Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics and GSB) John Van Reenen (LSE and Stanford GSB) Lecture 4:
Download
Report
Transcript Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics and GSB) John Van Reenen (LSE and Stanford GSB) Lecture 4:
Management Practices in Europe,
the US and Emerging Markets
Nick Bloom (Stanford Economics and GSB)
John Van Reenen (LSE and Stanford GSB)
Lecture 4: Management and firm Performance
1
Lincoln & influences on incentives management
Incentives/People Management practices
Targets Management
Nick Bloom and John Van Reenen, 591, 2012
2
MULTINATIONALS APPEAR TO ACHIEVE GOOD
MANAGEMENT PRACTICES WHEREVER THEY LOCATE
United States
Sweden
Germany
Japan
Italy
France
UK
Canada
US
Australia
Poland
Mexico
China
New Zealand
Portugal
India
Chile
Brazil
Argentina
Republic of Ireland
Greece
2.4
Domestic firms
Foreign multinationals
2.6
2.8
3
3.2
3.4
3.6
Management score
Sample of 7,262 manufacturing and 661 retail firms, of which 5,441 are purely domestic and 2,482 are foreign
multinationals. Domestic multinationals are excluded – that is the domestic subsidiaries of multinational firms (like a
LABOR MARKET REGULATION INHIBIT GOOD INCENTIVES
MANAGEMENT
3
Incentives Management
(management sample)
3.2
US
Germany
Canada
UK
Japan
2.6
2.8
Great Britain
Poland Sweden
Republic of Ireland
Italy
Australia
France
Mexico
China
Chile
India
New Zealand
Portugal Greece
Argentina
Brazil
0
10
20
30
40
50
60
World Bank Rigidity of employment index (0-100)
Note: Averaged across all manufacturing firms within each country (9079 observations). We did not include other sectors as
we do not have the same international coverage. Incentives management defined as management practices around hiring,
firing, pay and promotions. The index is from the Doing Business database
http://www.doingbusiness.org/ExploreTopics/EmployingWorkers/
SUMMARY OF SOME DETERMINANTS OF MANAGEMENT (&
PRODUCTIVITY)
•
•
•
Product market competition
Meritocratic CEO selection
Human Capital
•
Ownership
– public sector
– Multinationals
•
– private equity
Labor market regulations
Nick Bloom and John Van Reenen, 591, 2012
Wrap up on Lincoln & “drivers” of good management
Incentives/People Management practices
Targets Management
Nick Bloom and John Van Reenen, 591, 2012
6
Incentives (people) management
Today we will run through 6 dimensions on incentives
management (part of HR and talent management)
The concept is around the management and motivation of people
As before, while the data is mainly for manufacturing, these
questions have been used in retail, hospitals, schools, healthcare
clinics, tax collection agencies, charities, PPPs and law firms
Nick Bloom and John Van Reenen, 591, 2012
7
Setting up your clicker
• Press “GO”
• Then slowly press “0” and then “5” (channel is “05”)
• Then slowly press “GO” again
• A green light should appear signaling the clicker worked
Nick Bloom and John Van Reenen, 591, 2012
(16) Promoting high performers
Score
(1): People are
promoted
primarily upon the
basis of tenure
Nick Bloom and John Van Reenen, 591, 2012
(3): People
are promoted
upon the
basis of
performance
(5): We actively
identify, develop and
promote our top
performers
(16) Promoting high performers
(1): People are (3): People are promoted
promoted
upon the basis of
primarily upon performance
the basis of
tenure
Nick Bloom and John Van Reenen, 591, 2012
(5): We actively
identify, develop and
promote our top
performers
The survey scores to question (16), promoting high
performers – all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 3.02
1
3
2
Promoting high performers
4
5
All countries, manufacturing firms (100 to 5000 employees),
11
9820 observations
Nick Bloom and John Van Reenen, 591, 2012
.4
The survey scores to question (16), promoting high
performers: developed countries, hospitals
.2
0
.1
Density
.3
Average 2.44
1
2
3
Promoting high performers
4
5
Hospitals, Canada, France, Germany, Italy, Sweden, UK, US,
12
1183 observations
Nick Bloom and John Van Reenen, 591, 2012
.4
The survey scores to question (16), promoting high
performers : developed countries, schools
.2
0
.1
Density
.3
Average 2.41
1
2
3
Promoting high performers
4
5
Schools in Canada, Germany, Sweden, UK, US
13
777 observations
Nick Bloom and John Van Reenen, 591, 2012
(14) Rewarding high performance
(1): People
within our firm
are rewarded
equally
irrespective of
performance
level
(3): Our company has an
evaluation system for the
awarding of performance
related rewards
0%
0%
Nick Bloom and John Van Reenen,1 591, 2012 2
0%
3
(5): We strive to
outperform the
competitors by
