Management and Productivity. Enno Siemsen Wisconsin School of Business Erdman Center for Operations & Technology Management

Transcription

1 Management and Productivity Enno Siemsen Wisconsin School of Business Erdman Center for Operations & Technology Management 1

2 About Myself Born in Germany Worked for Electronics Manufacturer, Shenzhen, China Management Consultancy, Munich, Germany PhD 05 at the University of North Carolina at Chapel Hill Assistant Professor, University of Illinois, Assistant/Associate Professor, University of Minnesota, Professor, University of Wisconsin-Madison, 15- Research Interests Sales & Operations Planning Supply Chain Management Quality & Environmental Inspections Behavioral Decision Making

3 Agenda 1. The Importance of Productivity 2. Data on Management Practices 3. Management Practices Survey 4. Transformational Productivity Initiative 5. Survey Debrief 3

4 The Importance of Productivity 4

5 Why Productivity Matters Macro-Economic GDP Growth Wealth Tax Incomes Employment Wage Growth Micro-Economic Profitability Growth Survival 5

6 Productivity Growth (Source: forbes.com) 6

7 What is Productivity? Total Factor Productivity is, at its heart, a residual. As with all residuals, it is in some ways a measure of our ignorance: it is the variation in output that cannot be explained based on observable inputs. Syverson, C What determines Productivity? Journal of Economic Literature 49(2): 330 7

8 How to Measure Productivity Total Factor Productivity (Firm, Plant) PPPPPPPPPPPPPPPPPPPPPPPP = RRRRRRRRRRRRRR LLLLLLLLLL αα CCCCCCCCCCCCCC ββ MMMMMMMMMMMMMMMMMM γγ Labor = Labor Cost Capital = Cost of Capital and Depreciation Materials = Cost of Supplier and Energy α,β,γ = Factor Cost Shares in Industry (Maybe about 50% of variation in firm level TFP is measurement error) 8

9 Variations in Productivity Within a particular 4-digit SIC Industry, on average, the plant at the 90 th percentile of the productivity distribution makes almost twice as much output with the same measured inputs as the 10 th percentile plan. Regressing a producer s current TFP on its one-year lagged TFP yields autoregressive coefficients on the order of 0.6 to 0.8. Syverson, C What determines Productivity? Journal of Economic Literature 49(2):

10 Data on Management Practices 10

11 Available Datasets World Management Survey (WMS) Administered by researchers from Stanford, Harvard and LSE ,215 Sites 35 Countries 40% Response Rate Management & Organizational Practices Survey (MOPS) Administered by the Census Bureau 2010, ,177 Sites U.S. Focused 78% Response Rate 11

12 MOPS Survey An Example Question 12

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14 Management Practices Tracked Visual Management Continuous Improvement Performance Measurement Production Planning Stretch Goals Strategy Cascading Performance Incentives 14

15 Variation in Within-Industry Total Factor Productivity 11% Management 10% R&D Intensity 7% Skills 5% IT 33% Explained 17% Unexplained 50% Measurement Error Bloom, N., et al Management in America. Center for Economic Studies Working Paper 15

16 Management Practices and TFP MOPS: every 10% increase in our management score is associated with a 13.6% increase in labor productivity. (Bloom et al. 2016, p. 11) WMS: Empirically the difference in TFP between the lower quartile and upper quartile (in management score) of our firms is 32%. (Bloom and van Reenen 2007, p. 1371) 16

17 Management Practices & Performance Management score decile Bloom, N., et al Management in America. Center for Economic Studies Working Paper 17

18 Within and Between Firm Variance of Management Practices In firms with 3 plants, 90.4% of the adjusted R 2 in management score across plants is accounted for by firm level fixed effects. In firms with 500 plants, 34.8% of the adjusted R 2 in management score across plants is accounted for by firm level fixed effects. Bloom, N., et al What Drives Differences in Management. Working Paper 18

19 Multinationals are Better Managed United States Sweden Germany Japan Canada UK Italy France Australia Poland Mexico China New Zealand Portugal India Chile Brazil Argentina Republic of Ireland Greece Domestic firms Foreign multinationals Management score (Source: Nick Bloom) 19

20 Larger Firms are Better Managed Management score ,000 10,000 Number of firm employees (Source: Nick Bloom) 20

21 Non-Family Leadership Important Dispersed Shareholders Private Equity Family owned, non-family CEO Managers Private Individuals Government Family owned, family CEO Founder owned, founder CEO Management score (by ownership type) (Source: Nick Bloom) 21

22 The Management Practices Survey 22

23 Take the Survey! 23

24 The TPI Initiative 24

25 TFP Factors Automation & Digital Technology Manageme nt & Operational Practices Total Factor Productivity Operational Excellence Growth & Innovation Human Capital Manageme nt

26 Comprehensive Assessment 5 Factors 38 Sub Factors GAPS Recommendations

27 Set Priorities and Select Projects Are there high priority items? Where might the greatest most immediate benefit be realized? What might already be in play? What fits with your current strategy and goals? What can you do on your own? Where might you need assistance?

