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Hard Rock Café casé study Case Description May. 1, 2001 Issue of CIO Magazine

All theme restaurants have struggled; many have failed. The Hard Rock Café, the daddy of them all, looks to the Web to help turn the beat around. By Ben Worthen

The IT department "was the most hated organization in the company." -CIO RON WARD

THERE ISN'T MUCH OF A WAIT at the Orlando Hard Rock Café, even though it's right outside of the evercrowded Universal Studios theme park. The music is loud as you await your vegetable fajitas or burger. Chuck Berry memorabilia shares a wall with Johnny Rotten and the Backstreet Boys. In the early '80s, customers used to party at the Hard Rock Café with the likes of John Belushi and the Ramones. It was the hippest place on the planet. But tonight it's celebrity-free. Similarly, no celebrities are in evidence down the road at the Hard Rock's Orlando headquarters. Just bell-bottoms worn by Elvis, John Lennon's jacket and a Lenny Kravitz guitar. Certainly enough to interest most music fans, but the company needs to do more than warehouse celebrity castoffs to regain its luster in today's market. Over the past two decades, an army of theme restaurant imitators like Planet Hollywood has sprung up, ready to copy the Hard Rock's every move. The Hard Rock—the original theme restaurant, which first opened in London 30 years ago—will consider its new branding program a success if it's known as an exciting music place. Right now, even that may be a stretch, judging by the sedate dinner scene in Orlando, but it's the expressed goal of CIO Ron Ward and CFO Scott Little. And the pair believes that information technology will help the chain recover its edge. FOR THOSE ABOUT TO ROCK At the end of 1998, when both Ward and Little came to the Hard Rock from Disney, some IT systems— like the financial system—didn't work well, and others—like a planned data warehouse—never worked at all. With such systems in place, naturally the IT staff had a bad reputation. IS spent much of its time trying to fix old problems and didn't have the time to address other workers' needs—or treat them nicely. In fact, the IT department "was the most hated organization in the company," Ward confesses. Ward and Little's turnaround strategy for the Hard Rock Café is straightforward: First, fix the infrastructure and the existing corporate systems, and then invest in customer-facing programs and technologies that will drive traffic to Hard Rock's website (www.hardrock.com) and from there to the restaurants. Will this strategy work for Hard Rock? Alan Hickok, a senior researcher who covers restaurants for

Hard Rock Café case study (continued) Minneapolis-based investment company U.S. Bancorp Piper Jaffray, says that the Internet and food haven't made beautiful music together in the past. He points to the several hundred million dollars of venture money lost in online food-service applications. But the Hard Rock is hoping that the extent of its commitment to this strategy will make it succeed. That commitment entails over 500 exclusive-rights concerts a year that will be shown in the Cafés and via webcasts, a Hard Rock memorabilia section on online auction site eBay and perhaps most pivotally, an ambitious CRM system that aims to strengthen the relationship between restaurant and customer by building an online community. The Hard Rock is using the Internet as a tool both for capturing information about its restaurant patrons and pushing customized information (such as upcoming concert information) to those patrons in an effort to bring them back for repeat dining business. "We're using music as a platform," says Little. "And we're using technology to reach the customer. We're looking for technology to get the company to the next level."

LIVING ON A PRAYER Hitting hard rock bottom was unimaginable in 1971 when the original Hard Rock Café opened in London. Known as a rock star hangout, it started its world-famous memorabilia collection after receiving gift guitars from Eric Clapton and The Who's Pete Townsend. As the collection grew, so did the Café's fame, and in 1982 the Hard Rock expanded to a handful of cities, including New York City, Los Angeles, Paris and Berlin. It had immediate cachet. "They tapped into a previously undiscovered niche," recalls Ron Paul, president of Chicago-based restaurant consultancy Technomic. "There were lines out the door to get in, there were lines out the shop to get the clothing items. It was an absolute money machine." Soon thereafter, original owners Peter Morton and Isaac Tiggret cashed out, and by the '90s, the Hard Rock tally stood at 104 Cafés in 36 countries—half with franchise owners. Soon, competitors, buoyed by the Hard Rock's prominence, pounced on the theme restaurant idea. By the mid-'90s, Planet Hollywood, the Rainforest Café, the Fashion Café and a host of other chains had chart-topping success, affirming the new conventional wisdom that theme restaurants printed money. But a few years later, customers were tired of waiting for Elton John to drop by the Hard Rock in Gatlinburg, Tenn., Bruce Willis to stroll into the Planet Hollywood in Tulsa, Okla., or Christie Brinkley to order a Pink Lady in the Birmingham, Ala., Fashion Café. Planet Hollywood and the Fashion Café filed for bankruptcy protection, and other theme restaurants, including David Copperfield's and the All-Star Café, went out of business altogether. As for the Hard Rock, sales stagnated after 1996, and in 1999, sales declined from the previous year's $396 million to $388 million. Profitability also declined by almost 15 percent from the previous year. During the downtime The Rank Group, a London-based entertainment conglomerate whose business includes casinos, video and DVD manufacturing, and a stake in Universal Studios, aggressively bought back the brand from the franchisees and, by 1998, had once again unified most of the Hard Rock Cafés— including all 50 in the United States—under singular ownership. But, says Ward, unifying the brand name didn't mean that the restaurants were unified technologically. In fact, over the years, the different owners and franchisees had implemented their own restaurant management systems. "We had all these little fiefdoms with no standards," says Ward. "A french fry in one Café was described as something completely different in another. A cheeseburger could have been a chicken sandwich, it could have been a steak." The lack of standards made it impossible for the corporate office to analyze sales. Processes were broken and communication was even worse. HELP! I NEED SOMEBODY A few years ago, a sack containing $100,000 sat untouched for five days in the New York City Hard Rock Café on West 57th Street. The employees didn't realize it was there, and corporate sure didn't register a 2