providing ambitious
stretch targets with
clear performance
related accountability
and rewards
0%
0%
4
5
The survey scores to question (14), rewarding high
performance – all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 2.61
1
4
3
2
Rewarding high-performance
5
All countries, manufacturing firms (100 to 5000 employees),
15
9820 observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (14), rewarding high
performance: developed countries, hospitals
.2
0
.1
Density
.3
.4
Average 2.31
1
4
3
2
Rewarding high-performance
5
Hospitals, Canada, France, Germany, Italy, Sweden, UK, US,
16
1183 observations
Nick Bloom and John Van Reenen, 591, 2012
.5
The survey scores to question (14), rewarding high
performance: developed countries, schools
.3
0
.1
.2
Density
.4
Average 2.18
1
2
3
4
Rewarding high-performance
5
Schools in Canada, Germany, Sweden, UK, US
17
777 observations
Nick Bloom and John Van Reenen, 591, 2012
(15) Removing poor performers
Score
(1): Poor
performers are
rarely removed
from their
positions
(3): Suspected
poor performers
stay in a
position for a
few years
before action is
taken
Nick Bloom and John Van Reenen, 591, 2012
(5): We move poor
performers out of the
company or to less
critical roles as soon
as a weakness is
identified
(15) Removing poor performers
(1): Poor
performers are
rarely removed
from their
positions
(3): Suspected poor
performers stay in a
position for a few years
before action is taken
0%
0%
Nick Bloom and John Van Reenen,1 591, 2012 2
0%
3
(5): We move poor
performers out of the
company or to less
critical roles as soon
as a weakness is
identified
0%
0%
4
5
.4
The survey scores to question (15), removing poor
performers – all countries, manufacturing
.2
0
.1
Density
.3
Average 3.11
1
2
3
Removing poor performers
4
5
All countries, manufacturing firms (100 to 5000 employees),
20
9820 observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (15), removing poor
performers – USA, manufacturing
.3
0
.1
.2
Density
.4
.5
Average 3.73
1
2
3
Removing poor performers
4
5
Manufacturing firms (100 to 5000 employees), 1291
21
observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (15), removing poor
performers – Japan, manufacturing
.3
0
.1
.2
Density
.4
.5
Average 2.78
1
2
3
Removing poor performers
4
5
Manufacturing firms (100 to 5000 employees), 176
22
observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (15), removing poor
performers – France, manufacturing
.2
0
.1
Density
.3
.4
Average 2.90
1
2
3
Removing poor performers
4
5
Manufacturing firms (100 to 5000 employees), 605
23
observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (15), removing poor
performers – India, manufacturing
.2
0
.1
Density
.3
.4
Average 2.81
1
2
3
Removing poor performers
4
5
Manufacturing firms (100 to 5000 employees), 1135
24
observations
Nick Bloom and John Van Reenen, 591, 2012
.5
The survey scores to question (15), removing poor
performers – US, Canada and UK, retail
.3
0
.1
.2
Density
.4
Average 3.03
1
2
3
Removing poor performers
4
5
All countries, retail firms (100 to 5000 employees)
25
660 observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (15), removing poor
performers: developed countries, hospitals
.2
0
.1
Density
.3
.4
Average 2.56
1
2
3
Removing poor performers
4
5
Hospitals, Canada, France, Germany, Italy, Sweden, UK, US,
26
1183 observations
Nick Bloom and John Van Reenen, 591, 2012
(17) Attracting human capital
Score (1): Our
competitors
offer stronger
reasons for
talented people
to join their
companies
(3): Our value
proposition to
those joining our
company is
comparable to
those offered by
others in the
sector
Nick Bloom and John Van Reenen, 591, 2012
(5): We provide a
unique value
proposition to
encourage talented
people join our
company above our
competitors
(17) Attracting human capital
(1): Our
competitors offer
stronger reasons
for talented
people to join
their companies
(3): Our value proposition to
those joining our company
is comparable to those
offered by others in the
sector
0%
0%
Nick Bloom and John Van Reenen,1 591, 2012 2
0%
3
(5): We provide a
unique value
proposition to
encourage talented
people join our
company above our
competitors
0%
0%
4
5
.5
The survey scores to question (17), attracting
human capital – all countries, manufacturing
.3
0
.1
.2
Density
.4
Average 3.06
1
2
3
Attracting human capital
4
5
All countries, manufacturing firms (100 to 5000 employees),
29
9739 observations
Nick Bloom and John Van Reenen, 591, 2012
(18) Retaining human capital
Score
(1): We do little to (3): We
(5): We do whatever
try and keep our usually work
it takes to retain our
top talent.
