Harvard Case - The Pelayo Family Plays Roulette
"The Pelayo Family Plays Roulette" Harvard business case study is written by Samuel E Bodily, Phillip E. Pfeifer, Manel Baucells. It deals with the challenges in the field of Strategy. The case study is 2 page(s) long and it was first published on : Aug 11, 2016
At Fern Fort University, we recommend that the Pelayo family pursue a strategic diversification strategy, focusing on business model innovation and digital transformation to expand their reach and create new revenue streams. This strategy involves a combination of organic growth through product development and market expansion, coupled with strategic acquisitions in complementary industries. This approach will leverage the family's existing core competencies in hospitality and real estate while mitigating risks associated with relying solely on the casino business.
2. Background
The Pelayo family has built a successful business empire in the Dominican Republic, primarily centered around the 'Casino Royale' and its accompanying hotel. The family faces a crossroads as they consider the future of their business. The Dominican Republic's economic growth and tourism sector are promising, but the casino industry is highly competitive and susceptible to regulatory changes. The family's current business model, heavily reliant on traditional casino operations, is vulnerable to market fluctuations and evolving customer preferences.
The main protagonists are the Pelayo family, particularly the patriarch, Don Pelayo, and his children, who represent different perspectives on the future of the business. Don Pelayo embodies the traditional approach, prioritizing the existing casino and hotel operations. His children, however, are more open to exploring new avenues and diversifying the family's business portfolio.
3. Analysis of the Case Study
To analyze the Pelayo family's situation, we can utilize several strategic frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: The Dominican Republic's tourism industry is attractive to new entrants, posing a potential threat to Casino Royale.
- Bargaining Power of Buyers: Tourists have a wide range of choices, giving them considerable bargaining power.
- Bargaining Power of Suppliers: The family's reliance on suppliers for various services and materials could impact their profitability.
- Threat of Substitute Products: Non-gambling entertainment options and online gambling platforms pose a threat to the traditional casino model.
- Competitive Rivalry: The casino industry is highly competitive, with existing players vying for market share.
b) SWOT Analysis:
Strengths:
- Strong brand recognition in the Dominican Republic
- Established infrastructure and customer base
- Experienced management team
- Access to local resources and networks
Weaknesses:
- Dependence on a single business model (casino)
- Limited international reach
- Vulnerability to regulatory changes and economic fluctuations
- Potential for reputational damage due to the nature of the casino industry
Opportunities:
- Growing tourism sector in the Dominican Republic
- Expansion into new markets through diversification
- Development of online gaming platforms
- Incorporation of new technologies and entertainment options
Threats:
- Increasing competition from new entrants and existing players
- Economic downturn impacting tourism
- Regulatory changes affecting the casino industry
- Negative public perception of gambling
c) Value Chain Analysis:
The Pelayo family's value chain consists of:
- Inbound Logistics: Procurement of goods and services for the casino and hotel.
- Operations: Running the casino and hotel operations, including gaming, hospitality, and entertainment.
- Outbound Logistics: Providing services to customers and managing their experience.
- Marketing & Sales: Attracting customers through various marketing channels and promotions.
- Customer Service: Providing excellent customer service and managing customer relationships.
d) Business Model Innovation:
The Pelayo family needs to explore business model innovation to address the changing landscape of the casino industry. This could involve:
- Diversification: Expanding into new business segments, such as hospitality, entertainment, or real estate development.
- Digital Transformation: Utilizing technology to enhance customer experience, streamline operations, and develop new revenue streams.
- Value Proposition: Creating a more diverse and appealing value proposition for customers, including non-gambling entertainment options and personalized experiences.
4. Recommendations
The Pelayo family should implement the following recommendations to achieve sustainable growth and mitigate risks:
a) Strategic Diversification:
- Expand into Complementary Industries: Explore opportunities in adjacent industries such as hospitality, entertainment, and real estate development. This can leverage existing infrastructure and customer base while creating new revenue streams.
