Several years ago the management of a large hotel chain, Hotel Corporation of American (HCA) purchased a casino in Las Vegas. Pleased with the results HCA constructed another casino in Atlantic City shortly after casino gaming was legalized in that city. At the time the proposal in this case arose there were 9 other casinos operating and 2 additional casinos under construction.
The casino is an independent operating unit within the hotel chain. For example, all financial and accounting services are provided in-house. The casino has been profitable since the day it opened. However, the level of profits has not been satisfactory. Corporate management is well aware that HCA would have been better off if the huge sums involved in the construction of the casino had been invested in certificates of deposit.
Management of the Atlantic City Casino has employed several consulting services to study the market and the casino's position in the market. Consumer surveys have shown that the casino is viewed as an average casino, with no distinguishing characteristics. Coupled with its location (several blocks from where most of the casinos are located) this perception of blandness seems to explain the casino's relatively small walk-in trade (most visitors to Atlantic City visit more than one casino; people staying at one casino who visit a second are considered walk-ins at the second casino).
A proposal has been made to expand the casino and hotel (state law prescribes a fixed number of hotel rooms per square feet of casino space). As part of this expansion, the proposal includes the construction of a theme entertainment center. The center would be separate from, but attached to, the casino. The showpiece of the center would be a large Ferris wheel designed to look like a giant wheel of fortune. It would be visible from a large portion of the boardwalk. Additionally, the area would include a unique water slide, bumper cars, a space capsule ride and a fun house. Throughout the area would be a number of small souvenir and snack shops, push carts, tent shows and midway-type games to provide an old-fashioned style carnival atmosphere. An admission fee would be charged to enter the theme center and most of the rides and entertainment would be included in the admission fee. Management expects to be able to use free admission tickets to the center as a promotional item. There would be easy access from the center to the casino floor. It is anticipated that a large number of the visitors to the center would also visit the casino.
Although management is impressed by the plan and has already had detailed architectural plans prepared for the expansion, they are cautious. When the casino was first built, everyone was enthusiastic about the casino's potential, but the results have been disappointing. Management wants a thorough study made of the financial prospects for this expansion before committing funds to it.
Detailed financial data for every casino in Atlantic City are public information and are routinely exchanged. Thus, data such as that given in the attached document are readily available.
- Complete a value chain analysis. Describe your understanding of the competitive position of the Atlantic City Casino. Identify areas for potential cost reduction and/or value added for customers.
- Should HCA make the investment in the theme entertainment center? Why?
- HCA is considering a balanced scorecard for the Atlantic City Casino. For each of the four areas within the balanced scorecard, list two or three examples of measurable critical success factors which should be included.