Streamline Training & Documentation: Why does the quality of management vary so widely?

Tuesday, November 28, 2006

Why does the quality of management vary so widely?

In a working paper (pdf) published earlier this year, Nick Bloom of Stanford and John Van Reenen of the London School of Economics look at the question of why the quality of management differs markedly across firms and countries. They find support for two explanations:

Some firms are under more competitive pressure than others.

Family-owned firms run by the oldest son lag in performance compared to family-owned firms that choose a relatively capable family member to be in charge, or that use professional managers.

When Bloom and Van Reenen look at variation in the quality of management across the four countries they studied — the US, Germany, France, and the UK — they find that the ranking, on average, is in the order just listed, i.e., the US at the top and the UK bringing up the rear. They also hasten to add that there is even more variation within countries. More specifically, they find a long tail of poorly managed companies in all four countries.

Bloom and Van Reenen obtained their data by surveying plant managers at 732 medium-sized manufacturing firms. The survey covered 18 management practices drawn from practices identified as significant by McKinsey & Company, where Bloom worked as a management consultant prior to joining the Stanford faculty.

The details the paper provides of these 18 management practices are of particular interest. You are able to see how "good" and "bad" are operationally defined for each practice. For example, Item 7 is "consequence management." The plant managers were asked:

What happens if there is a part of the business (or a manager) who isn't achieving agreed upon results? Can you give me a recent example?

What kind of consequences would follow such an action?

Are there any parts of the business (or managers) that seem to repeatedly fail to carry out agreed actions?

Based on how an interviewee answered these questions, his/her firm was rated on a scale of 1 (low) to 5 (high) on the quality of its consequence management. To guide the interviewers in scoring, descriptions were provided for scores of 1, 3 and 5:

1 — Failure to achieve agreed objectives does not carry any consequences.

Example: At a French firm, no action is taken when objectives are not achieved. The President personally intervenes to warn employees but no stricter action is taken. Cutting payroll or making people redundant because of a lack of performance is very rarely done.

3 — Failure to achieve agreed results is tolerated for a period before action is taken.

Example: Management of a US firm reviews performance quarterly. That is the earliest they can react to any underperformance. They increase pressure on the employees if targets are not met.

5 — A failure to achieve agreed targets drives retraining in identified areas of weakness or moving individuals to where their skills are appropriate.

Example: A German firm takes action as soon as a weakness is identified. They have even employed a psychologist to improve behavior within a difficult group. People receive ongoing training to improve performance. If this doesn't help, they move them into other departments or even fire individuals if they repeatedly fail to meet agreed targets.

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Labels: Management practices

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