Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics and GSB)...
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Nick Bloom and John Van Reenen, 591, 2012 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics and GSB) John Van Reenen (LSE and Stanford GSB) Lecture 4: Management and firm Performance 1
Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics and GSB) John Van Reenen (LSE and Stanford GSB) Lecture 4:
Management Practices in Europe, the US and Emerging Markets
Nick Bloom (Stanford Economics and GSB) John Van Reenen (LSE and
Stanford GSB) Lecture 4: Management and firm Performance 1
Slide 3
Nick Bloom and John Van Reenen, 591, 2012 2 Lincoln &
influences on incentives management Incentives/People Management
practices Targets Management
Slide 4
2.42.62.833.23.43.6 United States Sweden Germany Japan Italy
France UK Canada US Australia Poland Mexico China New Zealand
Portugal India Chile Brazil Argentina Republic of Ireland Greece
Foreign multinationals Domestic firms MULTINATIONALS APPEAR TO
ACHIEVE GOOD MANAGEMENT PRACTICES WHEREVER THEY LOCATE Sample of
7,262 manufacturing and 661 retail firms, of which 5,441 are purely
domestic and 2,482 are foreign multinationals. Domestic
multinationals are excluded that is the domestic subsidiaries of
multinational firms (like a Toyota subsidiary in Japan). Management
score
Slide 5
LABOR MARKET REGULATION INHIBIT GOOD INCENTIVES MANAGEMENT
Note: Averaged across all manufacturing firms within each country
(9079 observations). We did not include other sectors as we do not
have the same international coverage. Incentives management defined
as management practices around hiring, firing, pay and promotions.
The index is from the Doing Business database
http://www.doingbusiness.org/ExploreTopics/EmployingWorkers/
http://www.doingbusiness.org/ExploreTopics/EmployingWorkers/
Argentina Australia Brazil Canada Chile China France Germany Great
Britain Greece India Italy Japan Mexico New Zealand Poland Portugal
Republic of Ireland Sweden UK US 2.6 2.8 3 3.2 0102030405060 World
Bank Rigidity of employment index (0-100) Incentives Management
(management sample)
Slide 6
Nick Bloom and John Van Reenen, 591, 2012 SUMMARY OF SOME
DETERMINANTS OF MANAGEMENT (& PRODUCTIVITY) Product market
competition Meritocratic CEO selection Human Capital Ownership
public sector Multinationals private equity Labor market
regulations
Slide 7
Nick Bloom and John Van Reenen, 591, 2012 6 Wrap up on Lincoln
& drivers of good management Incentives/People Management
practices Targets Management
Slide 8
Nick Bloom and John Van Reenen, 591, 2012 7 Incentives (people)
management Today we will run through 6 dimensions on incentives
management (part of HR and talent management) The concept is around
the management and motivation of people As before, while the data
is mainly for manufacturing, these questions have been used in
retail, hospitals, schools, healthcare clinics, tax collection
agencies, charities, PPPs and law firms
Slide 9
Nick Bloom and John Van Reenen, 591, 2012 Setting up your
clicker Press GO Then slowly press 0 and then 5 (channel is 05)
Then slowly press GO again A green light should appear signaling
the clicker worked
Slide 10
Nick Bloom and John Van Reenen, 591, 2012 Score(1): People are
promoted primarily upon the basis of tenure (3): People are
promoted upon the basis of performance (5): We actively identify,
develop and promote our top performers (16) Promoting high
performers
Slide 11
Nick Bloom and John Van Reenen, 591, 2012 (16) Promoting high
performers (1): People are promoted primarily upon the basis of
tenure (3): People are promoted upon the basis of performance (5):
We actively identify, develop and promote our top performers 1. 2.
3. 4. 5.
