Better Management Will Help Drive Productivity Improvements
In a previous article, I explored how technology is generally not feeding through into productivity statistics. Data shows that despite considerable advances in technology in the last decade, productivity has largely remained flat.
This is not a new refrain, with Robert Solow famously remarking that computing was everywhere except the productivity statistics in 1987. It's less common for poor management to be targeted to explain lackluster productivity, but research from Stanford's Nick Bloom suggests that is a mistake.
Weak management
Bloom's World Management Survey was established in 2004 to measure management practices across hundreds of medium-sized firms in the likes of the U.K., U.S., and France. After analyzing data over nearly a decade, the correlation between effective managerial practices and a company's overall productivity, profitability, stock market value, and longevity has been firmly established.
The assessment of managerial practices encompasses various facets, including monitoring key performance indicators, setting ambitious yet feasible targets, and investing in human capital through strategic recruitment, promotion, and compensation.
These dimensions have been shown to have a significant impact on a firm's productivity, particularly in fostering a culture of excellence and accountability.
The research has also had a significant impact beyond the UK, with several countries using its data and insights to inform their own industrial policies, including Australia, France, and New Zealand. As a 2017 World Bank report noted: “the WMS initiated by Bloom and Van Reenen … has permitted a quantum leap in the comparative quantitative analysis of management practices and their implications for productivity and innovation.”
Ill-equipped
Research from Gallup highlights the importance of good management. They found that when managers have a greater share of talented managers, not only was there twice the number of engaged employees but those organizations also had 147% higher earnings per share than their rivals.
The problem is that just 10% of managers were rated as good, with this largely because many are promoted to managerial roles based on strong technical performance rather than any managerial acumen. What's more, this problem is particularly acute among small and medium businesses, for which management is usually even more accidental in nature and something founders tend to evolve into as the business grows.
After all, the World Management Survey found that family firms tended to score particularly poorly when it comes to management. The U.K. government has attempted to rectify matters with the creation of its Help to Grow program, which aims to enhance the management capabilities of small and medium-sized enterprises (SMEs).
The results have been somewhat lackluster to date. As of October 31st, 2021, a mere 810 firms had enrolled, a long way off from the goal of 30,000 participants. One of the plan's most limiting aspects is that it is solely available to businesses with a minimum of five employees, rendering sole proprietors and businesses that mainly employ freelancers or contractors ineligible. Moreover, the £750 fee for participation proves a significant obstacle for the smallest of businesses.
A fresh approach
A report from the All Party Parliamentary Group for Entrepreneurship (APPGE) highlights some of the flaws with the program. The report found that a significant number of business leaders perceive the scheme as excessively time-consuming, leading to low enrollment rates.
The management courses demand a commitment of 50 hours spread across 12 weeks, a significant sacrifice for many business owners. To address this issue, the report recommends enhancing the flexibility of course delivery to make it more accessible to SMEs. This could involve piloting online-only courses or offering courses in a more customized timeframe.
Additionally, the report contends that there is a need for greater awareness of the Help to Grow schemes, as many SME owners consulted during the research were unfamiliar with or had limited knowledge of them. To address this gap, the report suggests launching a new information campaign and urges the government to improve its communication of the schemes to SMEs when contracting with them.
Supporting small businesses
Banking giant Goldman Sachs is also aiming to tackle productivity among small and medium-sized businesses via their 10,000 small businesses program. The scheme, which is run in partnership with Oxford University's Saïd Business School in the UK and ESSEC Business School in France, is open to any business that has been operating for at least three years; has at least 5 employees; and turns over at least €250,000.
"Every SME deserves to benefit from world class teaching that helps them to grow effectively," says Oxford Saïd’s Dean, Professor Soumitra Dutta. "They are the entrepreneurial heartland of the business community, not just in the UK but all over the world."
Participants get tuition from faculty at the respective business schools alongside coaching and mentoring from professionals and peers. The program aims to attract participants from across the UK and France to try and overcome some of the regional inequalities that are so prevalent in both nations.
"We work with the Confederation of Small and Medium Enterprise (CPME) in France to help ensure that we reach a broad regional cross-section of businesses," says Stephane Grand-Chavin, program manager of the scheme at ESSEC. "They work with approximately 250,000 businesses across the country so help to provide us with excellent reach to all corners of the country, and even the overseas territories, such as Martinique, nearly 7,000km away."
The program requires a 16-day commitment over a 4-month period, during which time participants learn practical knowledge and skills in critical areas for business development, such as strategy, leadership, marketing, and finance. It integrates advanced academic material, collaborative support, and customized business mentoring to empower participants to harness their full potential.
Suffice it to say, while the scheme is commendable, it only reaches a tiny proportion of the overall SME market and Dutta's ambition to ensure that every SME leader has access to exceptional business education remains some way off. As a result, it remains to be seen how either it or the U.K. government's Help to Grow scheme materially changes the productivity of smaller businesses. It is at least positive, however, that attention is being focused on the important role management has to play in improving national productivity.
