A recently published research paper jointly funded by the London based Centre for Economic Excellence offers an intriguing insight into the relationship between management practice and business productivity.
The research, which aims to quantify company performance in relation to management practices, focusses on managers in manufacturing companies. Despite this industry bias, some of the findings have a broader relevance to many businesses, including non-multinational UK based firms.
The paper explains that “The spread of management performance between firms, even those of similar size operating in the same industry sectors in the same regions, is very broad, suggesting that management excellence is a matter of internal policy and not just the business environment”. The research also found strong links between improving management practices and large increases in productivity: “A single point improvement in management practice score is associated with the same increase in output as a 25 percent increase in the labour force or a 65 percent increase in invested capital”.
The assertion that management excellence is a product of internal policy gives weight to the widely established belief that proactive management training and development has a positive effect on productivity. Moreover, this productivity increase is so great it can eclipse other potentially more costly methods of increasing output.
In comparison to US, European and Asian counterparts, the UK performed badly in aspects of individual performance management, such as the establishment of effective, well structured targets. While UK firms work hard to recruit good people, they are far less effective at establishing processes that motivate workers to improve their individual performance and productivity.
A final point worthy of mention is a contrasting picture between multinational and non-multinational businesses. Multinational companies - in an effort to replicate the same performance standards across different regions, cultures and markets - have been forced into adopting a systematic approach to management. A positive offshoot of these efforts is improved management productivity, resulting in benefits such as better returns on capital and robust growth.
The research concludes that “the same benefits are easily accessible to other organisations, wherever they operate. Yet surprisingly few firms have made any attempt to gain an insight into the quality of their management behaviours. Those that do so give themselves the opportunity to access rapid, cost-effective and sustainable competitive advantage”.
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