02 May 2011  Research & Ideas

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.

 

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.

Host controls

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."

About the author

Dennis Fisher is a writer based in Plymouth, Massachusetts.

Comments

    • Elmer Rich III
    • Principal, Rich and Co.

    This is the best HBR article we have seen in a long time. "We are easily convinced by data."

    This makes a lot of information-processing sense.
    1. Removing obstacles to both gathering real-time local information gathering 2. Then being able to act on it quickly.

    It has always been puzzling how firms hire the best folks -- then tell them what to do. Especially the people who make you money everyday.

    Think we know micromanagement has more to do with a fa manager's difficulties in managing their uncomfortable emotions than effectiveness.

    "People would rather maintain the illusion of control and fail, then create wealth." Makes sense.

    (EDITOR'S NOTE: Thanks Elmer, but just to be clear, this is not an article from our good friends over at Harvard Business Review--it's HBS Working Knowledge.)

     
     
     
    • Pankaj Sahai
    • Author, Smooth Ride To Venture Capital

    Interesting study in a more interesting milieu, proving the larger point about empowering employees to get the best out of them.

    Empowering employees and giving them autonomy and decision making authority in their jobs greatly enhances the overall effectiveness of their performance.Their performance objectives , however, need to be aligned to those of the company, if the business has to meet its responsibilities to its stakeholders. Therefore, in businesses in which decision- making is pushed down the management pyramid. the risk management and control functions need to be very effective, ensuring that the overall corporate objectives are not compromised. The skill lies in maintaining the fine balance between empowerment and risk management.

    The short point is this : the "wow" customer experience , delivered through quicker point-of-contact decision making, should lead to "wow" experience for all the stakeholders of the business. If it does not, there there is an imbalance in the business model.

     
     
     
    • Ian Walker
    • Operations Manager, Cisco

    This is indeed a powerful article: however, responsibility to make decisions within a framework of tighter or looser control applies not simply to customer-facing activities but to all management. Clearly there are scenarios when tighter control is more appropriate, but the highest performance comes when managers define a clear playing field and set of 'rules', but hand over control of further decision-making and action to individuals.

     
     
     
    • Krishnamurthy Prabhakar
    • Professor, Velammal Engineering College

    The key words used are "It's not absolute freedom--it's freedom within a framework; they have guidance and a point of reference." In my opinion if the the tasks require low cognitive skills ( as in the case of casinos) this paradigm may work. For example in the case of banks ~ they are prone to defraud, if they do not have any guidance or reference. If highly challenging cognitive skills are required absolute freedom is required for performance. I do not think so university professors will perform better if they are provided with guidance and point of references. Is it possible to substitute guidance and point of references with values and ethics? Will there be economic guidance alone should drive them or ethical and moral dimension should be added for the study?

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    Leaving the staff to get closer to high-value customers works to a great advantage for the organisation if only if laid-down systems and procedures, organisational mission and ethics are not lost sight of at any stage. At times the closeness leads to demands which are not within accepted norms. In order not to displease the customer, some out of the box solutions are devised. In a hands-off management system, where adequate control is not effective, such irregulaties will not be detected for long and and when detected it might be too late. The job performance should be subject to monitoring, degree of which to suit the activity being monitored. We do not advocate very tight monitoring for it will thwart innovation but each operator must be given a feel that he is under close watch. Generally, loosening controls is a prescription for eventual disaster.

     
     
     
    • Rohit Mahajan
    • Managing Director, Saviance Technologies

    It is really difficult to go from being hands on to hands off.

    Going hands off seems to be important especially if a strong senior management team is getting into place.

    I am interested to know how can one make this transition and which are some to the tools and techniques one can use in this process.

    Also when does one step back in. What are some of the indicators or dashboard items.

     
     
     
    • William Leduna
    • Project Mgmt/Supply Chain, Independent

    This is one of the best articles and studies out there. Having this study with supporting data would hopefully encourage a looser control in managing individuals. I strongly agree with the statement "...It's not absolute freedom--it's freedom within a framework; they have guidance and a point of reference." Individuals are persons who have the free will and potential capabilities to make the right decisions and even superior ones. This freedom is one of the richer source of innovations and high performance. Define the clear parameters and let them loose within that framework. Then have the measures to kick out exceptions on a periodic basis.

