2009). The vision statement of MGM Mirage based on the principle that great ideas can change the world and it revolves around "putting great ideas into action, stirring emotions in the unexpected, forging new relationships around the globe, having the dedication to develop the extraordinary, working as one to enrich lives, creating opportunities for people to grow, delivering on a promise" (MGM Mirage 2007 Annual Report)

2. Company History

MGM Mirage is one of the most reputable and successful hotel chains in the world. The company is relatively new, being founded no sooner than 2000. The headquarters have been established in Las Vegas, Nevada, where the company also operates hotels. They employ an estimated 70,000 individuals and their revenues for fiscal year ended on December 2007 totalled up to $7,691 million, revealing a sustained ascendant trend (MGM Mirage 2007 Annual Report).

The company we see today is the result of a 2000 merger between MGM Grand and Mirage Resort. The formed company, MGM Mirage, was the largest gambling organization in the world, but was soon overthrown by its number one competitor Harrah's Entertainment (Land, Land, and Rocha, 2004). Until 2004, operations were conducted smoothly and with little attention from the press, 2004 however was a more intense year - the company sold its two Golden Nugget casinos; they started the endeavours towards the purchase of Mandalay Resort Group (one of their main competitors); they launched the operations towards the building of a new entertainment center, which would incorporate a hotel, a casino, apartments for rent, as well as other facilities. The project was called Project City Center and is expected to attract the first customers by 2009 (Pr Newswire, 2004)

Throughout the past years, the multinational organization has been engaged in various process of organizational change, including the sale of some of its assets or the purchase of new ones. Its main strategy has been that of growth and expansion in both operations and revenues. MGM Mirage remains focused on serving their customers by increasing their satisfaction relative to "quality entertainment, luxurious facilities and exceptional customer service" (Website of MGM Mirage, 2009).

The company's history is an impressive one, staring before the actual merge of the two giants. The reason why this specification has been made revolves around the idea that the corporate history is a powerful tool in the business community. It creates and reveals corporate tradition and it generates the trust of the stakeholders. Otherwise put then, the history of a company can easily constitute a managerial tool in achieving corporate success. MGM Mirage has implemented this strategy and has further improved its market perception.

4. Environmental Analysis

The environmental analysis is yet another important aspect to consider in the process of achieving corporate goals. The environmental analysis is divided into three major components: the internal environment, the external environment and the corporate stakeholders. Some of these features could also be present in the SWOT analysis.

4.1. MGM Mirage Internal Environment

The internal analysis of the organization is mostly based on the assessment of its core competencies and its limitations, revealed in the previous section of the paper (the internal strengths and weaknesses as presented in the SWOT analysis). One issue on which a need for emphasis is felt at this time, and which has only succinctly been mentioned previously, revolves around the internal operations of the organization. In this order of ideas, MGM Mirage's operations consist of "17 wholly-owned casino resorts and 50% investments in four other casino resorts, including Bellagio, MGM Grand Las Vegas, Excalibur, Circus Reno and Silver Legacyof Grand Victoria [...]. Other operations include the Shadow Creek golf course in North Las Vegas, two golf courses south of Primm, Nevada at the California state line, and Fallen Oak golf course in Saucier, Mississippi" (MGM Mirage 2007 Annual Report).

4.2. MGM Mirage External Environment

The most adequate manner for conducting an analysis of the external environment is that of developing a PEST analysis. This analysis considers the forces belonging to the political, economic, socio-cultural and technological backgrounds and which could affect the operations and achievements of MGM Mirage. These features will be succinctly presented below:

1. Political forces the United States now has a new president and his agenda is yet uncertain; this basically means that Obama's determination to properly manage the economic crisis could revolve around restrictions, taxes or other laws that could impact the operations at MGM Mirage also, the changing of the president determines a short period of political instability the fact that MGM Mirage operates at a global scale materializes in that they have to subject to the regulations of various parties, such as the United States, the international regulating institutions (such as the World Trade Organization), as well as the legislation in the destination country; this compliance requires additional financial resources the employment laws are changing, requesting employers to increase the minimum wage of their staff members and to offer them better perks (such as medical coverage); they are more tough than ever relative to discrimination; all these imply additional costs

