More thoughts on beak adaptation and adapting in business

Today’s news had a couple of examples of downsizing in the casino industry; Michael Porter in his Competitive Advantage lists five conditions that shape a business: 1. cost of entry. 2. cost of regulation (includes taxation). 3. cost of resources (includes employees). 4. cost of competition. 5. cost of exit.  The least considered in the planning of most businesses is the last item, the cost of exiting – if this does work, what will it cost to get out?   To the Porter list, we might in these times of a shrinking economy add the cost of downsizing – or we might call it the cost of adaptation to a dramatic change in conditions.

The first story; in a move not to grow, Cache Creek, the second largest Indian casino in northern California said it was not going forward with its plan expansion.  Cache Creek is the closest casino to the Bay Area and its very large Asian community, on the other side it shares the western side of Sacramento with Thunder Valley.  Cache Creek has been very successful and in particular has very good “Asian” play.  For years the only thoughts anyone at Cache Creek had was concerned with growth and expansion.  However, today growing does not seem like a good idea, not to the casino’s management, not to the tribe and especially not to financial community.  It is not downsizing, but it is the step before downsizing. The second story: in Connecticut on Monday Mohegan Sun announced a layoff of 5 percent of the employees following a year of 10 percent reductions in the workforce through attrition, yesterday the casino released its slot win figures for August – the win was down about 3 percent continuing a two-year trend of declines in slot revenues.  Downsizing the workforce is the second step; the third step, one we are hearing rumors of, is downsizing the actual gaming (and other) operations.  Bringing the walls in, in the same way they were pushed out during the expansion – it sounds like a very expensive and difficult proposition, but it will happen.  Try the following example.

The third story: Lucky Dog Casino, a small Indian casino in Washington closed last fall citing the economy as the reason; last month the Lucky Dog reopened, with a smaller gaming operation, one less restaurant, fewer slot machines and new technology that allows the property to operate with about 1/3 of the employees it had last year.  Closing and retooling must have been very expensive to the tribe, plus the loss of 2/3 was painful to the tribe and the host community, but the property today might be sustainable and in time might  be able to expand operations a little, add a couple of slot machines or hire a few more people.

The famous finches – called Darwin’s finches – change the size of their beaks (and body, wing size and frequency of matings and therefore number of offspring) in response to the climate changes and availability of resources.  It isn’t easy, however, the process is quite simple – as soon as conditions change the females begin selecting a mates based on the new conditions, meaning they select larger mates with larger beaks, or the opposite; it also means the change mating frequency.  The physical changes in the birds are gradual, but as long as the new conditions exist the selection process is weighted toward that condition. If the new conditions last long enough new species emerge while the old species simply ceases to exist.

It is an interesting model, not one that is easy to apply to business, but certainly a model that should be considered in business thinking.  Under the pressure of lower revenues and fewer customers, gaming jurisdictions, such as Atlantic City will follow Reno in downsizing; but that is only half the problem, one that uses extinction to shrink the total market.  The step, one we are only beginning to consider is  individual property downsizing and I don’t mean layoffs, I mean changing the footprint and amount of product to fit the new business conditions. The casino in Washington, The Skokomish Nation’s Lucky Dog Casino, only has 33 full-time employees and 130 slot machines; it also added the latest and least labor dependent technology available.

No jurisdiction, or indeed individual casino, can expect to see opportunities for unlimited growth in the future; in fact all casino jurisdictions and individual properties, are assured of increased and intense competition for every discretionary dollar; each is going to be forced to change and adapt to new conditions.  That will mean smaller casinos with their efforts and finances focused on specific opportunities that represent less competition and a higher return for the energy expended to gain market share in that niche.


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