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Withhold Authority at Your Own Risk
How do you mitigate the risk of your staff making poor decisions that impact either revenues or costs or hurt the business? It is common for managers to feel conflicted on this question and wonder how closely they should regulate the authority of their employees. A recent study of front-line staffers in casinos will help answer that question.
The study, looking inside the MGM-Mirage casinos, examined the relative impact of monitoring on casino hosts’ decision-making.1 Casino hosts have the critical role of interacting with high rollers and developing a relationship that includes offering comps to these customers. Every comp dollar should translate into additional revenue over the coming year from this high roller. As policy, casino hosts are allowed to comp up to 40% of the expected spend for that high roller. Hosts can exceed this limit; however, an exception report is generated by the casinos as a way to monitor comps that exceed the 40% threshold.
Because different MGM properties monitor the comp exception policy differently, the study looked specifically at the effects various monitoring levels had on the actual payback to the casino from the comp decisions made by hosts. That is, hosts operating under more lenient monitoring procedures—where the exception report was reviewed and investigated by higher ups less frequently or not at all—were compared to those working under stricter monitoring where reports were reviewed daily.
The findings were unequivocal: those working under looser monitoring got better results. Given more authority to experiment and play hunches on comps, hosts from the less restrictive group returned $1.82 (in expected revenue for next year) for every $1 comped versus $1.38 for the more tightly monitored hosts. Let’s examine some reasons why this occurred.
Managers commonly wrestle with the dilemma of how to reign in employees in order to reduce risk of mistakes. But as can be seen by this case, reigning in has the cost of stifling creativity and autonomy and limiting learning. It is difficult to grow people if they do not own the work and have authority to accomplish results. Ironically, the cost of holding back the long-term development of decision-making ability by staff creates the greater risk of holding back the actual, real-time results that are achieved.
- The less monitoring led to more experimentation by the casino hosts. This is not surprising, but it would seem that this would also create more risk for bad decisions that would put the casino upside down. But the effect of experimentation overcomes this risk because of the learning factor. Casino hosts, reasoned the study authors, learned how to read qualitative signs—based on their experience—on behavior that would call for the overcomp. Those in tightly monitored environments experiment less by complying with the 40% guideline. Many jobs, even by front-level staff, call for decision-making that must be learned and cannot be taught. Experience is critical to this learning.
- When people have autonomy they are more likely to own their performance and their learning that is most relevant to that performance. Managers must separate monitoring of results from monitoring of how those results are achieved. The casino hosts’ job is one of relationship building and the casinos that got the biggest payoff from the critical customer service function were the ones that allowed the hosts to use their experience, knowledge, and creativity to full use. Noted the authors, the less monitored hosts planned better when they did deviate from the 40% guideline. In this case, the how of overcomping was optimally delegated to hosts who were closest to the work.
- These experiments took place where the work gets done and where the best decision can be made. The authors concluded “that a casino host’s local knowledge and experience, reinforced by a less-controlled management apparatus, is an invaluable asset for the specific property.” The key here is that when authority is given at the correct level, the best chance for the right decision right here, right now can occur. Judging from the results in this study, putting the decisions in the right place is the best way to get better-than-expected results.
1Dennis Fisher, Casino Payoff: Hands-off Management Works Best, Harvard Business School Working Knowledge, May 2, 2011. Website: http://hbswk.hbs.edu/item/6656.html
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