2. Economic forces the most important force in the economic background is the globalized economic crisis it emerged in the United States but is rapidly expanding to other countries as well, threatening as such both the national and international operations of MGM Mirage before the emergence of the financial crisis, the income per capita had significantly increased; this led to more and more individuals travelling for leisure purposes, leading consequently to the development of the hospitality industry the demand for hospitality services has also been generated by the development of the business sector, which determined major growths in business travelling the economic difficulties prevent the sustained growth in income per capita and the development of the business community, materializing as such in reduced demands for hospitality services, and ergo fewer revenues for MGM Mirage the United States banking system is extremely unstable; and not just that, but it has adopted a strategy of the fluctuating rate, which often means that the economic agents will end up paying extremely high interest rates; this further increases their expenditures however it has yet to show signs of stability, after long periods of instability and high values, the inflation rate is decreasing

3. Socio-cultural forces an important specification is that the betting industry has significantly increased throughout the recent years also, the betting industry suffers limited repercussions in times of financial difficulties as the individuals continue to gamble in the hope that they would win the growth of the gambling industry has generated addictions materialized in the loss of economies or even lives; as a result, gambling is often frowned upon 4. Technological forces the technological domain is developing at a rapid pace, supporting the organizations in their endeavours new technological advancements introduced in corporate operations help reduce costs and increase operational efficiency the technological appliances are a fashion in their own sense and companies must constantly update their gadgets in order to satisfy the customers; this however implies additional costs the incorporation of hi-tech utensils has further increased customer satisfaction in the hospitality industry (e.g. hotels which offer wireless connections to the internet) the internet has also managed to bring the organizations closer to the customer through virtual environments; reservations and a wide variety of information can now be achieved online, making the MGM Mirage available to all individuals, regardless of geographic location or time zone

4.3. MGM Mirage Stakeholders

However the internal and external analyses are pivotal components in understanding the company's environment, a thorough analysis can not be achieved without a detailed look at the stakeholders. These incorporate all the individuals and groups of individuals which are directly and/or indirectly affected by the operations of MGM Mirage. Foremost, what must be mentioned relative to the stakeholders is that not only are they influenced by the organization, but that they also have the ability to impact it. Generic categories of stakeholders interact with the company in both environments (internal and external) and could include the organizational employees, customers, the competitors, the general public, business partners (such as the suppliers), as well as governmental or non-governmental organizations.

1. Governmental or non-governmental organizations

MGM Mirage complies with all regulations imposed by the federal institutions. They pay large sums of money to the federal budgets, not only acting in accordance with the law by this, but also supporting the development of communities and also the growth of challenged industries.

MGM Mirage supports the protection of the environment and collaborates with environmental organizations to find solutions that reduce pollution and address other environmental concerns. Environmental organization Green Lodging praises MGM Mirage: "MGM Mirage's $7 billion CityCenter project in Las Vegas will be the first one in the state of Nevada to pursue Leadership in Energy and Environmental Design (LEED) certification. From the top of the organization on down, MGM Mirage has made a commitment to make sustainability a central element of every future Las Vegas project. The company should be applauded for doing this" (Hasek, 2007)

2. The MGM Mirage Customer

The MGM customer represents the core of organizational operations, his satisfaction being the most important aim of the company. In order to achieve this, the hospitality company strives to offer the highest quality products and services, in a varied palette. Foremost, the management at MGM Mirage has voted on the incorporation of CRM practices into their operations. CRM stands for Customer Relationship Management and offers a wide variety of tools to be used in improving communications with the clients, getting to know them better and satisfying their needs. The primary goal of CRM is to transform the occasional client into a loyal one (Anderson and Kerr, 2001). MGM Mirage used CRM practices to "integrate, profile, cleanse and load 50 million customer records and 400 million transactions into a new data warehouse in real time. Guest services, operations and market research will use these results to plan marketing, incentive and direct mail campaigns. "To compete in the crowded casino resort market, we need a detailed understanding of our guests to provide them with entertainment options and offers that will make MGM MIRAGE their preferred resort," said Michelle Messina, MGM Mirage executive director corporate marketing" (Campanelli, 2004)

