Does Management Work?
No. Not if management only means power suits and celebrity leadership acting out an epic battle to accumulate cash into one big pile.
After all, the rest of us want to make something! We want to do something.
A recent study by Nicholas Bloom of Stanford University suggests that, if you’ve ever wondered what management actually does, you have good reason.
Bloom’s research group, including Raffella Sadun of Harvard Business School and John Van Reenen of the London School of Economics, tested whether thousands of businesses followed practices considered to be essential to good management.
After 10 years of studies from 100 researchers in 20 different countries covering 8000 medium-sized manufacturing firms with between 50 and 5000 employees, the results were unequivocal:
In Bloom’s own words: “Poor management is rampant.”
That’s probably not a surprise to anyone, except maybe to the managers themselves.
Power Suits And Celebrity Leadership
The 3 Essential Elements of Good Management
Bloom ranked 8000 companies in his study on a scale, where each point from 1 to 5 represented a 23% rise in productivity, a 14% increase in market capitalization, and a 1.4% growth in annual sales. Scores of 5 were rare; 1’s were plentiful.
Bloom found three best practices in the study data that correlated to good management:
1. Targets — Does the organization in question support long-term goals with tough — but achievable — short-term benchmarks?
2. Incentives — Does the organization reward high performers? Do they retrain or move under-performers?
3. Monitoring — Does the organization collect performance data to identify opportunities for improvement?
A staggering majority of businesses don’t know how to develop targets, create incentives to reach those targets, or monitor and measure progress.
A call for ‘better management’ may not seem like a cutting-edge idea,” Bloom says, “but given the potentially large efects on incomes, productivity and delivery of critically needed services worldwide, it may actually be a radical one.”
As business managers, most don’t know they have a problem, or they can’t be objective in evaluating their own skill level at taking on and solving problems.
For example, 79% of the 8000 organizations in Bloom’s study claimed to have “above average” management practices. That’s 79% of overwhelmingly poor business managers giving themselves the thumbs up. And Bloom also found no correlation between their self-assessment and their actual management scores. No correlation.
Not only does this expose most manager’s opinion of themselves, it also suggests the human tendency to believe like the children of Lake Woebegone: We’re all above average.
Bloom’s research shows management can improve and produce big financial gains from what’s currently going to waste. In fact, improvements come fairly easy. When companies in the study received five months of heavy business consulting versus only one month of light consulting, the heavy consulting produced dramatically better business results.
But here’s the rub: Many of the companies Bloom studied worked in textile and steel mill environments in global locations, where simple improvements like “inventory control” and “equipment maintenance” — having some, instead of none — produced vast improvements over the control group.
Agile environments more likely work in technology and software. What good could specific initiatives like those do for us?
A good boss — one who targets, offers incentives, and monitors progress — adds about 10% to worker productivity. at number comes from a study reported by Stephen Dubner on Freakonomics Radio. It doesn’t mean much as an absolute number, but it does mean management makes a difference. Good management — as studies and experience will tell you — is rare, but when it works, it does work.
That 10% is the boss’s contribution alone and applies to bosses who have direct contact with employees.
Figurehead leaders — like celebrity CEOs, presidents, and other Big Wigs — don’t matter as much to worker productivity. And bad ones don’t matter at all.
Do You Follow The Three Essential Elements of Good Management?
These questions were adapted from interviews in the study of over 8000 manufacturers in 20 countries. For more questions from the study, see www.worldmanagementsurvey.org
1. Targeting
How do you communicate organizational goals to individual workers? Does anyone complain that the target definitions are too complex? How do you deal with repeated failures in a specific business segment?
2. Incentives
How do senior managers show that attracting, developing, and retaining talent is a top priority? How long is under-performance tolerated?
What makes it distinctive or special to work at your company? What does your company do about star performers who want to leave?
3. Monitoring
How do problems get exposed and Fixed? What key indicators do you use for performance tracking? For a given problem, how do you identify the root cause?
