Casino Payoff: Hands-Off Management Works Best
Micromanagers beware: Research of casino hosts by Harvard Business School's Dennis Campbell and Francisco de Asís Martinez-Jerez and Rice's Marc Epstein makes the case that hands-off management can work to improve employee learning and decision making. Key concepts include:
- Tight monitoring of public-facing employees results in less risk-taking and experimentation in an organization.
- When employees are given the latitude to experiment, they often gain localized knowledge and use it to make decisions that increase the company's performance.
- Such learning generally happens only in loosely monitored environments.
At the gambling meccas that employ them, they are called "casino hosts"—essentially front-line employees with nevertheless big responsibilities.
These staffers work to develop one-on-one relationships with high-rollers to make sure they are very happy customers. The main weapon in their arsenal is the "comp," or complimentary benefit, which can include a free dinner at a hotel restaurant, reduced-priced tickets and good seats to a show, or even free lodging in deluxe accommodations.
In short, casino hosts are the ultimate customer service providers, working with varying degrees of autonomy to ensure that the casinos' best customers return to play another day.
"It's not absolute freedom—it's freedom within a framework" —Francisco de Asís Martinez-Jerez
And it turns out that casino hosts are ideal subjects to gain insight into an ongoing question debated for decades by business management researchers and practitioners alike: What is the proper balance to be struck by a business between encouraging autonomy so that employees can ignore red tape to serve the customer quickly and efficiently, and mitigating the risk that they'll make bad decisions?
A new paper on the effects of employee monitoring makes the case that if business owners are interested in their customer-facing workers learning and making progressively better decisions over time, they're far better off taking a hands-off approach and granting more freedom for decision-making.
The findings, presented in the paper The Learning Effects of Monitoring by Dennis Campbell and Francisco de Asís Martinez-Jerez of HBS and Marc Epstein of Rice University, are the result of an extensive study of the culture and management style at six hotels in the MGM-Mirage group, a large gaming concern with casinos in several locations across the United States.
The job performances of casino hosts are subject to various degrees of monitoring, even within the same MGM-Mirage organization. The enterprise comprises a number of individual properties that were acquired over time and had their own established cultures and management structures. So casino hosts in some units are more tightly watched than others, allowing the researchers to evaluate results in both loosely and tightly monitored environments.
In what appears to be an industry standard, casino hosts are typically allowed free reign to award comps to good customers up to a value of 40 percent of what the customer is expected to spend, the "theoretical win." (Casinos, as you might expect, are experts at predicting what their favored customers will spend during a visit). If a casino host decides on her own to exceed that ratio, management information systems automatically issue an exception report to be reviewed by the hotel management. In MGM-Mirage units that tightly monitor their hosts, these reports are reviewed daily, and the employee is subject to a request for more information. In less-controlled units, exceptions are reviewed weekly and quarterly and generally with less scrutiny from higher-ups.
The researchers wanted to test their hypothesis that casino hosts in loosely monitored, more hands-off management structures were more successful in their jobs because they felt freer to experiment with comp awards and were able to learn more because of those experiments. For example, casino hosts felt they had more leeway to overcomp a player based on experience with similar customers in the past, or by reading body language or other telltale signs that the customer was going to be a big spender.
The results confirmed that a casino host's local knowledge and experience, reinforced by a less-controlled management apparatus, is an invaluable asset for the specific property and should play a key role in the decision-making process for the employees.
"What's interesting is the magnitude of the results," Campbell says. "You would think that tighter monitoring would result in less frequent experimentation, and that's true. But the … question is, what's the quality of the decisions that these employees make?"
In the tightly monitored properties, when an average employee with five years experience gave away $1.00 in comps to a customer, they got back $1.38 in expected revenue the next year, according to the paper. For comparable employees in loosely monitored units the $1.00 yielded $1.82.
"If I call you every time I see a deviation from the norm, you won't use that freedom," says Martinez-Jerez. "What we found is that you learn more from your experiments when you have more freedom. You plan better when you're going to deviate from the guidelines, and it's not just when you're cornered by a customer and it's the last resort. It's not absolute freedom—it's freedom within a framework; they have guidance and a point of reference."
Looking at other industries
The gaming industry is a unique setting for this kind of research, given its tight regulation by gaming control boards and the government, and its hyper focus on profitability, security, and loss prevention. Those characteristics might, on the surface, make the MGM-Mirage seem like an irrelevant research subject for companies in many other industries. However, many of the behaviors and policies in place at the MGM-Mirage can be found in other companies, and the findings are also readily transferable to other industries.
"Many aspects of the environment at the MGM-Mirage are quite generalizable to other industries," Martinez-Jerez says. "There are many decentralized employees with the rights to act on behalf of customers, and that's quite common in other organizations as well, when you need to make a good decision or the customer will leave. If you look at banks, for example, they have localized decision rights in many cases, where branch managers and even some tellers have the ability to make loan decisions or give customers a better rate than what the guidelines say. In sales organizations, employees have the power to give discounts to customers if they think it will result in more business down the line. You can see this in lots of different settings."
Though Campbell, Martinez-Jerez, and Epstein found that tightly monitoring employees significantly reduces the amount of experimentation they engage in, and thus the opportunities they have to learn, some organizations may still lean toward this model.
"Clearly there are some benefits to tighter control. If your goal is control and minimizing risk, that's going to perform well because people will stick to the script," Campbell says. "If you see each deviation as an experiment, you're essentially accepting some short-term risk, but there's a lot of learning. When you loosen up the controls a bit, you see a difference."