28 Hypothetical Productivity Journey % Effort/Gains 100% 80% 60% 40% 20% 0% Best Practices Technology Column1

29 Why Productivity? GDP Growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1.8% 1.7% Past 50 Years 1.8% 0.3% 0.3% Next 50 Years (Forecast) 3.2% To Maintain 3.5% Growth Workforce Growth Productivity Growth

30 Next Steps - Evaluate pilot outcomes and make adjustments - Q Adjustments to process Look at how we might scale this to smaller companies Expand initiative beginning - Q additional manufacturers, next 12 to 18 month Expand Breadth and Depth of Resources Skills, knowledge, expertise

31 Ideal Candidate 1. Employee count between 50 and Productivity is a strategic priority, senior management commitment 3. Highly motivated to make improvements a) Open to seeking out and adapting best practices b) Supplement this with investments in automation and technology c) Willing to leave no stone unturned 4. Willing to make a multiple year commitment of time and resources

32 Survey Debrief 32

33 Distribution of Practices (2010) (Source: Nick Bloom) 33

34 Regional Differences (2015) (2010) (2015) (Source: Census)

35 Who Gained/Lost ? gained lost (Lost more for lighter blue) 35

36 Which Industry Outperforms? Paper Manufacturing Chemical Manufacturing Primary Metal Manufacturing Transportation Equipment Manufacturing Plastics and Rubber Products Manufacturing Electrical Equipment, Appliance, and Component Manufacturing Beverage and Tobacco Product Manufacturing Computer and Electronic Product Manufacturing Petroleum and Coal Products Manufacturing Food Manufacturing Machinery Manufacturing Leather and Allied Product Manufacturing Textile Mills Manufacturing Wood Product Manufacturing Nonmetallic Mineral Product Manufacturing Fabricated Metal Product Manufacturing Miscellaneous Manufacturing Textile Product Mills Furniture and Related Product Manufacturing Printing and Related Support Activities Apparel Manufacturing Management Score 36

37 Managing Production Problems No action was taken We fixed it but did not take further action We fixed it and took action to make sure that it did not happen again, and had a continuous improvement process to anticipate problems like these in advance We fixed it and took action to make sure that it did not happen again 37

38 Frequency of KPI Review Managers Non-Managers Daily 18% Never 7% Yearly 13% Quarterly 15% Never 22% Yearly 12% Quarterly 15% Weekly 19% Monthly 28% Daily 14% Weekly 14% Monthly 23% 38

39 Location of Display Boards All display boards were located in one place We did not have any display boards Display boards were located in multiple places 39

40 Production Targets No production targets Main focus was on short-term (less than one year) production targets Combination of short-term and long-term production targets Main focus was on long-term (more than one year) production targets 40

41 Difficulty of Targets No response Possible to achieve without much effort Possible to achieve with some effort Possible to achieve with more than normal effort Possible to achieve with normal amount of effort 41

42 Awareness of Targets Only senior managers Most managers and some production workers All managers and most production workers Most managers and most production workers 42

43 Basis of Performance Bonus Managers Non-Managers Their own 14% Their own 12% No bonuses 32% Their team or shift 7% Their establishm ent 15% No bonuses 47% Their team or shift 6% Their establishm ent 12% Their company 32% Their company 23% 43

44 Share Receiving Bonus Managers Non-Managers No response 26% 0% 5% 1-33% 11% 34-66% 3% 67-99% 9% No response 38% 0% 7% 1-33% 8% 34-66% 3% 67-99% 8% Production targets not met 13% 100% 33% Production targets not met 13% 100% 23% 44

45 Basis of Promotions Managers Non-Managers Nonmanagers are normally not promoted 22% Partly on performan ce and ability 11% Solely on performan ce and ability 66% Partly on performan ce and ability 14% Nonmanagers are normally not promoted 16% Solely on performan ce and ability 68% 45

46 Reassignment/Dismissal Managers Non-Managers Rarely or never 43% Within 6 months 33% Rarely or never 33% Within 6 months 47% After 6 months 24% After 6 months 20% 46

47 Thank You 47