Hard Rock Café case study (continued) problem. The financial system wasn't updated frequently enough to catch the missing loot—not that it mattered, because no one trusted the system anyway. And the financial system wasn't the only problem. The chain's merchandise inventory "system" relied on restaurant managers without any merchandising experience telling corporate when they ran out of something. And the network connecting the Cafés ran from a Linux box that Ward describes as "hackerware." In short, he says, "We were in triage." Ward and Little were already thinking big about how they could use technology to promote the Hard Rock brand and drive business to the restaurants (more about that shortly), but it was clear that none of their dreams could come true with their house in disarray. And so the first wave of the Hard Rock revitalization was aimed at fixing the internal systems. Shortly before Ward arrived, the IT department had tried but failed to install a data warehouse—the disparate data standards had proven too complicated to overcome. One of the reasons that Ward left Disney for Hard Rock at the end of 1998 was the leeway he was promised in overhauling the IT department. Using this mandate, Ward galvanized the IT troops and spent the last quarter of 1998 and the first half of 1999 putting in place a million-dollar data warehouse system from Vienna, Va.-based MicroStrategy. The data warehouse now stores all restaurant point-of-sales customer data, such as merchandise sales, as well as customer demographic and preference data now captured on the Web— linking the two together when possible. The completed data warehouse project laid the foundation for two other important fixes. Because merchandise sales account for hundreds of millions of dollars every year—half of the Hard Rock's revenues—the next step was to install a much-needed chainwide merchandise system. The lack of such a system lead to embarrassing gaffes like the summer the Cleveland Hard Rock opened and had no T-shirts to sell for the first three weeks. Ward's group chose the Radius inventory management system from Transatlantic Software, with a price tag of $1.5 million, because it was built on the MicroStrategy platform. Next up was the financial system. "There were three sets of books when I started," says Little. "You had the people in the field saying these are the numbers, you had finance saying these were the numbers, and you had the CEO saying these were the numbers." And most of the time their totals weren't even close. As late as the end of 1998, the finance system required restaurant managers to e-mail a copy of the financial statement in Lotus Notes, a dedicated staffer in corporate to reproduce the numbers in Microsoft Excel spreadsheets and another to key it in to a Lawson Software financial module. According to Ward, the Lawson system had 50 different ledgers—one for each of the U.S. restaurants— and needed to be completely reengineered to produce a common ledger for all the Cafés. One year and $5 million later, the system now automatically reconciles the numbers for every Café and reports them on a daily basis. The workload has been so reduced that the finance staff has been trimmed from 90 to 30 people. "Now we have one set of books—ours," jokes Little. While the restaurants were opposed to changes that required them to spend time learning new systems—it was a fairly painful process for them, Ward concedes—the benefits are now apparent. The new systems and data warehouses are now accessible through a companywide intranet. All the records are updated and reported daily, ensuring that disasters like the New York City misplaced money bag and the Cleveland T-shirt debacle won't happen again. With just a click of the mouse, corporate executives can call up the Memphis Café's beer sales for the previous day—$4,641 worth—or see how many fries were served in Houston. 3

Hard Rock Café case study (continued)

