Week 1 - Management control

Question 1

3 basic Control problems

Answer 1

1. Lack of DIRECTION
   - do employees understand what we expect of them?
   » but could lead to trade-off of focusing on quantity>quality
   » and AGENCY PROBLEM, have own goals / don’t want to work towards co’s objectives
2. Lack of MOTIVATION
   - will employees work consistently hard and do what is expected of them?
   » could trigger side effects where giving more bonuses might lead to employees gaming the system (eg. shifting sales to another period) -> causes more problems than adding efficiency
3. PERSONAL LIMITATIONS
   - are employees capable of doing a good job?
   - lack of training, experience, knowledge
   » cultural problems have huge impact on org.s

Question 2

2 general rules of Management control systems

Answer 2

1. Controls are CONTEXT-SPECIFIC
2. More controls ≠ better control
   - typically, LESS controls is better

Question 3

Cultural/personnel controls

Answer 3

Use if: can rely on ppl, can make ppl reliable
1. Rely on group norms
eg. codes of conduct, group-based rewards, tone at the top
2. Find the RIGHT PPL and give them a good work environment and resources
eg. selection, trainings, job design
3. POWERFUL control type (but not enough alone)

Question 4

Action controls + feasibility

*important for co.s involving high risk, eg. chemicals, casinos

Answer 4

Use if: have knowledge about actions
1. (Don’t) let employees perform actions known to be beneficial (harmful)
2. Disadvantage - employees are “constrained”
- DISCOURAGE CREATIVITY/innovation & might lead to -ve attitudes

3. NOT always feasible; managers need to KNOW what actions are DESIRABLE
   - eg. not in creative/innovative work, such as movie directing

Question 5

4 examples of Action controls

Answer 5

1. Behavioural constraints
   - physical or digital
2. Pre-action reviews
   - approve employees’ actions first, eg. investment plans
3. Action accountability
   - hold employees accountable for their actions
   eg. demand # of calls to be made daily, ask to sign forms
4. Redundancy
   - MULTIPLE PPL on a particular task to “check themselves” and ensure job done properly
   eg. count cash with >1 person to prevent mistakes, like casino dealers

Question 6

Results controls + feasibility

Answer 6

Use if: have knowledge about results
1. REWARDS employees for good results (or punish for poor results)
2. Advantage - employees are not/less constrained
» but employees may get so creative they engage in fraudulent activities

eg. PAY-FOR-PERFORMANCE like bonuses, sales commissions, paying through firm’s shares

3. Not always feasible
   - managers need to KNOW what actions are DESIRABLE (not usually a problem although may be disagreement)
   - managers need to be able to MEASURE the RESULTS (can be problematic for NON-FINANCIAL results, eg. if can’t measure environmental impact means can’t set bonuses)
   - EMPLOYEES need to have an IMPACT on the RESULTS (can be problematic, eg. if only a few employees can impact firm’s stock price directly -> unfair to hold them accountable for those results)

Question 7

What is the alternative remedy to Management control systems?

Answer 7

If humans can be avoided -> Control problem avoidance
eg. activity elimination, automation, centralisation (not useful for ALL activities of course)

Question 8

Bellagio Casino Resort case
In general, what are the 2 key control characteristics here?
^Generalisation to other firms/industries

Answer 8

1. Few results controls
   *low knowledge about (and ability to measure) results {column}
   - “desired results are DIFFICULT TO DEFINE/MEASURE, eg. speed/profitability/customer satisfaction are imperfect indicators, difficult to measure, difficult to hold ppl accountable in surveys eg.
   - in the short term, outcomes can be RANDOM, ie. dealers cannot always influence outcomes
   - for VPs, is higher profitability better? casino wants customers to win too
2. Many cultural/personnel & action controls
   *high knowledge about which actions are desirable {row}
   - dealer quality very important -> strict selection policies
   - good understanding of undesirable actions -> disincentivise these undesirable actions

• cultural/personnel controls always important, but esp. when it is COSTLY/DIFFICULT to REPLACE EMPLOYEES
  eg. audits, sport teams
• strict action controls for VALUABLE/LIQUID ASSETS {this type of industry}
  eg. gold mines, banks, jewellery stores
• little use of results controls, when setting involve mainly lower-level employees

Question 9

Bellagio Casino Resort case
“Tight” or “loose” control strategy?

Answer 9

1. In general, TIGHT control
2. “LOOSER” at VP-level, ie. reliance on imperfect results controls

Question 10

Bellagio Casino Resort case
What are some controls in place for…
1. dealers
2. pit bosses
3. VPs

Answer 10

• only P & A controls for dealers and pit bosses
• as above + one results control for VPs -> bonuses based on growth numbers, not profitability! (due to TRADE-OFF between short-term and long-term profits)
• all 3 types of employees have…
  > licensing and background check, by law and additional (P)
  > hiring requirements (P)
  ie. STRICT SELECTION POLICIES since dealer {/employee} quality is very important

Other controls:
Dealers
- extensive training to standardise actions (P)
- relief dealers -> frequent rest breaks (P/A)
- accountability for cash/chips (A), documented on shift change (A)
- supervision by floor manager and pit boss (A)
- extra surveillance through HD CCTV (A)
- mystery shoppers (A)

Pit bosses
- promotion (P)
- extensive training (P)
- CCTV and surveillance (A)
- strict documentation (A)
- money transfers to count room with 2 security guards (A) {REDUNDANCY}