Organizing Xerox Service Center

Chapter 1 Introduction

ORGANIZING XEROX SERVICE CENTER

Discussion Question Answer:

The individuals who answer the 800 number have the incentives to answer many telephone calls but not to spend time on any given call. Thus, they have incentives to limit the discussion with the customer and to dispatch a service representative even if a longer discussion would address the issue over the phone. The service representatives like this arrangement because they are compensated on the number of service calls they make. Neither the phone representatives nor the service representatives have incentives to take the follow-up activities seriously. The phone people do not want to learn how to serve customers better if it means handling fewer calls. Similarly, the service representatives want to make service calls.

SOCIETE GENERALE

Discussion Question Answers:

1. It is true that the Societe Generale employee traded on behalf of the bank and that any of the direct gains and losses from the transactions would go to the bank not the employee. This does not, however, necessarily imply that the trader was acting "irrationally" in placing the bets. It is likely that at least part of his bonus was either directly or indirectly tied to his performance as a trader. Also his performance could affect his prospects for proportions to higher level positions and compensation at the bank. While the trader's compensation may be small from the standpoint of the bank, it was likely important to him. Clearly the trader's actions were risky and have legal implications. Nevertheless, he could have concluded that the prospects of a higher bonus and promotion outweighed the costs. He apparently had confidence that the European stock market would increase over time. His knowledge of the control system helped him to conceal the transactions and reduce the likelihood that his actions would be detected. Indeed his actions were only discovered after a huge and rather unusual on day drop in European stock prices of nearly 6%. While his actions could be characterized as risky and apparently illegal, it is not clear that they were completely "irrational."

2. The example raises managerial questions about whether it is wise to move an employee with detailed knowledge of the internal controls into a trading position without additional monitoring or better controls. While the details of the fraud at Societe Generale were still being investigated, it is plausible that the bank's organizational architecture contributed to the problem - the bank's delegation of decision rights provided the opportunity to undertake the trades, the bank's incentive system may have helped to motivate the improper actions, and the bank's