P
rofessor Kenneth A. Merchant wrote this teaching note as an aid to instructors using the Game Shop, Inc. case.
Marshall School of Business
University of Southern California
Game Shop, Inc.
Teaching Note
Purpose of Case
This case describes an unusual, innovative application of a results control systemuse of a
billing scorecard to improve billing performance in a project environment. Most companies
Suggested Assignment Questions
1. Why was GSIs production quality control performance so much better than its billing
performance?
2. Would you include billing performance among a short list of critical success factors for
GSI? If so, why has it apparently not received much attention from management up until
now? If not, why all the concern now?
3. Evaluate the billing improvement effort and each of the elements of the system that
emerged. Comment specifically on the billing scorecard, detention meetings, P-CARs, and
any other system elements that you believe are relevant.
a. In considering the scorecard, be sure to address the following questions: What are the
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
4. GSIs ultimate goal is perfection. Can this system be used to achieve billing perfection as
it is designed, or will changes have to be made, or might even a totally different approach be
necessary? Explain.
5. The Billing Scorecard is a results-accountability approach to address the problem, chosen
Case Analysis and Questions to Ask in Class
1. What are the critical success factors (CSFs) for Game Shop?
Customer satisfaction/retention
Keep up with technology
Cash flow/maintain adequate working capital
Cost control/efficiency
If billing accuracy is a CSF, why did it take the company so long to start focusing on it?
Original focus on production quality. Billings not seen as important until customers
complained.
2. This is an unusual application of a results control system. Most companies just
define a set of billings policies and procedures and make sure billings clerks follow
the procedures. Would a strict policies and procedures-type action accountability
system work here?
Probably not:
There is no standard billing process. There are so many exceptions:
Bills and processes are often tailored to the customer
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3. Goal setting
The purported goal is perfection. Why not just set that as a goal?
Instead:
i. 98% accuracy (more realistic than 100%)
4. If this project is successful, it will:
Help retain customers
Bring in revenue more quickly. Reduce accrued revenue amount from over $5 million
to about $1.3 million.
5. The improvement process
a. Brainstorm to identify the causes of the errors. Build a fault tree. (They identified nearly
100 different causes.)
A lot of controls were missing. Three main categories of problems:
System/process issues
6. The three main categories of causes:
a. System/process issues. Billing and IT departments resistant to change.
i. Billing department
Comfortable with existing system (this is often correlated with age)
ii. IT departmentfocused on operations
If top management tells them to place equal weight on billings, would that solve
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b. Customer issues
i. Customers want flexibility and do not want to accept bills until the project is
finished. Customers sometimes throw up obstacles just to delay their payments.
c. Management issues
i. Lack of motivationmore focused on production
ii. No written instructions
iii. PMs lack of understanding
iv. No redundancy
d. If GSI were a public company, would these control problems be written up in a
SarbanesOxley (SOX) 404 audit? (Yes.)
7. The billing scorecard
a. Four measures (weighted equally):
i. Percent of sales invoiced (a plus)
Relates to goal to reduce accruals to no more than 30 days of sales
Tells whether the accrual pile is growing or shrinking
Customers will take advantage of GSI if the company lets them
ii. Adjusted number of weeks of sales accrued (a minus)
Tells how big the accrual pile is
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There is no motivation to decrease the customer approval delay. (One can
iii. Percent of sales shipped without a PO (a minus)
Tells which business units are not doing their job properly, since nothing is
supposed to ship without a PO. Securing a PO is the most basic billing task.
iv. Percent of accruals < 30 days old (a plus)
Relates to same goal as Measures 1 and 2, but it tells how much of the accrual
is less than a month old and therefore less at risk.
Sharp cutoff doesnt recognize difference if accrual is 32 days old or 150 days
old.
b. Evaluate the set of measures in terms of measurement criteria
i. Congruence
The set of measures seems to be incomplete. In particular, accuracy is described
as being one of the key goals. It seems to be left out of the billing scorecard.
a. Accuracy was a continuing frustration for the Operations Billing
department. Some departments were over-reporting revenue and later
b. David was never able to come up with an easy way to measure the
inaccuracy that upper management had complained about (wild variances
between estimated and actual income; misreporting of reasons why things
were not billed). David tried to conduct an accuracy audit, but his efforts
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d. In addition, the accrual was reported to upper management with
explanations coded as to why the item was not billed. The most popular
ii. Controllability
The people responsible for billing timeliness and accuracy (PMs) did not have
authority to make some necessary changes. Customer behavior, billing
department behavior, and systems issues affect performance and cannot be
completely controlled by PMs. (There may be some discussion about how much
PMs can control the above). Outside, uncontrollable forces are less of an issue
for production quality.
iii. Accuracycan measures be gamed? No audit.
(1) Rejection score: # rejected packets × 5 / # packets submitted. This was intended to tell who is being sloppy, not controlling their
(2) Late submission score: # packets submitted > 2 weeks after approval. This was designed to show who was not billing on time.
The score on this scorecard started out at a C average in October 2010, but by the middle of 2011 the company-wide average was
A .
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c. Accountability
i. Grades are something that everybody understands
ii. Detention meetings (<2.0 grades)
Purposes: Try to understand why there is a low grade. Look at details. Decide
how to fix.
Do business unit managers enjoy going to these meetings? No. Therefore the
meetings are motivational. Management chose the detention label purposely to
iii. P-CARs
Describe where the process went wrong, who was responsible, corrective
iv. Bonus modifier. Billing accuracy has to meet a threshold level of performance or
the bonus is modified downward.
Production quality is highly visible because of the monthly management review
report. Will the scorecard get the same amount of attention? Should it be included
as part of the management review report?
Billing accountability is more difficult because:
a. Billing is not the primary responsibility of the PMs.
8. Overall evaluation
a. The right approach? An innovation?
i. Early results appear excellent.
ii. Production quality is deeply entrenched, long-standing company value. It will take
some time and reinforcement for billing quality to become an expectation as well.
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v. Encourage more change of customer behavior.
vi. Invest more in the billing systems as company grows.
b. Suggestions that students have made:
i. Focus more on accuracy. But what is accuracy? Certainly no errors in billing, no
double billing. But how to address under-billing?
ii. Measure customer complaints, or satisfaction.
iii. Better PMshiring/training. More PMs with some financial background.
iv. Have PMs log interactions with customers so that those can be better understood.
v. Better IT support.
Pedagogy
The questions discussed above provide one plan for teaching the case that has been used
successfully both with graduate and undergraduate students. The outline is logical and keeps the
discussions on track. The accounting students, particularly, really tend to get engaged in the
case discussion. They tend to find the approach to the solution of some common problems
innovative.