What Drains the Management Quality of Your Organization?
For quite a while now, development of the leadership and management skills has been among the top focus areas for numerous companies around the world. Yet, leadership and management capabilities are still underscored in many companies although the theory is often known well. The recent Workplace Learning and Development Report 2018 by LinkedIn also validates that leadership is the most important skill for managers to learn from learning and development programs.
I am happy to share in this article an in-depth research by Raffaella Sadun, Nicholas Bloom and John van Reenen focusing on core management practices. Beginning their research in 2002, the three researchers have recently published their findings, which I have found very insightful and believe that all companies and HR professionals should hearken to.
A Quick Overview of the Research
Sadun, Bloom, and van Reenen rated in their research the surveyed companies based on their use of 18 different practices in 4 areas (operations management, performance monitoring, target setting, and talent management) in order to observe the general operational excellence at each organization analysed. They set out for this study with the thesis that use of the following 18 practices tends to form the foundations of a sound operational excellence in any organization:
1) Operations Management 1. Use of lean techniques 2. Reasons for adopting lean processes
2) Performance Monitoring 3. Process documentation 4. Use of key performance indicators (KPIs) 5. KPI reviews 6. Discussion of results 7. Consequences for missing targets
3) Target Setting 8. Choice of targets 9. Connection to strategy, extent to which targets cascade down to individual workers 10. Time horizon 11. Level of challenge 12. Clarity of goals and measurement
4) Talent Management 13. Talent mindset at the highest levels 14. Stretch goals 15. Management of low performance 16. Talent development 17. Employee value proposition 18. Talent retention
Following numerous interviews with managers from more than 12,000 companies in 34 countries, the researchers have shared a number of surprising findings in their research:
Although many of the above-mentioned managerial processes are well known, even big and structured companies struggle to apply them.
On a management quality scale of 1 (very bad) to 5 (very good), 11% of the companies have an average score of 2 or even less and these companies are identified with no objective performance and rewarding systems, no targets for employees, and no willingness to face and fix the problems in the organizations. At the other end of the scale, 6% of the companies are actually management superstars, hitting an average score of 4 or more. And these companies are identified with clear goals and guidance, objective monitoring, fair performance systems, continuous improvement and growth mindset.
Management quality fluctuates not only across companies but also within the organizations themselves. Especially the large companies, regardless of how well-governed and successful they are, struggle to deploy the same best practices throughout the whole organization.
Quality of management has a clear impact on the profitability of the company. Better-managed companies are more profitable and grow faster. In fact, moving an organization from the worst 10% up to the best 10% brings along 25% faster annual growth and 75% higher productivity.
Getting Down to Causes
In a wide spectrum of companies studied, many of the managers are well aware of the above-mentioned 18 core management practices. Yet, there are huge variations of management practices across and within companies. Here are the causes that the three researchers identify their research findings with:
Managers are overconfident with themselves The research indicates that a surprisingly high number of managers are unable to evaluate themselves objectively. The median score to the question “On a scale from 1 to 10, how well managed is your firm?” was 7 out of 10, a quite optimistic assumption with zero correlation to the reality (when compared to companies’ management scores and performance) of each company. This gap in the managers’ perception of themselves is quite risky as the results demonstrate that managers might not be aware of which practices they need to improve.
Governance has an impact on management quality In other cases where managers are completely aware of the need to polish their management practices, they are reluctant to take any action. Results of the study indicates that especially the family-run businesses have relatively weaker management as any alteration in the management practices is feared to bring along a huge financial cost to the family (through hiring new people) and to lose the family’s control over the business (through delegating processes to the new talents).
Being a control-freak is a risky obsession Findings of the study reveal that decentralized decision making has a positive correlation with management scores. Managers’ obsession to “control” the business might turn the management scores upside down over the long term. Managers should be more open to share the glory with their team members and be ensured that delegating practices to new talents does not necessarilly require them to give up control.
Skill deficits pose a real struggle A successful management requires such skills as analytical thinking, numeracy, and so forth. The study reveals that companies with a better-educated management team well tend to have higher management scores.
Organizational culture plays a key role The study demonstrates that even though the managers are quite aware of their practices to be improved and very much willing to take initiatives and push the company forward, organizational culture might still set a trap. In especially the big transformations, organizational culture should be collaborative, innovative and supportive in order to embrace the new proceses deployed.