hard to keep
top talent.
our top talent.
Nick Bloom and John Van Reenen, 591, 2012
(18) Retaining human capital
(1): We do little (3): We usually work hard (5): We do whatever
to try and keep to keep our top talent.
it takes to retain our
our top talent.
top talent.
0%
0%
Nick Bloom and John Van Reenen,1 591, 2012 2
0%
3
0%
0%
4
5
The survey scores to question (18), retaining
human capital – all countries, manufacturing
.2
0
.1
Density
.3
.4
Average 2.55
1
2
3
Retaining Talent
4
5
All countries, manufacturing firms (100 to 5000 employees),
32
9782 observations
Nick Bloom and John Van Reenen, 591, 2012
Some “drivers” of good management
Incentives/People Management practices
Targets Management
Nick Bloom and John Van Reenen, 591, 2012
33
Targets management
Run through 5 dimensions on targets management (questions 8 to
12 on the grid)
The concept is around the setting of stretching targets
As before, while the data is mainly for manufacturing, these
questions have been used in retail, hospitals, schools, healthcare
clinics, tax collection agencies, charities, PPPs and law firms
Nick Bloom and John Van Reenen, 591, 2012
34
(8) Target balance
Score (1): Goals
are
exclusively
financial or
operational
(3): Goals include
non-financial targets,
which form part of the
performance
appraisal of top
management only
(they are not
reinforced throughout
the rest of
organization)
Nick Bloom and John Van Reenen, 591, 2012
(5): Goals are a
balance of financial
and non-financial
targets. Senior
managers believe the
non-financial targets
are often more
inspiring and
challenging than
financials alone.
(8) Target balance
(1): Goals are
exclusively
financial or
operational
(3): Goals include non-financial
targets, which form part of the
performance appraisal of top
management only (they are
not reinforced throughout the
rest of organization)
0%
0%
Nick Bloom and John Van Reenen,1 591, 2012 2
0%
3
(5): Goals are a balance
of financial and nonfinancial targets. Senior
managers believe the
non-financial targets are
often more inspiring and
challenging than
financials alone.
0%
0%
4
5
.4
The survey scores to question (8), target balance –
all countries, manufacturing
.2
0
.1
Density
.3
Average 2.89
1
2
3
Target balance
4
5
All countries, manufacturing firms (100 to 5000 employees),
37
9824 observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (8), target balance –
India, manufacturing
0
.1
Density
.2
.3
Average 2.44
1
2
3
Target balance
4
5
India, manufacturing firms (100 to 5000 employees),
38
1136 observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (8), target balance –
US, Canada and UK, retail
0
.1
Density
.2
.3
Average 2.74
1
2
3
Target balance
4
5
All countries, retail firms (100 to 5000 employees)
39
661 observations
Nick Bloom and John Van Reenen, 591, 2012
The survey scores to question (8), target balance:
developed countries, hospitals
.2
0
.1
Density
.3
.4
Average 2.73
1
2
3
Target balance
4
5
Hospitals, Canada, France, Germany, Italy, Sweden, UK, US,
40
1183 observations
Nick Bloom and John Van Reenen, 591, 2012
.5
The survey scores to question (8), target balance:
developed countries, schools
.3
0
.1
.2
Density
.4
Average 2.70
1
2
3
Target balance
4
5
Schools in Canada, Germany, Sweden, UK, US
41
777 observations
Nick Bloom and John Van Reenen, 591, 2012
(9) Target interconnection
Score (1): Goals are
based purely
on accounting
figures (with
no clear
connection to
shareholder
value).
