The Unprofitable Lessons of Casino Micromanagers

Last Updated May 6, 2011 12:10 PM EDT

Micromanagers are everywhere -- even running some of the world's most successful gambling casinos.

A fascinating story on Harvard Business School Working Knowledge, for which I serve as editor, looks at how micromanagers can sap the creativity out of public-facing employees and hurt the bottom line in the process.

The setting for this research was the gaming industry, where "casino hosts" working for the MGM-Mirage group mange the relationships with big spenders. Casinos allow these employees to comp the big wheels with discounted or free services in the hopes of building customer loyalty that results in higher spending over time.

So it's a classic dilemma faced by many managers. Do I allow my employees freedom to please the customers as quickly and effectively as possible, or do I tighten the reigns to minimize the fallout from a mistake?

The research team -- Dennis Campbell and Francisco de Asís Martinez-Jerez of HBS and Marc Epstein of Rice University -- showed that hosts who were given more discretion in awarding comps developed customers who spent up to 32% more the following year than hosts whose comps were held to closer inspection by the guys upstairs.

It turns out that hosts subjected to second-guessing were less willing to take a flier on someone who was not a sure bet, so to speak. They tended to base their comping on guidelines established by their employer.

The less controlled hosts, by contrast, felt empowered to use their experience, gut instinct, and knowledge of past spending practices by individuals to take some chances. As one host told the researchers, "Good customers play differently. I've been here a long time, and I just know when it makes sense to overcomp."

But here's the real Triple 777 takeaway. The less-monitored hosts were successful not just because they could play more hunches, but because they could experiment and learn from the results. One experiment might be to try and develop a customer over a longer number of visits than usual. Another might be to mix-and-match different comps for various individuals to see which work best.

"What we found is that you learn more from your experiments when you have more freedom," Martinez-Jerez is quoted as saying. "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."

Read the full piece written by Dennis Fisher, Casino Payoff: Hands-Off Management Works Best, then return here for a little discussion. Tighter management controls or fewer? What would work best in your organization, and why?

(Photo by Flickr user greengardenvienna, CC 2.0)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.