CALLING OUT AROUND THE WORLD Obviously, hungry patrons aren't going to flock to the Hard Rock just because the Café has gotten its financial systems together. In fact, Technomic's Paul suggests that the casual dining field has never been more crowded and competitive. Every night the Cheesecake Factory and the Olive Garden, among many others, compete for the same blue-jean-and-sweater-wearing diner as the Hard Rock. "All of these come back to 'how was dinner,'" says Paul. "And what you mean really is how was the whole experience, from the parking lot to the way out." The Hard Rock has the opportunity to distinguish itself with its strong connection to music. After all, says Paul, "it is a little more cool than just going to Chili's." This is exactly what the Hard Rock is trying to convince its customers in its second wave of IT-based initiatives. Thirty million people visit the Hard Rock every year; 75 percent of them are tourists, often drawn by the opportunity to purchase a Hard Rock Boston T-shirt as proof of their travels. If some of those tourists also became regular diners at their local Hard Rocks back at home, profits chainwide would greatly increase. Central to the mission to attract a more local crowd more consistently is the company's newest outlet—Hard Rock Cyberspace, www.hardrock.com. "Our goal and our desire is that we can capture people coming out of the Café," says Ward, "and they would go to our website. And the goal with our website is first and foremost to drive traffic back to the Café." Closing the loop, so to speak. The key to this two-pronged strategy is a CRM system that tracks users both on the Web and in the restaurants. Hard Rock is implementing Epiphany's CRM product to track users both on the Web and in the restaurants. The system also allows Hard Rock to offer real-time promotional campaigns based on user behavior—for instance, predicting bands a visitor might like and alerting him when those bands play at the local Hard Rock. To Bob Chatham, a principal analyst at Forrester Research in Cambridge, Mass., just having a CRM system is only half an answer. While CRM products like Epiphany's allow companies to keep careful tabs on visitors' online behavior and track how they respond to certain promotions, it doesn't actually help develop successful promotions. "There's also this little magic step that you have to take," says Chatham. "Identifying people who are your most likely customers is one step, but then there is this black art of what am I going to pitch them. It still hasn't eliminated the need for a great creative effort." Usually creative efforts are left to marketing people who, equipped with market research and customer data, seize control of a CRM project the moment the CIO completes the integration. But to Ward's surprise, rather than relinquish his customer responsibilities when the system was installed, he was given more customer responsibility. Now he is responsible for CRM, customer service, customer surveys and point-of-sales feedback. And his IT staff now includes writers, artists and even marketing professionals. After 15 years of traditional IT work, Ward finds the expanded role exciting. Still, in his mind, Hard Rock's goals are relatively simple and straightforward. "If somebody had a phenomenal time in Paris, they go home to Cleveland, and there is a follow-up e-mail from the general manager to come in and experience the local Café, again increasing the frequency of a customer's visits," says Ward. The Hard Rock has figured out a few ways to drive traffic to the website, which allows the company to capture more information—such as age, address and musical tastes—about their restaurant customers. At the bottom of every restaurant receipt is an identification number, unique for every meal, which can 4

Hard Rock Café case study (continued) be entered into the website. In exchange for a $5 gift certificate, visitors can then enter some personal information and fill out a survey rating the Hard Rock experience and naming their favorite bands. The Hard Rock then sends notification when that band is in town or when a similar band may be playing at the local Café. Also, restaurant diners can have a digital picture taken among the guitars and posters and then find the picture posted for download on Hardrock.com. Through a strategic agreement with eBay, rock 'n' roll fans browsing for memorabilia on the auction site are routed to www.hardrock.com. And the site itself is trying to become a haven for music lovers. It offers streaming playback of concerts, memorabilia trading, music communities, trivia and a customizable My Rock section that keeps fans informed of the latest happenings of their favorite bands.

MONEY CHANGES EVERYTHING CFO Little recalls a recent interview in which a reporter, confusing the Hard Rock with Planet Hollywood, asked him how it felt to bring a company out of bankruptcy. "If the media are having a hard time distinguishing us," he says, "then the consumer must also. So everything about this last year has been about separating us from the pack." CRM isn't easy. But there are three early indicators that the Rock might be on a roll. First, customers are actually completing the online survey referenced on the receipts. The restaurant won't disclose the exact completion rate, but Little says it is "substantial double digits"—which might sound low, but is actually a staggering number compared with the standard 2 percent or 3 percent response rate of direct-mail promotions. Second, 70 percent of people who get their picture taken at the café have claimed their photo online. That fact indicates that the drive-diners-to-the-Web leg of the strategy is humming. Third, and of course most important, is the bottom line. Sales were more than $200 million for the first half of 2000—on pace to easily outdistance 1999's $388 million showing and thus reverse the declining sales trend. Emboldened by these facts, Hard Rock is expanding its website to include pages for each restaurant, celebrating the cool and crazy characters who work in the local Cafés—75 percent of whom play in one band or another. Further Web content and promotional deals are in the works with Internet music companies Liquid Audio and CDnow. (Company officials are mum on the details.) And next year the Hard Rock will extend its brand with a series of music-themed hotels and casinos. And the current offerings will be fine-tuned as well. While the Hard Rock doesn't sell city-specific merchandise on the Web—to preserve the clothing's travel-trophy value, they say—the CRM system will allow, for example, customers to purchase merchandise from a Café they have been to in the past. Plus Ward is confident he can use it to increase the flow of customers to the restaurants. "We are trying to build a community around the Cafés," he says. "Not just an online community but a real live community where you're going to find out what band is playing at the Hard Rock, and say, 'Hey, we're going.'" And if he can do his job, the Cafés can focus on what they do best. Serving cold beer, hot burgers and fajitas, and music. Lots of music.

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Hard Rock Café case study (continued)

Case Questions 1. What information problems did the Rank Group find at Hard Rock across these three units: restaurant operations, merchandising, and financial management? As part of your answer describe the level(s) of information processing at which each problem existed (reminder, an information problem can affect the organization at multiple levels of information processing). 2. Assess the data quality of Hard Rock’s financial reporting in the period when the Lawson system had 50 different ledgers [hint: format is a table]. 3. Describe three data elements you would reasonably find in Hard Rock’s CRM (note: be sure to read the Special note on metadata in the Reading Assignments for this session). 4. How might data in the Hard Rock CRM differ from data in the Hard Rock Point of Sale (POS) system?

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