Transcript Lecture 4

The Modern Firm in Theory and
Practice
Nick Bloom and Paul Milgrom
Lecture 4: Management and firm Performance
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Monitoring management practices
Targets management practices
Danaher
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(3) Process problem documentation
(1): No, process
improvements
are made when
problems occur.
Nick Bloom, 149, 2015
(3): Improvements are
made in one week
workshops involving all
staff, to improve
performance in their
area of the plant
(5): Exposing problems in a
structured way is integral to
individuals’ responsibilities and
resolution occurs as a part of
normal business processes rather
than by extraordinary effort/teams
The survey scores to question (3), process problem
documentation – all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 3.13
1
2
3
Process Documentation
4
5
All countries, manufacturing firms (100 to 5000 employees),
4
9840 observations
Nick Bloom, 149, 2015
The survey scores to question (3), process problem
documentation – US, manufacturing
.2
0
.1
Density
.3
.4
Average 3.42
1
2
3
Process Documentation
4
US, manufacturing firms (100 to 5000 employees),
5
1298 observations
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The survey scores to question (3), process problem
documentation – India, manufacturing
.3
0
.1
.2
Density
.4
.5
Average 2.64
1
2
3
Process Documentation
4
5
India, manufacturing firms (100 to 5000 employees),
6
1137 observations
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The survey scores to question (3), process problem
documentation – US, Canada and UK, retail
.3
0
.1
.2
Density
.4
Average 3.07
1
2
3
Process Documentation
4
All countries, retail firms (100 to 5000 employees)
7
661 observations
Nick Bloom, 149, 2015
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The survey scores to question (3), process problem
documentation – developed countries, hospitals
0
.2
Density
.4
.6
Average 3.04
1
2
3
Process documentation
4
5
Hospitals, Canada, France, Germany, Italy, Sweden, UK, US,
8
1183 observations
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(4) Performance tracking
Score (1): Measures
tracked do not
indicate directly if
overall business
objectives are being
met. Tracking is an
ad-hoc process
(certain processes
aren’t tracked at all)
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(3): Most key
performance
indicators are
tracked
formally.
Tracking is
overseen by
senior
management.
(5): Performance is
continuously
tracked and
communicated,
both formally and
informally, to all
staff using a range
of visual
management tools.
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Examples of performance metrics – Toyota
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Example of performance metrics – apparel and
textiles
Shirt factory, Burma
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Fabric factory, India
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Examples of performance metrics – Call Centre
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Examples of performance metrics - Heathrow
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Examples of metrics – Retail Bank (1/2)
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Examples of metrics – Retail Bank (2/2)
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Performance tracking (4):
all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 3.36
1
2
3
Performance Tracking
4
5
All countries, manufacturing firms (100 to 5000 employees),
16
9838 observations
Nick Bloom, 149, 2015
(5) Performance review
Score (1): Performance
is reviewed
infrequently or in
an unmeaningful way
e.g. only success
or failure is
noted.
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(3): Performance
is reviewed
periodically with
successes and
failures identified.
Results are
communicated to
senior
management. No
clear follow-up
plan is adopted.
(5): Performance is
continually
reviewed, based on
indicators tracked.
All aspects are
followed up ensure
continuous
improvement.
Results are
communicated to
all staff
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Performance review (5):
all countries, manufacturing
.3
.2
.1
0
Density
.4
.5
Average 3.33
1
2
3
Review of Performance
4
5
All countries, manufacturing firms (100 to 5000 employees),
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9827 observations
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SOME FIRMS SEEMED TO BE TOO TRUTHFUL
Who rules the home in Ireland
Interviewer: “Would you mind if I asked how much your bonus
is as a manager?”
Manager: “I don't even tell my wife how much my bonus is!”
Interviewer: “Frankly, that’s probably the right decision...”
Staff retention the American way
Manager: “I spend most of my time walking around cuddling and
encouraging people - my staff tell me that I give great hugs”
The trusted Secretary
French secretary: “You want to talk to the plant manager?
There are legal proceedings against him, so hurry up!!”
