Productivity and management performance
In recent years there has been increasing interest in the relationship between productivity and the effectiveness of management inputs. One of the most important roles of management is to use labour and capital resources in the most efficient ways available, since poor management can lead to relatively low levels of productivity and therefore of firm competitiveness.
In recent years a number of international surveys have provided an interesting indicator of the role of management in the drive towards improved productivity. For example, a survey by Proudfoot Consulting (2002) defined management productivity as the proportion of time spent by management on ‘productive’ activities which added value to their company. Since management cannot be expected to use 100% of their time ‘productively’, the consultants defined 85% as the realistic maximum productive use of time which could be expected. The companies studied covered manufacturing, finance and communication sectors and were located in many countries including the US, France, Germany and the UK. The results showed that the US and German management were identified as having used their time the most productively (both achieving 61% use of productive time), followed by France (54%) with the UK the worst performer of the countries in the study (48%). In many of the countries, the reasons for such loss of productive time were arguably managerial in nature, such as ‘insufficient planning and control’ or ‘inadequate management/insufficient supervision’. In the case of the UK, as well as these reasons, ‘poor work morale of workforce’ and ‘inappropriately qualified employees’ were also identified. Further studies by Proudfoot Consulting have suggested that the UK has improved its performance since 2002 in terms of using time productively. For example, by 2008, the same research source showed that the UK had improved its performance markedly, using 74% of its time productively as compared to France (61.2%), the US (62.8%) and Germany (39.8%), with the average for the whole study being 65.7%. The critical finding in 2008 was that the quality of UK supervisors was still a major barrier to improved productivity, with 28% of managers citing this reason in the UK, but only 16% in France, and 10% in Germany (Proudfoot Consulting 2008).A further study which helps clarify the general findings noted above was carried out by the McKinsey Company (2002). The consultancy company interviewed the directors of 100 manufacturing companies in the US, France, Germany and the UK. They defined ‘best practice’ in areas such as lean manufacturing techniques, organizational performance and management of talent and then gave scores between 0 and 5 according to how close the companies came to the best practice in those three areas. These scores were compared with company financial performance as measured by ROCE (return on capital employed), and also with TFP figures. The results showed that the UK’s mean score of 2.9 for the three areas of management was the lowest of the four countries. The study also suggested a positive correlation between these management scores and the financial success (as measured by ROCE) and productivity (as measured by TFP) of these manufacturing companies. Finally, the study pointed clearly to weaknesses in UK management by pointing out that US-owned companies based in the UK are nearly 90% more productive than their UK-owned counterparts.
Interestingly, the problem identified by the McKinsey Company report discussed above continues to be present, as shown in a further survey of 731 mediumsized manufacturing firms across the EU and the US carried out by the Centre for Economic Performance (CEP) and the McKinsey Company (Bloom et al 2005). The report showed that better-managed companies had higher rates of growth of sales and higher valuations on the stock market, irrespective of their country of operation.
The 2009 survey also showed that, on average, the performance of managers of UK manufacturing firms warranted an overall management capability score of 3.00 (in relation to a best practice score of 5). This was still behind the US (3.25), Sweden (3.16), Germany (3.15) and Japan (3.15) but just above France (2.98) and Italy (2.98). These conclusions have been given further credence by the International Management Development in its assessment of perceived management quality between 2001 and 2008 (Department for Business, Enterprise and Regulatory Reform 2009). Data on business executives’ perceptions of management quality in different countries, using a scale from 1 to 10, suggest that while the figures for UK were lower than those for the US, France and Germany, it was, nevertheless, the only country to show an increase in perceptions of management quality in 2007 and 2008.