(3): Corporate
goals are based
on shareholder
value but are not
clearly
communicated
down to
individuals
Nick Bloom and John Van Reenen, 591, 2012
(5): Corporate goals
focus on shareholder
value. They increase
in specificity as they
cascade through
business units
ultimately defining
individual performance
expectations.
(9) Target interconnection
(1): Goals are based purely
on accounting figures (with
no clear connection to
shareholder value).
0%
(3): Corporate goals
are based on
shareholder value
but are not clearly
communicated down
to individuals
0%
0%
0%
(5): Corporate goals focus
on shareholder value.
They increase in
specificity as they
cascade through
business units ultimately
defining individual
performance
expectations.
0%
Nick Bloom and John Van Reenen, 591, 2012
1
2
3
4
5
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),
44
9813 observations
Nick Bloom and John Van Reenen, 591, 2012
(10) Target time horizon
Score (1): Top
management's
main focus is
on short term
targets .
(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
Nick Bloom and John Van Reenen, 591, 2012
(5): Long term
goals are
translated into
specific short term
targets so that
short term targets
become a
"staircase" to reach
long term goals
(10) Target time horizon
(1): Top
management's
main focus is on
short term targets .
(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
0%
0%
0%
(5): Long term goals are
translated into specific short
term targets so that short term
targets become a "staircase"
to reach long term goals
0%
0%
Nick Bloom and John Van Reenen, 591, 2012
1
2
3
4
5
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),
47
9814 observations
Nick Bloom and John Van Reenen, 591, 2012
(11) Targets are stretching
Score (1): Goals are
either too easy
or impossible
to achieve;
managers
provide low
estimates to
ensure easy
goals
(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
Nick Bloom and John Van Reenen, 591, 2012
(5): Goals are
genuinely
demanding for
all divisions.
They are
grounded in
solid, solid
economic
rationale
(11) Targets are stretching
(1): Goals are either
too easy or
impossible to
achieve; managers
provide low
estimates to ensure
easy goals
0%
(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
0%
Nick Bloom and John Van Reenen, 591, 2012
1
2
0%
3
0%
4
(5): Goals are genuinely
demanding for all
divisions. They are
grounded in solid, solid
economic rationale
0%
5
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),
50
9819 observations
Nick Bloom and John Van Reenen, 591, 2012
(12) Performance clarity
Score (1): Performance
measures are
complex and not
clearly
understood.
Individual
performance is
not made public
(3): Performance
measures are
well defined and
communicated;
performance is
public in all levels
but comparisons
are discouraged
Nick Bloom and John Van Reenen, 591, 2012
(5): Performance
measures are well
defined, strongly
communicated and
reinforced at all
reviews;
performance and
rankings are made
public to induce
competition
(12) Performance clarity
(1): Performance
measures are complex
and not clearly
understood. Individual
performance is not
made public
0%
(3): Performance
measures are well
defined and
communicated;
performance is public
in all levels but
comparisons are
discouraged
0%
0%
(5): Performance measures
are well defined, strongly
communicated and
reinforced at all reviews;
performance and rankings
are made public to induce
competition
0%
0%
Nick Bloom and John Van Reenen, 591, 2012
1
2
3
4
5
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),
53
9821 observations
Nick Bloom and John Van Reenen, 591, 2012
My favourite quotes
The difficulties of defining ownership in Europe
Production Manager: “We’re owned by the Mafia”
Interviewer: “I think that’s the “Other” category……..although I
guess I could put you down as an “Italian multinational” ?”
Americans on geography
Interviewer: “How many production sites do you have abroad?
Manager in Indiana, US: “Well…we have one in Texas…”
Nick Bloom and John Van Reenen, 591, 2012
Wrap up
1) Large variation in targets practices – best organizations set
broad, clear and balanced targets which are tough but feasible
2) Variation common across all industries we have looked at –
manufacturing, retail, schools, hospitals, clinics and charities
3) As with monitoring potential for improvement is extensive,
especially in smaller organizations and developing countries
Nick Bloom and John Van Reenen, 591, 2012
55
The survey scores to question (15), removing poor
performers: developed countries, schools
.2
0
.1
Density
.3
.4
Average 2.50
1
2
3
Removing poor performers
4
5
Schools in Canada, Germany, Sweden, UK, US
56
777 observations
Nick Bloom and John Van Reenen, 591, 2012