Management Practice and Productivity: Why They Matter

Transcription

1 Management Practice and Productivity: Why They Matter Stephen Dorgan, McKinsey & Company John Dowdy, McKinsey & Company Nick Bloom, Stanford University and Centre for Economic Performance John Van Reenen, Centre for Economic Performance, LSE Raffaella Sadun, Centre for Economic Performance, LSE

2 WE ARE EXTREMELY GRATEFUL FOR THE SUPPORT RECEIVED FROM OUR FUNDERS 1

3 AGENDA Measuring management practice Evaluating the management measure Describing management across firms and countries Explaining management across firms and countries Management practices in Italy 2

4 ASSESSING MANAGEMENT PRACTICE Scoring management practice Created a robust assessment tool to score management of operations, people and performance Setting the sampling frame 4,000 medium sized* manufacturers across U.S., Asia and Europe Medium sized as intra-firm practices more homogeneous Manufacturing as productivity easier to measure Obtaining unbiased responses Conducted Double-blind interviews Managers unaware of the scoring methodology Interviewers unaware of corporate performance Executed by 46 MBA-trained interviewers with business experience Getting firms to participate Obtained Central Bank, Ministry and Employer Association endorsements * Median ~20 employees 3

5 TO SCORE COMPANIES, WE USED DESCRIPTIONS OF POOR, AVERAGE AND GOOD PRACTICE FOR EACH DIMENSION Management practices Example dimensions evaluated Dimension scoring criteria Operations management Quality of targets Interconnection of targets 1 Measures tracked do not directly indicate if overall business objectives are being met. Tracking is ad hoc Performance management Performance tracking 3 Most key performance indicators are tracked formally. Tracking is overseen by senior management People management Time horizon of targets Consequence management Performance is continuously tracked and communicated, formally and informally, to all staff, using a range of visual management tools 4

6 SAMPLE (3,802 FIRMS WITH 208 IN ITALY ALONE) Japan Portugal Greece Italy Poland China Sweden France Germany India UK US count of management

7 AGENDA Measuring management practice Evaluating the management measure Describing management across firms and countries Explaining management across firms and countries Management practices in the U.K. 6

8 INTERNAL VALIDATION SUGGESTS THAT OUR ASSESSED MANAGEMENT PRACTICE SCORE IS INFORMATIVE Assessed management practice score* 1 st interview 4 Correlation of nd interview * 222 firms interviewed by 2 different interviews, interviewing 2 different managers 7

9 THE ASSESSED MANAGEMENT PRACTICE SCORE CORRELATES WELL WITH A NUMBER OF FINANCIAL PERFORMANCE METRICS 7 Labour productivity 6 20 Sales growth (%) Assessed management practice score* ROCE (%) Assessed management practice score* Assessed management practice score* * Firms are grouped in 0. increments of assessed management score 8

10 THIS LINK HOLDS TRUE ACROSS DIFFERENT COUNTRIES AND CULTURES Labour productivity 6. US 6.0 UK Labour productivity 7 CN 6 JP Assessed management practice score Assessed management practice score Labour productivity 7 FR DE Labour productivity 6. IT PT 6 SE PL 6.0 GR Assessed management practice score * Firms are grouped in 0. increments of assessed management score Assessed management practice score 9

11 AGENDA Measuring management practice Evaluating the management measure Describing management across firms and countries Explaining management across firms and countries Management practices in the U.K. 10

12 THERE IS SUBSTANTIAL INTER-COUNTRY MANAGEMENT PRACTICE VARIABILITY Average management practice score - by country* US Germany Sweden Japan Italy UK France Poland Portugal Greece China India statistically distinct groups emerge U.S., Sweden, Japan and Germany U.K., France and Italy Poland Portugal, Greece, China and India 11

13 HOWEVER, MANAGEMENT PRACTICES VARY MUCH MORE WITHIN THAN ACROSS COUNTRIES Distribution of firm level management practice scores by country U.S. Sweden Japan Germany U.K. France Italy Poland Portugal Greece China India

14 HOWEVER, MANAGEMENT PRACTICES VARY MUCH MORE WITHIN THAN ACROSS COUNTRIES Distribution of firm level management practice scores by country U.S. Sweden Japan Germany U.K. France Italy Poland Portugal Greece China India

15 HOWEVER, MANAGEMENT PRACTICES VARY MUCH MORE WITHIN THAN ACROSS COUNTRIES Distribution of firm level management practice scores by country U.S. Sweden Japan Germany U.K. France Italy Poland Portugal Greece China India

16 THE LONG TAIL OF POORLY MANAGED FIRMS PULLS DOWNS THE AVERAGE MANAGEMENT SCORE OF LOW PERFORMING COUNTRIES Assessed Management Practice Score by country US Germany Sweden Japan Italy UK France Poland Portugal Greece China India Average score for all firms Score excluding firms scoring <2 Source: Data collected from interviews as of Sept 24, 2007; team analysis 1

17 THE U.S. IS NOT BEST AT EVERYTHING THERE ARE NATIONAL STRENGTHS & WEAKNESSES Average operations and people management practice scores* - by country Good 0.6 U.S. 0.4 People management Poor India Poland U.K. Japan Germany China France Italy Portugal Greece Sweden Poor Good Operations management *Z-scores, i.e. normalized to zero mean and standard-deviation 1 by question 16