3. The MGM Mirage Employee

The managers at MGM Mirage understood the role played by their human resource is satisfying the customers and achieving the established corporate goals. In this order of ideas, they strive to create a pleasant working environment which satisfies the needs of the staff members. They offer a wide variety of incentives, which give the employee a sense of belonging and of being cherished. The benefits offered to the MGM Mirage employee include health plans, saving plans, employee assistance programs, child development centers, wellness programs, paid time off and educational and professional growth programs, including education assistance, tuition reimbursement, scholarships or financial assistance (Website of MGM Mirage Careers, 2009).

5. Financial Analysis

The MGM Mirage stock is traded on the New York Stock Exchange at a value of $9.19, revealing a course of steady decrease throughout the past sessions (Financial Content, 2009). The fluctuations are not abrupt however, pointing out a stability of both stock as well as organization. As a result then, this indicates organizational equilibrium, as well as just stakeholder trust.

Another plus for MGM Mirage from the standpoint of financial figures is given by their ascendant trend in the registered revenues. In this order of ideas, since its existence, the company has registered profits which increase on annual basis. 2007 for instance has been characterized by a 7.2% increase in revenues, a 62.9% increase in operational revenues and an astonishing 144% increase in net profits. "The increase in revenues was primarily attributable to growth in hotel room rates and other non-gaming revenues. [...] the increase in operating profit was driven by gains from the CityCenter joint venture project, higher Hurricane Katrina insurance recoveries, and a full year of operations at Beau Rivage" (Datamonitor, 2009). The table below offers a better look at the financial results of MGM Mirage across five years: =$ million=

Net Revenues

The company's income statement reveals that most of their revenues come from their casino operations (the rest of the income is derived from rooms, food and beverage, entertainment, retail and other operations). Also, this income has been increasing significantly throughout the considered five years: =$ million=

Revenues from casino

Juts like with the revenues they generate, the casino operations amount to the largest expenses of MGM Mirage throughout a fiscal year. Aside casinos and the rooms, food, beverage and the operations mentioned previously, the company also registers a wide variety of administrative expenses, such as depreciation and amortization, corporate expenses, restructuring costs, reopening or starting-up-a-business expenses. Unlike the previous indices, the total expenses of the hospitality and entertainment company do not register a steady, but rather a fluctuating trend, in some years declining and in others significantly increasing. The table below reveals the costs as registered by MGM Mirage throughout the five years in question: =$million=

Expenses

MGM Mirage also spends significant amounts of money on insurance. They do however collect when necessary, such as the situation with the Katrina hurricane. The so far conducted analysis is based on the financial statements of the organization and reveals a strong and stable entity. For a better comprehension however, one must also analyze the performances of MGM Mirage through the lens of financial ratios. This involves a comparative analysis of MGM Mirage, its primary competitor, Harrah's Entertainment and the industry's average:

The current ratio is an indicator of the company's financial strength and measures its ability to meet short-term debts. The higher the rate, the more liquidity the company owns. MGM Mirage's current ratio is of 0.68, Harrah's Entertainment's is of 0.87 and the industry average is of 0.04. These figures indicate that while the two competitors do not reveal major differences, relative to the industry, they are both highly capable of complying with their short-term obligations as they possess sufficient liquidities.

The asset turnover is an indicator of organizational efficiency and represents the revenues one dollar will generate as a result of corporate operations. MGM Mirage's total asset turnover ratio is of 35.1%, Harrah's Entertainment's is of 52.4% and the industry average is of 8%. This once again reveals that MGM is situated between the industry and Harrah's Entertainment, meaning that they retrieve more income for one dollar than the industry, but less in comparison to their primary competitor.

