Researchers armed with a decade’s worth of interview-based data have zeroed in on best practices in three key areas that influence good management and, ultimately, productivity and profit.
The nonprofit National Bureau of Economic Research collected data from more than 13,000 firms worldwide. Survey participants were middle managers, such as manufacturing plant managers and retail store managers, clinical service leaders in hospitals, and school principals who had an overview of management practices and were involved in day-to-day operations. Scores tracked how well organisations:
- Monitored what went on inside the organisation and used the information for continuous improvement;
- Set the right targets and ensured they were met; and
- Prioritised careful hiring, promoted and rewarded employees based on performance, and tried to keep the best employees.
“The practices … appear to be informative for organizational performance across disparate sectors such as manufacturing, hospitals, schools and retail stores,” the NBER researchers wrote.
Global basics of good management
The NBER researchers considered the three measured areas global basics of good management, because higher management scores were associated with higher productivity, sales growth, profitability, and market value and survival.
To test their suggestion, the authors of the study provided free management consulting services to several randomly selected textile plants in India. The experiment resulted in large productivity increases. Plants that adopted the recommended management practices of monitoring, target-setting, and hiring recorded about 20% improvement in productivity over plants that didn’t.
Profits increased on average $325,000 the first year, which exceeded the $200,000 cost of the improvement effort.
Where the best manufacturing managers are
The United States was the country with the highest average management score worldwide, which means it is home to the most manufacturing companies that apply the three global basics of good management.
Good corporate management can trigger rewards in the US, according to the NBER researchers. Better managed firms in the US appear to capture more market share more quickly than companies that aren’t managed as well.
“Regulatory barriers to entry, protection of inefficient incumbents, and having a vigorous competition policy appear to promote strong management practices, while tax incentives to protect family firms, onerous regulations to slow reallocation, and barriers to skill acquisition tend to retard them,” the NBER researchers concluded.
Also among the countries with the ten highest scores are developed economies such as Japan, Australia, Canada, and several European countries. The developing economy with the highest score was Mexico, which ranked tenth.
China came in 20th, with Brazil at 23rd and India at 24th. African and Central American economies scored the lowest among the 33 countries included in the NBER research.
The scores were based on how plant managers answered open-ended questions that addressed, for example, the rationale for introducing modern manufacturing techniques such as just-in-time delivery from suppliers, automation, and flexible manpower; processes to track performance and set targets; and rewards the company hands out for performance.
Hospitals and schools
The survey also scored management practices of clinical service leaders in nearly 2,000 hospitals and school principals or headmasters in more than 1,800 schools teaching 15-year-olds.
In the hospital category, the US came out on top as the country with the most well-managed hospitals, followed by the UK, Sweden, Germany, and Canada. The best-managed schools are found in the UK and Sweden. The US came in third, and Canada came in fourth.
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“The World’s Most Cost-Competitive Export Nations”: The Boston Consulting Group has tracked manufacturing costs in the 25 biggest export nations for about a decade. Find out which nation tops BCG’s 2014 manufacturing cost-competitiveness index.
“How to Make Your Supply Chain Hum”: Companies that sell into and source from markets worldwide compete on their supply-chain capabilities. Find out what supply-chain leaders do to boost their revenue and earnings.
“Unlocking Performance”: We asked Albert Birck, the head of performance management for Maersk Oil, and Roger Blanken, CPA, the vice president of finance – supply chain for International Flavors & Fragrances (IFF), to explain how technology, better planning, and communication about performance can unlock hidden potential.
—Sabine Vollmer (email@example.com) is a CGMA Magazine senior editor.
Top ten scores
These ten countries scored the best worldwide in the NBER research for having the most well-managed manufacturing companies:
1. United States
6. United Kingdom