MGT 414 Module 8 Controlling and Performance Measurement Example

Rewarding Sales, Hoping for Care: Redesigning Controls at a Chain of Dry Cleaners

Student Name

Business Administration Program, Aspen University

MGT 414: Principles of Management

Instructor Name

Month Day, Year

Rewarding Sales, Hoping for Care: Redesigning Controls at a Chain of Dry Cleaners

Plaza Press Cleaners, a composite company, operates eleven dry cleaning stores across Kansas City, Missouri, with a central plant that cleans and presses garments collected at the stores. Store managers handle customers, sell services and resolve complaints. Two years ago, to raise revenue, the owners introduced a bonus of 3% of each store's sales above a monthly target. Sales rose 9%. But damage claims, for lost buttons, shrinkage and stains made worse, rose from 0.4% to 1.3% of orders, and the share of customers returning within three months fell from 64% to 51%. This paper examines the chain's controls and recommends a better system.

The Current Controls

The owners receive a weekly sales report for each store. The plant manager reports volume processed. No one reports claims by store, customer retention or how long orders take. Managers' bonuses depend on sales only, and the owners discuss results with managers when sales fall.

Rewarding A, Hoping for B

Kerr (1975) called it a folly when an organization pays for one kind of behavior and then expects a different kind. His cases included universities that wanted strong teaching but promoted faculty for publications, and companies that wanted lasting growth but paid executives on the latest quarter. People do what they are rewarded for. Plaza Press hoped for careful service and loyal customers but rewarded sales. Managers responded rationally: they sold rush service the plant could not deliver carefully, pushed stain treatments on fabrics that could not handle them and spent less time inspecting garments at intake, where many damage claims begin.

A Balanced Scorecard

Kaplan and Norton (1992) argued that financial measures alone tell managers about past results but not about the drivers of future performance. Their balanced scorecard adds three perspectives: customer, internal business process, and learning and growth. A few measures in each, linked to strategy, give a balanced view and guard against improving one area at the expense of others.

Beyond Measures

Simons (1995) argued that measures alone cannot control organizations that depend on employees' initiative. He described four levers. Beliefs systems communicate core values and purpose. Boundary systems set limits on what employees must not do. Diagnostic control systems measure results against targets, like the scorecard. Interactive control systems are regular conversations through which top managers engage with subordinates on strategic uncertainties. At Plaza Press, the beliefs system will be a short statement that the chain treats every garment as if it were the customer's favorite. The boundary system will include rules such as never offering stain treatment on fabrics the plant identifies as unsuitable and never promising same-day service after 10 a.m. The interactive system will be a monthly meeting where owners and managers discuss claims and customer comments, not only numbers.

What Managers and Staff Said

Before designing the scorecard, the owners met with all eleven store managers. Several admitted that they had stopped inspecting garments closely at intake because it slowed the line and did not count toward the bonus. Others said they had complained to the plant about rush orders but saw no change, since no one tracked claims by cause. Counter staff said customers who came back with damaged garments often left without filing a claim and simply did not return, which means the claims figure understates the problem. The measures in the scorecard respond directly to what managers and staff described.

Risks of the New System

Any measure can be gamed. Managers could discourage customers from filing claims to keep the claims figure low, which is why the scorecard also tracks complaint resolution and return rates, and why the owners will sample customers who stopped returning. Too many measures can also overwhelm; the scorecard holds eight, two per perspective. And the monthly meeting could become a ritual of reading numbers aloud; Simons's interactive control depends on genuine discussion of what is uncertain, so each meeting will open with one customer story rather than a report.

Revised Rewards

Managers' bonuses will be split: 40% for sales against plan, 30% for keeping claims under target and 30% for customer return rates. Kerr's lesson is applied by rewarding the outcomes the owners actually want.

The Plant's Share of Control

Many claims begin at the central plant, where garments from all eleven stores are cleaned on a schedule set by volume. Under the old system, the plant manager was measured only on volume processed, another case of rewarding A while hoping for B. The plant manager will now share the claims target with store managers and own the on-time measure. Each claim will be coded by cause, intake, cleaning, pressing or handling, so stores and the plant can see where problems start rather than blaming each other. A monthly claims report by cause will be posted in the plant and every store.

The Control Process

Each month, standards are set by the scorecard targets, results are measured from store systems, compared with targets in the monthly meeting and corrected through actions agreed with each manager.

Connecting the Functions

Controls follow from planning, because targets reflect the chain's goals. They depend on organizing, since claims require cooperation between stores and the plant. And they rely on leading, because the monthly conversation is where managers learn what the owners value.

Measures of Success

After a year, the owners will compare claims, return rates and sales with the prior two years.

Conclusion

Plaza Press's sales bonus worked exactly as designed and damaged the business it was meant to grow. Kerr's article explains why, Kaplan and Norton's scorecard balances what is measured and Simons's levers add the values, limits and conversations that numbers cannot supply. Together they give the chain a control system that rewards the careful service its customers expect.

References

Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard: Measures that drive performance. Harvard Business Review, 70(1), 71-79.

Kerr, S. (1975). On the folly of rewarding A, while hoping for B. Academy of Management Journal, 18(4), 769-783. https://doi.org/10.2307/255378

Simons, R. (1995). Control in an age of empowerment. Harvard Business Review, 73(2), 80-88.