Better management is key to solving the UK’s productivity puzzle
We need to put the importance of good management on the agenda of policymakers and the media. In my report Management Matters, I analysed the growing academic literature linking the adoption of good management practices to productivity, business growth and profitability. We rightly celebrate the growth in the number of entrepreneurs taking risks to bring new ideas to market, but without the right managerial know-how there’s a good chance that many will fall short of their potential.
The World Management Survey has surveyed tens of thousands of managers from a range of sectors from manufacturing to healthcare on the management practices they use. The results are impressive. One study focused on the managers of manufacturing plants. It found that whether or not firms adopted good management practices predicted a firm’s productivity better than IT, R&D, or employee skills. Furthermore, management quality not only explained differences in productivity between firms but also differences in productivity within firms. In many large firms, some plants were well-run and other less so.
Historical evidence also highlights the importance of management. A study by Alexopoulous and Tombe measured organisational innovations by looking at new titles recorded in the Library of Congress. They found that managerial innovations such as Just-in-time Manufacturing, Zero-base budgeting and Taylor’s Scientific Management were as important as technological innovations in predicting increases in economic growth.
Good managers get more out of their employees, but it’s not by forcing them to work longer and harder. Rather it’s by creating the right incentive structures and eliminating wasted time between tasks. In fact, employees tend to be happier when they work for good managers. Research from Bryson, Forth, and Stokes found “a clear, positive, and statistically significant relationship between employees’ subjective well-being and workplace performance in Britain”.
It’s worrying then that Britain’s managers have fallen behind their international counterparts. A survey of over 11,000 managers across 34 countries found that British firms were significantly less likely to have adopted managerial best-practices than their American, Japanese or German counterparts.
It’s hard to pinpoint a single factor. Research suggests product market concentration, business-friendly regulation, and exposure to international competitors all play a role. One study blamed the tendency of family firms to pass down management to their first-born sons as a key cause.
Education must be a factor too. Research from the Centre for Education Economics found that graduates who had studied business, social science or law tended to employ more people when they started businesses.
Business schools can help – both by providing management training and by supporting small businesses informally through offering advice or encouraging MBA students to work with SMEs as part of their programme. There is also a role for business schools building and co-ordinating networks to create better opportunities for peer-to-peer learning. Schemes such as university Entrepreneur in Residence programmes create opportunities for students and entrepreneurs to learn from each other.
Good management must ultimately be driven by the ambitions of Britain’s business owners, but outside actors have a part to play. To this end, business schools are important and need to show their own brand of good leadership and management skills to ensure entrepreneurs don’t just survive, but thrive.
Sam Dumitriu, Research Director, The Entrepreneurs Network
Read the Entrepreneurs Network's latest report, Management Matters, here.