Improving Productivity: Managers Matter

| By TMA World

If higher productivity was all about implementing the latest and greatest technologies, the business world would be a much simpler place.  But it’s not!

The World Management Survey (WMS) is an international research initiative whose aim is to examine differences in management practices across organizations and countries.  The focus is not just on identifying practices, but looking at how they affect productivity. It is based at the Centre for Economic Performance at the London School of Economics (LSE). Researchers are based at the LSE, Stanford University, Harvard Business School, and Oxford and Cambridge Universities.  The initiative is endorsed by several national Central Banks, Finance Ministries and Employers Federations from around the world, the World Bank, and the Inter-American Bank of Development. 

Since 2004, WMS has collected data from in-depth interviews with over 15,000 managers in more than 33 countries from four sectors (manufacturing, retail, healthcare, and education).  It is the first large-scale international management dataset to explore whether management practices can explain productivity differences.

In studies with manufacturing companies, WMS analysis shows that a 1 point improvement on a 5-point management score translates into a:

  • 2.8 percentage point increase in Return on Capital Employed (ROCE)
  • 6 percent higher productivity
  • 71 percent higher market share growth
  • 26 percent higher market capitalization
  • 2.3 percentage point increase in sales growth

Three areas of management were the primary focus: 

  1. Learn operations
  2. Performance and target management
  3. Talent management

Some of the best management practices associated with talent management are:

  • A firm has a good balance of financial and non-financial targets which are regularly revised to reflect economic changes and ensure achievability
  • Goals are cascaded through the firm down to the individual worker; individual workers compare their performance against targets
  • Attracting and developing talent at all levels of the firm is formalized through targets and rewards
  • Both managers and non-managers are paid on a performance basis; they are given financial and non-financial rewards for achieving their targets
  • Individual’s performance is reviewed regularly, and best and worst performers are identified
  • Underperformers are put on performance improvement plans immediately

Best performers are given personalized career plans to develop the skills necessary for growth with the firm.

Most of the best practices identified do not require a high-level of physical capital investment.  More often, as the researchers say, what is needed is “an investment on the part of owners/managers to drive a deep culture change within their firm to change processes of doing things.”

One other significant finding is that the better managed firms have more educated managers and employees.  The researchers say that: “it is clear that there is an added incentive for improved continuing education of managers as well as employees aimed at improving workplace skills.  This does not necessarily mean enrolling employees in university degrees, it can mean investing in human capital development by identifying the skills most needed and offering training and workshops to address those areas.”

You might think that your firm engages in these management practices very well.  Maybe! “It is obvious [from the WMS results] that managers across the globe believe the management practices followed by their establishments are substantially better than our measures would indicate.”

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