How does UK plc management compare with our competitor countries?

I have recently read a research report on some joint work between the London School of Economics, Cambridge and Stanford Universities and McKinsey into the quality of management in UK manufacturing companies relative to other countries and its effects on economic performance. I thought I would share some of the surprising results with you.

The study was initially reported in 2005 and 2007 and has subsequently been replicated in 17 countries across the world including Australia in May 2009. Being an Australian myself I was of course intrigued to know what the outcomes showed for my country of birth.

Manufacturing companies were chosen because they were easy to compare globally though the findings are considered likely to be relevant across the service sector too. Companies employing between 100 and 5000 employees were surveyed with 18 questions and scoring each company on a scale of 1-5. The questions were grouped in the following areas:

• Operations Management
• Performance Management
• People Management

The interesting results added a lot of value to the management debate. Unsurprisingly, it indicated that there is not one single dimension that provides the key to improved management performance. In other words, there is no magic bullet.

But digging a little deeper, the study found more differences between companies within each country than between countries. For instance, the best 20 percent of firms in India, performed better than the average US firm and 75 percent of US firms are worse managed than the top 10 percent of Indian firms. Additionally, the top 30% of Indian firms are better managed than the average UK firm showing that global competition is increasing rapidly.

Between participating countries, the study identified three distinct performance groups:

• US, Sweden, Japan and Germany
• UK, France, Italy, Poland, Australia
• Portugal, Greece, China and India

What were the key findings of the study? Firstly, there is a strong link between the quality of management and economic performance in organisations across all countries and cultures. Better management practices give increased productivity and output. A very surprising result is that increasing the management score by one point increased sales per employee by 8-16%, sales by 13% and the number of employees by 20%. In terms of productivity, a one point increase in the management score was also shown to be equivalent to a 56% increase in the labour force or a 44% in investment capital. This is conclusive evidence that learning and development is cost effective in encouraging growth and boosting productivity.

Several factors play a key role in those differences between countries and companies.

1. The form of ownership was important for performance. Multinational companies performed best in all countries and the presence of multinationals in a country enhanced the quality of management in other companies nearby in the region. It seems that the very hard work in developing consistent management practices across the world has given multinationals competitive advantage and sustained growth in all areas. In all countries, management in the Government sector scored lowest indicating the significant work still to be done here. Companies funded through venture capital fare well across the world showing that there may be a long term benefit for organisations in experiencing a higher level of scrutiny and associated management support.

2. A more competitive environment produced higher scoring companies. This indicates that competition is good for increasing attention on good practice across the board, both from the point of view of retaining talented people and learning from competitors.

3. Better management is linked to higher skills. In countries where a high proportion of managers and staff have degrees, better management results. In Japan, 70% of managers and 25% non-managers have degrees, whereas in the UK, the numbers are 43% and 9%. Despite this, UK firms scored fairly highly in the area of people management. US companies scored highest in the area of people management partly attributed to their very flexible labour laws.

4. Managers everywhere were not good at assessing their own performance. Over 85% of managers say that their firm is better managed than average and almost no link was found between self-assessed management has almost no link with actual firm performance or the management ‘scores’ that the researchers calculated.

What conclusions can we draw from this study?

Firstly, it pays to invest in learning and development for individuals and the organisation as a whole. Policies of supporting employees in external education are worthwhile as are organisational development initiatives such as introducing a performance management system or developing a coaching culture. Improving management practices brings sustained benefits with subsequent initiatives building on earlier efforts and developing a growing capability.

Secondly, the development associated with seeking and achieving venture capital funding is likely to significantly boost the capability of firms and build sustainable internal skills.

Thirdly, many managers may be totally unaware of the productivity improvement opportunity they are missing through not assessing their overall management abilities and identifying gaps for improvement.

If you would like to assess your company against the criteria used in this study, please call us on 01767 631875 or email info@cooteharvard.co.uk.