     
     
     
    • Venkat
    • Asst Vice President

    It is an interestng read. Given the hypothesis that greater hands off management approach would work, yes it would in cases, where the business may have typical charecteristics like

    1. Customer interaction is close
    2. Service deliverables are instant
    3. Turn around time is very little to decide on go-please customer motto
    4. One - on one relation is key to run the business

    Now what could these be. Well they are retail grocery stores, spa centers, GYMs, Casino's, fast food eateries, to name some few

    Best regards Venkat

     
     
     
    • David Chellgren
    • Chief Financial Officer, Devcon (TCI) Ltd

    Interesting article - excellent research as usual from the brilliant Asis Martinez-Jerez and David Campbell et al. Full disclosure: Martinez-Jerez taught one of my classes at HBS.

    We're conducting our own experiments in the amount of freedom to give our project managers in pricing construction projects. How much leeway should the project manager have to set the final profit margin on a bid vs. codifying fixed margins or narrow ranges.

     
     
     
    • Thad Cummins
    • VP, pointclickutils

    "Tell people what to do not how and they will surprise you with their ingenuity."

    Gen. Patton US Army 1945

    The US Military has been pushing management decision making down the ranks since the 1980s. Mission and operational orders are clear. Methods and execution were up to the men on the ground.

    Since returning to the civilian world over 20 years ago I believe our addiction to Taylor's Scientific Management has blinded business minds to alternative and more effective methods of management.

     
     
     
    • David Tighe
    • Partner, Bovo-Tighe

    We recently did another wave of employee engagement programming up on the North Slope in Alaska, an operational area full of guidelines and regulations to ensure safety among oil field workers. Each time we go up there we witness that very paradox this article addresses: Given the latitude to invent better solutions within their sphere of responsibility, employees willingly do so without promise of remuneration (for reasons too extensive to detail here.) I believe that with the mindset and toolsets that we and other development professionals employ, any business will benefit from unleashing the full contribution of all of their employees. It goes back to the "Economics Of Trust," about which multiple papers have been written. The only way people get smarter is if they are allowed to experiment and the closer you monitor them, the less they experiment. You don't abdicate supervisorial responsibilities, but do it more productively, creatively. It's all about feedback (the Pursuit of Truth!).To the degree any business can support each employee in understanding their roles and allow them to be creative and innovative in the customer interaction, that business will see full engagement from their workforce. Full engagement results in more and better focused energy in every interaction. This permanently boosts personal productivity, which this research proves is measured in tangible financial benefits for the organization.

     
     
     
    • Ralph S. Delligatti
    • retired, retired

    The degree of leeway should vary depending on each individual host not be the same for the entire department. Some hosts are more experienced, have more important clients and should be given more freedom. Others are developing their following, learning what should and should not be comped and learning how to deal with each level of client. This group has to have more controls placed on them. The most significant factor is badly handled comps almost always result in a lost customer. In todays competitive environement there is no room for that kind of risk taking. Sure, it's more work for upper level management but isn't that what they are getting paid for?

     
     
     
    • Cris Aguilar
    • Training Consultant, Native American Gaming Properties

    Empowerment is a good skill. However, the challenge is for those with the task to let go some of the control and let their employees solve issues at the front-line level on their own. In family-owned businesses such as Native American gaming properties, empowerment is facilitated at several levels within the hierarchy; but the strong focus on results through regulation leave almost no room for learning through experimentation.

     
     
     
    • Thomas Carvalhaes
    • Online Casino Retention Manager for Latin America, Online Casino

    Very interesting article! Perfect readin for me, as this is the business area I am involved with.

    I am all for "hands off" management, however, the only thing I would add is that one needs to make sure that every team member is really engaged in the business goals and targets, otherwise we will be simply setting them up for failure, which can then lead to disciplinary measures etc

    With that said, I believe that such management style is undoubtedly the best for engaged team members.