Jan. 5, 2002 - LAS VEGAS--The evening is just getting started at the Rio Hotel & Casino. The circular drive that leads to the entrance is like a carousel, delivering a steady stream of customers from under a neon sky into the carnival-colored lobby. The body language and facial expressions of the early arrivals range from giddy anticipation (party!) to steely determination (I will beat the house tonight). 

When Gary Loveman pushes through the doors, conservatively dressed in a jacket and tie, carrying an overstuffed leather briefcase, he looks slightly out of place: quiet and almost studious. 

"I tend to think like a retailer when I'm here," he says as he scrutinizes a cluster of blinking, clanging slot machines just off the lobby. 

"Take these slots right here," he says, pointing to a circle of "The Price Is Right" slot machines, frosted with rows of flashing lights. "Should we have these very popular slots in this attractive location, or use this spot to promote something new? That's something we're studying, and testing, right now." 

Studying and testing come naturally to the new CEO of Harrah's Entertainment, which owns the Rio and 25 other casinos in the United States. The 42-year-old Loveman, who moved into the corner office at Harrah's last week, has actually spent most of his career as an academic, most recently as an associate professor at the Harvard Business School. But since 1998, Loveman has been working in a very different world, fueled by the proceeds from crap tables, roulette wheels, and slot machines. 

In some ways his very career at Harrah's has been a gamble on both sides. For Loveman, who still lives with his family in the Boston area, flying home every weekend, it has been a dramatic jump from the theoretical to the practical. For Harrah's, Loveman's tenure at the top is also a break with the gaming industry tradition of promoting from within. 

Although many business school faculty members do a considerable amount of consulting, and frequently take leaves to help launch start-ups, Loveman's leap is much rarer: from day-to-day business school professor to the very top spot at a Fortune 500, publicly traded company. 

There are, in fact, some good reasons why so few professors end up in corporate suites. One is a lack of management experience. Many business school professors, for all their theoretical brilliance, have managed only an assistant, and maybe a few graduate students. Also the skills most valued in the academy, such as scholarship and writing ability, are not necessarily in demand for executives. 

Still, many professors cannot resist the urge to mix it up with real world companies. Glen Urban, a marketing professor at the Sloan School of Management at the Massachusetts Institute of Technology, has started no fewer than five companies since the early 1970s. 

"It's fine to make money," Urban said, "but my primary motivation is to see if the ideas I've developed at MIT actually work in the business world." 

Leonard Schlesinger, a former colleague of Loveman's at Harvard Business School, has jumped over the ivy wall twice, to take executive positions at Au Bon Pain and The Limited Brands. 

"For me it's the equivalent of a seven-year itch," Schlesinger said. "You want to see how your ideas play out when you're working at a $10 billion enterprise." 

Sometimes the ideas don't play out at all. 

"When I got to Harrah's it struck me over and over again how relatively easy the big thinking is, and how daunting the execution is," Loveman recalled. "You get an appreciation for how easy it is to describe what you want to do, and how difficult it is to make those things happen." 

Overall, however, Loveman, and Harrah's, have to be pleased with his performance. In 2001, Harrah's revenue increased 12 percent to $3.7 billion, and the trend has continued into 2002. In its most recent earnings report, Harrah's reported that its revenue rose to $1.13 billion in the third quarter, up 11.9 percent from the period a year earlier. The company has grown to include 26 casinos in 13 states, with 42,000 employees, and is poised to ride the wave of pro-gambling initiatives in states like Pennsylvania, New York, Kentucky, Maryland, New York, Rhode Island, even Massachusetts (see related story). 

"Gary has carved himself a unique position as a CEO in the gaming industry," said Marc Falcone, a gaming industry analyst and managing director of Deutsche Bank in New York. "Harrah's is now viewed as a leader in the gaming industry, largely because of the marketing efforts he has launched.... Many other casino companies are now struggling to imitate what he's done at Harrah's." 

Loveman, himself, is doing a bit better too: His business school professor's salary, approximately $120,000 (before consulting fees), is now well over $3 million, including stock options. He shuttles between his Boston-area home and Harrah's casinos around the country in a corporate jet. He has long since traded in his professorial Honda Accord for a Ferrari F-355 Spider. After 12 years in the same house, the Lovemans are currently building what neighbors describe as "a very large" house in the Boston suburb where they live. 

Loveman's evolution from ivory tower academic to hands-on gaming executive was a gradual one. Raised in Indianapolis, the son of a factory worker and stay-at-home mother, Loveman studied economics at Wesleyan University and later at the Massachusetts Institute of Technology, where he earned a PhD in economics with a focus on labor economics. He took a job at Harvard Business School in an effort to apply his theoretical training to the more "practical problems" of business. 

Leonard Schlesinger was a professor at Harvard Business School when Loveman arrived in 1991. 

"Gary arrived with a very strong skill set around labor economics and human resources," he recalled recently. 

At the time, Schlesinger was part of a small group at HBS that was exploring the management issues around the fast-growing service economy. Although Loveman had very little experience studying customer behavior, his human resources research skills earned him an invitation to join the group. 

"Gary quickly established a reputation as a great classroom presence, and a very fast learner," Schlesinger recalled. 

Both skills were called into play when Loveman was brought in to help teach service management to Harrah's executives, in an annual HBS Executive Education program. After a few classes, he discovered that the "quantitative intensity of the casino experience" fascinated him. 