Another ratio is that of the return on equity, an indicator of management effectiveness, which measures the revenue generated by the investors' money. MGM Mirage's ratio is of 23, Harrah's Entertainment's is of 24.7% and the industry average is of 13.93. This indicates that the money invested by the MGM Mirage shareholders retrieve an increased revenue when compared to the industry, but a slightly smaller one when compared to their primary competitor.

A conclusion can be made based on the analysis of the financial ratios and it sees that MGM Mirage performs at superior levels when compared to the industry average, but they are still overcome by Harrah's Entertainment.

6. Strategic Issues

As it has already been revealed, MGM Mirage implements a highly complex and multifaceted strategic approach. The ultimate aim of their strategy is that of registering increased corporate revenues, but in doing so, they chose to satisfy the needs of various categories of stakeholders. Some of their most outstanding strategies refer to:

the insurance that the customers' needs and fully satisfied the integration of technological advances to increase both customer satisfaction, but also operational efficiency the creation of a pleasant, yet challenging, working environment the offering of training programs with dual effects: increase in employee performance and, consequently, in customer satisfaction the implementation of diversity policy the diversification of the stocks owned to ensure profit maximization and risk reduction the introduction of CRM strategies, and so on Despite the success registered so far, the company must remain alert to the changes affecting the hospitality industry and must prepare answers to these changes. A first issue would be that of a reduced demand, in the context of a globalized economic crisis. This could easily materialize in financial losses due to reduced profits. And the company cannot rely mainly on its gambling operations, which continue to retrieve satisfactory income.

Then, another topic to which the management at MGM Mirage must give their attention refers to the strategies implemented by the competition. The hospitality and gambling company encounters competition from two types of organizations - small entities and other corporations. The small entities dispose of limited resources and only threat the company if they operate in the same community. The large corporations on the other hand pose a more serious threat as they own the resources required to diminish the revenues of MGM Mirage. "Large operators have the financial resources to make large investments in facilities and efficient computer operations, and have cross-marketing opportunities. Small gambling facilities can thrive by catering to a local clientele" (Hoovers, 2009).

In terms of corporate competition, this can be further divided by the regions in which the company operates, mostly Las Vegas and Macau. In Las Vegas, MGM Mirage encounters massive competition from the Las Vegas Sands, Harrah's Entertainment and Wynn Resorts. In Macau, they meet again the Las Vegas Sands and Wynn Resorts, but the third player is locally-based Melco PBL Entertainment. MGM Mirage implemented a varied number of strategic approaches in dealing with the competition, most of them being traditional and referring to offering customers the highest quality products and services, at competitive prices.

A notable strategy that MGM Mirage employed relative to the competition is linked to the financial theory of portfolio diversification. In this order of ideas, MGM Mirage diversified its stocks and operations to include activities outside the gambling industry. Its competitions have not engaged in similar operations, meaning than that MGM Mirage has a superior competitive position, offered by a wider access to resources, and increased chances of favourably responding to the threats in the external environment. Also, MGM Mirage is superior relative to its Los Angeles competitors in terms of the size of the owned resorts. "While these companies have similar operations, MGM's primary distinction is that its revenue breakdown is more diverse, and less dependent on casino income. It is important to note that MGM dominates in terms of the size of its holdings in Las Vegas, with 9 of the most prominent resorts" (Wikinvest, 2008).

7. Future Steps

As it has been stated in the previous section, MGM Mirage has managed to implement the most adequate strategies that ensured its success. To further consolidate its position however, the company must keep in mind the issues currently facing the hospitality and entertainment industry. In this order of ideas, several propositions will be made in the following lines.

