04 Jan 2011Working Paper Summaries

The Learning Effects of Monitoring

by Dennis Campbell, Marc Epstein and Francisco de Asis Martinez-Jerez

It's a challenge that all good managers face: How do you strike the right balance between encouraging autonomy among your employees and mitigating the risk that they'll make bad decisions? Using both field and quantitative data from the MGM-Mirage Group, this paper discusses how management controls affect the learning rates of lower-level employees. Research, focusing on hotel casino hosts, was conducted by Dennis Campbell and Francisco de Asís Martinez-Jerez of Harvard Business School and Marc Epstein of Rice University. Key concepts include:

Tightly monitored employees were less likely to make independent decisions, even if their job descriptions allowed them to do so. They were even less likely to adjust their decisions to account for information they could easily show to their superiors to justify those decisions.
The lower frequency of experimentation in their decision-making leaves employees in tightly monitored environments with few opportunities to learn. The researchers question whether employees in these micromanaged environments made up for the lack of experimentation by paying more attention to and learning more from each experiment.
The researchers found strong learning effects among employees in settings where they were monitored by their bosses somewhat loosely. In settings where they were more tightly monitored, employees learned very little.

Author Abstract

This paper investigates the relationship between monitoring, decision making, and learning among lower-level employees. We exploit a field-research setting in which business units vary in the "tightness" with which they monitor employee decisions. We find that tighter monitoring gives rise to implicit incentives in the form of sharp increases in employee termination linked to "excessive" use of decision rights. Consistent with these implicit incentives, we find that employees in tightly monitored business units are less likely than their loosely monitored counterparts to (1) use decision rights and (2) adjust for local information, including historical performance data, in their decisions. These decision-making patterns are associated with large and systematic differences in learning rates across business units. Learning is concentrated in business units with "loose monitoring" and entirely absent in those with "tight monitoring." The results are consistent with an experimentation hypothesis in which tight monitoring of decisions leads to more control but less learning.