The power of management
My scepticism about the effectiveness of management has been challenged by Luis Enrique, who directs me to research by Nick Bloom and colleagues. But his work does not undermine my scepticism.
Take, for example, this study of medium-sized manufacturers, which says:
Better managerial practices are significantly associated with higher productivity and other indicators of firm performance.
So, management matters. Or does it?
The practices it identifies are largely about whether there are good feedback mechanisms in place. Is the production process sufficiently well monitored that errors can be eliminated and efficiencies identified? Is there good performance appraisal of employees? Are goals clear and sensible? And so on.
What we have here, then, is not a story about CEO’s “strategic vision”, or about the power of great individuals, but about day-to-day administrative structures. Common sense says these must matter, and must be basic good practice for any firm.
However, Bloom and colleagues find that less than one fifth of the variance in total factor productivity can be explained by these management practices. I’m surprised by how low this is.
What’s more, they found that “a large number of firms are extremely badly managed with ineffective monitoring, targets and incentives.” Vast numbers of bosses, then, can’t even put in place basic good practice. Many managers, then, are poor even by quite undemanding standards. Why?
There is much evidence that management practices are hard to change and are deeply embedded in the culture of an organisation.
For example, older firms, and family-owned firms, tend to be worse managed, as are firms in less competitive industries. Competition, says (pdf) Bloom, has a “critical influence” in improving management.
But this is just what I’ve said - that management is weak when set against more powerful forces such as path dependency and the complexity of social structures.
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