"It's an amazingly complex service-delivery process," he said. "You're lodging people, you're feeding people, parking their cars, entertaining them, making travel plans for them -- all these things are mixed together with the gaming. Which makes it extremely interesting to me." 

By the mid-'90s, Loveman was running the HBS executive courses on Harrah's, and was gradually drawn into the inner circle of advisers around Harrah's chief executive Philip Satre. Then in early 1998, Satre surprised him by offering him a full-time position as Harrah's president and chief operating officer. Satre sweetened the deal by suggesting that Loveman could continue living in the Boston area, where his wife and three children preferred to stay. 

It was a difficult decision for Loveman. 

"I was just short of tenure at Harvard, and I had been told I had a very good chance of making that," he recalled. "I loved the school and what I was doing there. On the other hand, there was a very unfulfilled feeling on my part." 

One of the colleagues Loveman consulted about the offer was Schlesinger, who had left HBS for three years in the late 1980s to serve as an executive at Au Bon Pain, the bakery chain. (Schlesinger would take another corporate job in April 2000. He is currently executive vice president and chief operating officer at The Limited.) 

"We had some very serious conversations at that point," Schlesinger recalled. "The major issue was that Gary didn't have any line experience in that industry, or in a company that size.... He understood that there were a significant number of risks." 

Schlesinger advised him to take the job. 

"HBS is a practice-based institution," Schlesinger recalled advising Loveman. "When someone presents you with an opportunity to put your money where your mouth is, you should take advantage of it. How often do you get a chance to see how far you can push your ideas?" 

Eventually Loveman was won over by the opportunity. 

"It was almost as if I had been a professor of journalism, but had never written a story," Loveman said. "I had been giving advice to people on how to run a business, but I had never run a business. I had never proven that I had the right to tell people how to run a business. After nine years of that there was a feeling of, you know, I'd really like to get my hands on the levers and see what I could do." 

And when Loveman gained access to Harrah's corporate control room, the first thing he did was crank up the company's "customer loyalty reward" system. 

"My approach was based on a very simple realization," he said. "We learned that of all the casino customers who visited Harrah's once a year or more, we got 36 cents of their gaming dollar. So the fundamental issue was not getting more people to gamble, or even getting more people to know our name, but increasing the percentage of time our customers spend at a Harrah's casino.... We rallied everything around the notion that we had to get that percentage up." 

Loveman believed the way to accomplish that aim was to focus on increasing customer loyalty. Fortunately Harrah's had recently invested in a $17 million computer system, tied to a "Total Rewards" loyalty card, in order to track the spending habits of its customers across its network of 26 casinos. Loveman hooked it up to sophisticated "decision science" tools, allowing the casino to predict customer worth based on observed demographic and behavioral data. By encouraging customers to use the "Total Rewards" cards, Harrah's could use the predictions these cards provided to generate even more focused marketing messages. 

Deutsche Bank's Falcone believes that Loveman's marketing initiatives have worked. 

"Harrah's has been able to use their customer relationship management system to fill their casinos when other casinos are struggling, because they know what motivates their customers," Falcone said. Harrah's "can target their customers more precisely. They don't waste their marketing dollars." 

Not every one of Loveman's initiatives has worked out. He readily admits today that the company overpaid for the Rio Hotel & Casino in 1999 (bought for $987 million in stock and assumed debt) and that he mishandled the integration of the new acquisition by waiting too long to replace incumbent managers who were reluctant to embrace Harrah's strategies and procedures, a mistake he attributes to a combination of academic idealism and managerial inexperience. 

"When we bought the Rio, I worked under this presumption that if you made the goals of your organization clear, and you worked in a respectful fashion, the people who came along with the acquisition would rather harmoniously become a part of the business," he recalled. "That was a spectacular failure." 

After months of "communicating" with the managers, Loveman finally fired them. Now after an acquisition he automatically replaces the incumbent managers with "Harrah's people." 

"I may take those managers and put them somewhere else at Harrah's, but the notion that people will essentially do the right thing, for the right reasons under those circumstances has pretty much been completely proven wrong," he said. 

Yet overall it would be difficult to quibble with Loveman's results. In the company's most recent annual report, Loveman and outgoing CEO Satre proudly point to a dramatic rise in the percentage Harrah's collects from its customers' gaming dollars, from 36 percent in 1998 to 42 percent last year. 

More than 25 million Harrah's customers now use "Total Rewards" cards, each one tied to a detailed profile that tracks the player's gaming habits and promotional preferences, and predicts which promotional combinations are likely to be the most successful. 

"At this point no one would dispute that Gary Loveman has had an incredible impact on Harrah's," said Robert Shook, the author of the recently published book, "Jackpot! Harrah's Winning Secrets for Customer Loyalty." 

"Harrah's has always been customer-focused," Shook said, "but Loveman took them to the next level. He's not only increased the amount of data they have about their customers, but he knows what the information means, and how they can use it." 

Former HBS colleague Schlesinger said he's been "thrilled" to see what Loveman has done at Harrah's. 

"The job obviously plays to his intellectual strength and his modeling ability," Schlesinger said. "The fundamental logic of what he was working on at Harvard, about service and customers, has obviously driven his work at Harrah's. That industry generates incredible amounts of data, and that's perfect for someone like Gary." 

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