18 AGENDA Measuring management practice Evaluating the management measure Describing management across firms and countries Explaining management across firms and countries Management practices in Italy. 17

19 WHAT WE THINK WE ALREADY KNOW factors associated with better management practice Competition and free trade Management selection/appointment based upon merit 2007 Confirm key role of Competition and free trade Management selection/appointment based upon merit Identify other key drivers Labour market regulation Ownership type Skills Find managers are poor at assessing their own performance 18

20 MORE INTENSE COMPETITION IS CLEARLY ASSOCIATED WITH BETTER MANAGEMENT PRACTICES Assessed management practice score Reported number of competitors 19

21 COUNTRIES WITH MORE RIGID LABOUR MARKET REGULATIONS HAVE LOWER PEOPLE MANAGEMENT SCORES Labour market rigidity* vs people management practice score by country People management practice score U.S U.K. Japan Poland Germany Sweden France Italy 2.6 China India Portugal * World Bank Employee rigidity index Source: World Bank; Management Matters dataset Greece Employment Rigidity 20

22 WE FIND MANAGEMENT PRACTICES TO VARY SUBSTANTIALLY BY OWNERSHIP TYPE Management practice score* by ownership type Dispersed Shareholders Private Equity/Venture Capital Family owned, external CEO Managers Private Individuals Employees/COOP Family CEO Founder owned, external CEO Founder CEO Family CEO, Primogeniture Government *All 12 countries 21

23 MULTINATIONALS ARE WELL RUN EVERYWHERE Management practice score by country Domestic firms Greece India Portugal Poland France UK Italy Germany Sweden US

24 MULTINATIONALS ARE WELL RUN EVERYWHERE Management practice score by country Greece India Portugal Poland France UK Italy Germany Sweden US Domestic firms Multinationals * China and Japan excluded due to low muntinational sample size 23

25 BETTER MANAGEMENT IS LINKED WITH HIGHER SKILL LEVELS OF BOTH MANAGERS AND NON-MANAGERS Non-managers with degree, % Managers with degree, % Management practice score Management practice score

26 THE AVERAGE MANAGER BELIEVES THEIR COMPANY HAS ABOVE-AVERAGE MANAGEMENT PRACTICE Percentage 32 Average Self-assessed management practice score 2

27 IT TURNS OUT MANAGERS APPEAR TO BE POOR AT SELF- ASSESSING THEIR FIRM S MANAGEMENT PRACTICE 8 Labour productivity Self-assessed management practice score 26

28 MANAGERS EVEN APPEAR POOR AT ASSESSING THEIR RELATIVE STRENGTHS AND WEAKNESSES Assessed gap operations vs. people management practice score Self-assessed gap operations vs. people management practice score 27

29 AGENDA Measuring management practice Evaluating the management measure Describing management across firms and countries Explaining management across firms and countries Management practices in Italy 28

30 ITALY IS IN SERIE B OF INTERNATIONAL MANAGEMENT LEAGUE Average management practice score - by country* US Germany Sweden Japan Italy UK France Poland Portugal Greece China India Not surprising we showed that good management fostered by: Competition Job flexibility 29

31 ONE REASON IS THE PERSISTENT TAIL OF UNDERPERFORMING COMPANIES IN THE ECONOMY Distribution of firm level management practice scores Italy U.S. 1 1 Assessed management practice score Assessed management practice score 30

32 ONE REASON IS THE PERSISTENT TAIL OF UNDERPERFORMING COMPANIES IN THE ECONOMY (LOW COMPETITION) Distribution of firm level management practice scores Italy U.S. 1 1 Assessed management practice score Assessed management practice score 31

33 COUNTRIES WITH MORE RIGID LABOUR MARKET REGULATIONS HAVE LOWER PEOPLE MANAGEMENT SCORES Labour market rigidity* vs people management practice score by country People management practice score U.S U.K. Japan Poland Germany Sweden France Italy!! 2.6 China India Portugal * World Bank Employee rigidity index Source: World Bank; Management Matters dataset Greece Employment Rigidity 32

34 PRIMOGENITURE FAMILY OWNERSHIP IN THE ITALIAN SAMPLE IS MORE THAN THREE TIMES THAT OF THE U.S. SAMPLE Percentage of firms family-owned with a CEO selected by primogeniture Sweden Poland US China Germany.7 Portugal France Italy UK Japan India Greece

35 ANOTHER DRIVER OF THE ITALIAN AVERAGE MANAGEMENT SCORE IS ITS RELATIVELY LOW SKILL OF MANAGERS Average share of non-managers with degree by country Average share of managers with degree by country Japan 24.7 Japan 70.0 Sweden 1.8 Poland 69.7 Poland 1. Germany 64.6 Italy 13.9 Greece 62.8 US 13.8 US 9.7 France 13.7 France 9.7 Germany 10. Portugal 1.9 UK 9.0 Italy 1.3 Greece. Sweden 46. Portugal 3. UK

36 CONCLUSIONS Positive influences Worker skills design Specialized, exportorientated firms?? Negative influences Primogeniture firms Poorer skills of managers Inflexible labour market 3

37 Management Practice and Productivity: Why They Matter Stephen Dorgan, McKinsey & Company John Dowdy, McKinsey & Company Nick Bloom, Stanford University and Centre for Economic Performance John Van Reenen, Centre for Economic Performance, LSE Raffaella Sadun, Centre for Economic Performance, LSE