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Monitoring management practices
Targets management practices
Danaher
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(9) Target interconnection
Score (1): Goals are
based purely
on accounting
figures (with
no clear
connection to
shareholder
value).
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(3): Corporate
goals are based
on shareholder
value but are not
clearly
communicated
down to
individuals
(5): Corporate goals
focus on shareholder
value. They increase
in specificity as they
cascade through
business units
ultimately defining
individual performance
expectations.
Target interconnection (9):
all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 3.01
1
2
3
Target interconnection
4
5
All countries, manufacturing firms (100 to 5000 employees),
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9813 observations
Nick Bloom, 149, 2015
(10) Target time horizon
Score (1): Top
management's
main focus is
on short term
targets .
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(3): There are short
and long-term goals
for all levels of the
organization. As
they are set
independently, they
are not necessarily
linked to each other
(5): Long term
goals are
translated into
specific short term
targets so that
short term targets
become a
"staircase" to reach
long term goals
Target time horizon (10):
all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 2.99
1
2
3
Target time horizon
4
5
All countries, manufacturing firms (100 to 5000 employees),
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9814 observations
Nick Bloom, 149, 2015
(11) Targets are stretching
Score (1): Goals are
either too easy
or impossible
to achieve;
managers
provide low
estimates to
ensure easy
goals
Nick Bloom, 149, 2015
(3): In most areas, top
management pushes
for aggressive goals
based on solid
economic rationale.
There are a few
"sacred cows" that are
not held to the same
rigorous standard
(5): Goals are
genuinely
demanding for
all divisions.
They are
grounded in
solid, solid
economic
rationale
Targets are stretching (11):
all countries, manufacturing
.2
.1
0
Density
.3
.4
Average 3.00
1
2
3
Targets are stretching
4
5
All countries, manufacturing firms (100 to 5000 employees),
26
9819 observations
Nick Bloom, 149, 2015
(12) Performance clarity
Score (1): Performance
measures are
complex and not
clearly
understood.
Individual
performance is
not made public
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(3): Performance
measures are
well defined and
communicated;
performance is
public in all levels
but comparisons
are discouraged
(5): Performance
measures are well
defined, strongly
communicated and
reinforced at all
reviews;
performance and
rankings are made
public to induce
competition
Performance clarity (12):
all countries, manufacturing
.2
.1
0
Density
.3
.4
Average 2.67
1
2
3
Performance clarity
4
5
All countries, manufacturing firms (100 to 5000 employees),
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9821 observations
Nick Bloom, 149, 2015
Monitoring management practices
Targets management practices
Danaher
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Danaher has continued to do well
Nick starts teaching
Danaher case
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And the market has really noticed
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From internet searching I believe they are
introducing a new product range
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Q1 Why has Danaher been successful as a
multi-business conglomerate over the past
two decades? What do you see as the core
attributes that have allowed it to sustain
superior performance during this period?
• Operations
• Corporate strategy
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Q2) How easy or difficult is it for other
companies to mimic or emulate what
Danaher does? Why?
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Q3) What do you consider to be the
biggest challenges that Danaher is
likely to confront during the next 1015 years?
What can Larry Culp do to prepare the
organization for these challenges?
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Basic Lean – floor markings
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Excessive Lean – desk markings
The £7 million guide to a tidy
desk, London Times, January 5,
2007
Red tape has given way to black
marker tape for thousands of
bemused civil servants as part of
a £7 million paperclip revolution
aimed at ensuring that they keep
the tools of their trade in the right
place. Office workers have been
given the tape to mark out where
they should put their pens and
pencils, their computer keyboards
and to indicate where to place
their phones.
Nick Bloom, 149, 2015
National Insurance staff have
been chosen as guinea-pigs for
the latest phase of the “Lean”
programme brought in by the
logistics consultants Unipart. The
programme prohibits workers
from keeping personal items on
their desks.
Wrap up
1) Large variation in monitoring and targets – best organizations
• monitor extensively and continuously improve
• set challenging targets that flow from short to long run
2) Variation common across all industries we have looked at
3) Potential for improvement is extensive, especially in family
firms, uncompetitive areas & in developing countries
4) On Monday we will focus on Scientific Management & Ctrip
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