WSJ(9/8) The 'Same Ol' Is Actually Good Enough For Many
(From THE WALL STREET JOURNAL) By Scott Thurm
Do common management techniques such as setting targets, monitoring performance and 'lean' manufacturing actually help companies become more productive and profitable? An extensive new study suggests the answer is yes.
That result may be unsurprising. But management experts say the study, covering more than 4,600 midsize factories in 12 countries, is among the first to test the notion statistically.
Researchers from Stanford University, the London School of Economics and consulting firm McKinsey & Co. interviewed plant managers and examined financial data. They found U.S. factories to be the best-managed and most-productive, though the authors sound warnings for the U.S. as well.
The link between management techniques and productivity appeared everywhere, from industrialized economies such as Germany and Japan to rapidly rising China and India. Moreover, the countries with the best-managed and most-productive factories also had the highest per-capita income.
Outside experts say the study could prove a big step in propelling the art of management -- now related largely by anecdote -- to a more scientific approach. 'It's pioneering work,' says Josh Lerner, a professor at Harvard Business School who wasn't involved in the study but who calls it 'a real innovation in the study of management.'
The study contains other intriguing results:
-- There is more variation within each country on use of management techniques than among different countries. Roughly 15% of the plants in China and India scored better than the average U.S. factory; the worst-run U.S. factories scored worse than the average Chinese or Indian plant.
-- Multinational companies scored better than purely domestic firms everywhere. The authors say multinationals seem to play a key role in spreading good management techniques. U.S. factories, for example, adopted lean-manufacturing techniques pioneered by Japanese companies such as Toyota Motor Corp.
-- Competition forces managers to improve, or watch their companies die. Companies reporting the most competitors scored better and were more productive.
Countries with large numbers of companies that scored poorly were also considered the least competitive. 'Competition weeds out poor-performing firms faster,' says Stephen Dorgan, a London-based McKinsey partner and co-author.
-- Across the globe, managers think they are doing a good job -- often incorrectly. There was little correlation between how managers assessed their firms' management techniques and their scores on the survey. 'Most managers are worse than they think they are,' says Nick Bloom, a Stanford economist and lead author of the study.
-- Family-run and government-run businesses are less well managed and less productive than similar plants with professional managers. Promoting successive generations of family management 'significantly damages company performance,' the authors write.
The study is based on responses to a survey that asked plant managers roughly 50 questions, such as 'How do you track production performance?' and 'Do senior managers discuss attracting and developing talented people?' The questions were grouped around three themes: management of operations, performance and people.
The M.B.A. students conducting the survey scored the answers on a scale from one to five. A U.S. plant with multiple computer screens displaying up-to-the-minute production totals and progress toward targets was scored a five. A plant where the manager said he tracks performance only when output drops was scored a one.
The survey was initially developed by McKinsey in 2001 to assess its own clients. The consulting firm applied the technique to progressively larger groups of companies, and each time it found that the highest-scoring firms were also the most productive and profitable.
'It seems to be that good management practice is good management practice,' Mr. Dorgan says. (The new study excluded McKinsey clients.)
Globally, the study found that a one-point increase in a factory's average rating (on the one-to-five scale) translated to a 25% increase in labor productivity and a 65% increase in return on invested capital. Better-scoring firms that were publicly traded also had higher stock-market valuations than similar firms with poorer management scores.
U.S. firms ranked as best-managed overall, but not in every category. Firms in Japan, Germany and Sweden scored better on managing performance and operations. U.S. firms scored highest on managing people. Authors say this reflects the relative ease with which workers can be hired and fired in the U.S., compared with countries such as France and Italy.
Moreover, the authors say the results suggest that plants in China and India aren't far behind and could catch up relatively easily, by applying well-known management techniques. Although the study doesn't discuss individual firms, the authors in interviews say companies such as India's Reliance Industries Ltd. and Tata Group have shown themselves to be the equal of Western firms.
'It's surprising how many good and well managed Chinese companies there are,' Mr. Dorgan says. 'For U.S. companies, there's little room for complacency.' |
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