- Develop New Products and Services: Introduce non-gambling entertainment options, such as live music venues, luxury spas, and family-friendly activities. This will attract a broader customer base and reduce reliance on gambling revenue.
- Strategic Acquisitions: Consider acquiring established businesses in complementary industries to accelerate growth and expand market reach.
b) Digital Transformation:
- Develop a Strong Online Presence: Create a user-friendly website and mobile app for booking rooms, purchasing tickets, and accessing information.
- Implement Customer Relationship Management (CRM) System: Improve customer service and personalize experiences through data analytics and targeted marketing.
- Explore Online Gaming Platforms: Evaluate the feasibility of offering online gambling services to expand reach and cater to a wider audience.
c) Strategic Alliances:
- Partnerships with Technology Companies: Collaborate with technology providers to integrate innovative solutions and improve operational efficiency.
- Joint Ventures with Local Businesses: Explore joint ventures with other businesses in the Dominican Republic to leverage local expertise and create synergistic opportunities.
d) Corporate Social Responsibility:
- Invest in Local Communities: Support local initiatives and charities to enhance the family's reputation and build positive relationships with the community.
- Promote Responsible Gambling: Implement responsible gambling policies and programs to protect vulnerable individuals and promote ethical gaming practices.
5. Basis of Recommendations
These recommendations are based on the following considerations:
1. Core Competencies and Consistency with Mission: The recommendations leverage the family's existing strengths in hospitality and real estate while aligning with their goal of sustainable growth and diversification.
2. External Customers and Internal Clients: The recommendations address the needs of both external customers and internal stakeholders, including employees, investors, and the local community.
3. Competitors: The recommendations aim to differentiate the Pelayo family's business from competitors by offering a broader range of products and services, enhancing customer experience, and leveraging technology.
4. Attractiveness ' Quantitative Measures: While specific financial projections are not provided in this case study solution, the recommendations aim to enhance profitability by diversifying revenue streams, improving operational efficiency, and expanding market reach.
6. Conclusion
By embracing a strategic diversification strategy, focusing on business model innovation and digital transformation, the Pelayo family can navigate the challenges of the casino industry and create a more sustainable and profitable business empire. This approach will leverage their existing strengths, mitigate risks, and position them for long-term success in the dynamic Dominican Republic market.
7. Discussion
Other alternatives not selected include:
- Maintaining the Status Quo: This option carries high risk due to the competitive nature of the casino industry and the potential for regulatory changes.
- Selling the Casino and Hotel: This option would provide immediate liquidity but would eliminate the family's existing business and potentially limit future growth opportunities.
Key risks and assumptions associated with the recommended strategy include:
- Economic Downturn: A downturn in the Dominican Republic's tourism sector could negatively impact the family's business.
- Regulatory Changes: Changes in gambling regulations could impact the profitability of the casino and online gaming operations.
- Competition: New entrants and existing players could intensify competition, requiring the family to constantly innovate and adapt.
8. Next Steps
The Pelayo family should take the following steps to implement the recommended strategy:
- Develop a Strategic Plan: Create a detailed strategic plan outlining the specific objectives, timelines, and resources required for each initiative.
- Conduct Market Research: Gather data on market trends, customer preferences, and competitor activities to inform decision-making.
- Invest in Technology: Allocate resources to implement digital transformation initiatives, including website development, CRM systems, and online gaming platforms.
- Build Partnerships: Seek out strategic alliances with technology providers, local businesses, and other industry players.
- Monitor Progress and Adjust: Continuously monitor the implementation of the strategy, evaluate performance, and make adjustments as needed.
By taking these steps, the Pelayo family can ensure a successful transition to a diversified and future-proof business model, securing their legacy and creating long-term value for generations to come.
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Case Description
The Pelayo family has been studying roulette wheels and collecting data on tens of thousands of spins. Now the Pelayos have identified a wheel that they want to bet on, which has six numbers that have a 1/30 probability of winning instead of 1/37. They have staked EUR1,000 on this wheel. The question is: How much should they bet in order to have the most capital after 200 rounds? Log utility is used to compare alternatives and find an optimal bet.
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