In terms of the globalized economic crisis which threatens the national and international operations of MGM Mirage, the company could respond by reducing its costs. This strategy has a protectionist nature and is only aimed to prepare the company get through the financial challenge. Most companies translate cost reduction into downsizing part of their staff members. However, this would not be implemented by MGM Mirage only in the worst circumstances. Downsizing the human resources while other attempts to reduce costs have not been made is a mistake as it can generate numerous side effects such as reduced trust in the organization on the part of all categories of stakeholders, low morale and performance of the employees or an additional wave of leaving employees, who no longer have the stability of their position. Keeping this in mind then, MGM Mirage would not engage in downsizing operations unless this is absolutely necessary. Alternative solutions to reducing costs could refer to:

switching over to more cost effective purveyors delaying the completion of expensive projects until the crisis has passes and economic stability is once again achieved the continued usage of the current technologies instead of their costly replacement the reduction in training programs offered to the staff members or the search for more cost effective alternatives, such as having the more experienced employees train the novices

Managers often reveal misconceptions in addressing issues referring to the competition. In this order of ideas, they generally implement strategies that address competition in terms of customers and the product and service strategies that guarantee their satisfaction and return. They however fail to see that the employees play a vital role in overcoming the competition. And most importantly, they play a vital role as they may leave the organization and work for a competing company. Otherwise put, industrial competition is not only about getting the customer, but it is also about keeping the employee. In order to ensure that the company does not lose its employees, who support it in the consolidation of its competitive position, the management at MGM Mirage could implement some of the strategies presented below:

reassuring the employees that their positions are safely guarded and not threatened by the economic crisis engaging in clear and open conversations with them at all times, but especially now when they must feel reluctant due to the internationalized financial difficulties the corporate culture should be reinforced to offer the employees a sense of stability and belonging once the crisis has passed, MGM Mirage could offer them additional perks which would function as incentives

Other courses of action which could be employed by MGM Mirage in response to the strategies implemented by the competition, in both times of economic recession as well as boom, could include:

the development of more efficient contracts with the business partners (mostly with the suppliers) the search for newer markets which would allow increased access to potential customers; territorial expansion in other words the enlargement and diversification of the product and service offering the establishment of direct and sustainable communications with the customers in order to identify their needs and better satisfy them All the above strategic courses of action have the ultimate aim of consolidating the competitive position of MGM Mirage. They are however generic and insufficient and the company must remain alert at all times to the changes affecting the market and the industry and must develop the adequate responses to the modifications. In order to achieve this, they must:

maintain good and constant communications with all categories of stakeholders constantly research the market for emergent modifications in customers' needs and wants constantly research the industry in order to identify emergent trends observation of the competitors' strategies and the development of adequate responses participation to international conferences of the industry

8. Conclusions

MGM Mirage was formed in 2000 and is the result of a merger between MGM Grand and Mirage Resort, ergo the name composed from the most important concepts in each previous institution. The company's history is a tumultuous one, including separations and additions of assets, and begins even before the merger in 2000. An important specification that has to be made relative to the corporate history is that it can be used as a managerial tool in achieving the corporate goals; MGM Mirage has employed this approach and their market perception has significantly improved due to their association to long lasting quality and luxury.

In terms of strengths and opportunities, the success can rely on the high attention to details, focus on customer, employee training and motivation programs, good market perception, diversification of operations, or the features of the gambling industry which may even increase in times of financial difficulties. Relative to the forces which might impede the achievements of MGM Mirage, one could point out the economic and political instability, the intensified competition, or the risks of conducting international operations.

The financial analysis revealed a strong and balanced organization, which has been following a constantly ascendant trend. Their revenues increase from one year to the other and this is not only revealed by their financial statements, but also by the industry analyses. The financial ratios indicate that MGM Mirage is superior in terms of the industry average, but that it remains inferior to its main competitor: Harrah's Entertainment.

Finally, relative to strategic approaches, the company has engaged in various agendas, including their treatment of customers and employees, expansionist courses of action, diversification or the incorporation of technologies. Today however, they must consider linking all of their approaches to the context of internationalized economic crisis and the still intensifying competition.