Slide 12
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (16), promoting high performers all countries,
manufacturing 11 All countries, manufacturing firms (100 to 5000
employees), 9820 observations Average 3.02
Slide 13
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (16), promoting high performers: developed countries,
hospitals 12 Hospitals, Canada, France, Germany, Italy, Sweden, UK,
US, 1183 observations Average 2.44
Slide 14
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (16), promoting high performers : developed countries,
schools 13 Schools in Canada, Germany, Sweden, UK, US 777
observations Average 2.41
Slide 15
Nick Bloom and John Van Reenen, 591, 2012 (14) Rewarding high
performance (1): People within our firm are rewarded equally
irrespective of performance level (3): Our company has an
evaluation system for the awarding of performance related rewards
(5): We strive to outperform the competitors by providing ambitious
stretch targets with clear performance related accountability and
rewards 1. 2. 3. 4. 5.
Slide 16
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (14), rewarding high performance all countries,
manufacturing 15 All countries, manufacturing firms (100 to 5000
employees), 9820 observations Average 2.61
Slide 17
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (14), rewarding high performance: developed countries,
hospitals 16 Hospitals, Canada, France, Germany, Italy, Sweden, UK,
US, 1183 observations Average 2.31
Slide 18
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (14), rewarding high performance: developed countries,
schools 17 Schools in Canada, Germany, Sweden, UK, US 777
observations Average 2.18
Slide 19
Nick Bloom and John Van Reenen, 591, 2012 Score(1): Poor
performers are rarely removed from their positions (3): Suspected
poor performers stay in a position for a few years before action is
taken (5): We move poor performers out of the company or to less
critical roles as soon as a weakness is identified (15) Removing
poor performers
Slide 20
Nick Bloom and John Van Reenen, 591, 2012 (15) Removing poor
performers (1): Poor performers are rarely removed from their
positions (3): Suspected poor performers stay in a position for a
few years before action is taken (5): We move poor performers out
of the company or to less critical roles as soon as a weakness is
identified 1. 2. 3. 4. 5.
Slide 21
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers all countries,
manufacturing 20 All countries, manufacturing firms (100 to 5000
employees), 9820 observations Average 3.11
Slide 22
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers USA, manufacturing 21
Manufacturing firms (100 to 5000 employees), 1291 observations
Average 3.73
Slide 23
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers Japan, manufacturing 22
Manufacturing firms (100 to 5000 employees), 176 observations
Average 2.78
Slide 24
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers France, manufacturing 23
Manufacturing firms (100 to 5000 employees), 605 observations
Average 2.90
Slide 25
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers India, manufacturing 24
Manufacturing firms (100 to 5000 employees), 1135 observations
Average 2.81
Slide 26
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers US, Canada and UK, retail
25 All countries, retail firms (100 to 5000 employees) 660
observations Average 3.03
Slide 27
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers: developed countries,
hospitals 26 Hospitals, Canada, France, Germany, Italy, Sweden, UK,
US, 1183 observations Average 2.56
Slide 28
Nick Bloom and John Van Reenen, 591, 2012 Score(1): Our
competitors offer stronger reasons for talented people to join
their companies (3): Our value proposition to those joining our
company is comparable to those offered by others in the sector (5):
We provide a unique value proposition to encourage talented people
join our company above our competitors (17) Attracting human
capital
Slide 29
Nick Bloom and John Van Reenen, 591, 2012 (17) Attracting human
capital (1): Our competitors offer stronger reasons for talented
people to join their companies (3): Our value proposition to those
joining our company is comparable to those offered by others in the
sector (5): We provide a unique value proposition to encourage
talented people join our company above our competitors 1. 2. 3. 4.
5.
Slide 30
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (17), attracting human capital all countries,
manufacturing 29 All countries, manufacturing firms (100 to 5000
employees), 9739 observations Average 3.06
Slide 31
Nick Bloom and John Van Reenen, 591, 2012 Score(1): We do
little to try and keep our top talent. (3): We usually work hard to
keep our top talent. (5): We do whatever it takes to retain our top
talent. (18) Retaining human capital
Slide 32
Nick Bloom and John Van Reenen, 591, 2012 (18) Retaining human
capital (1): We do little to try and keep our top talent. (3): We
usually work hard to keep our top talent. (5): We do whatever it
takes to retain our top talent. 1. 2. 3. 4. 5.
Slide 33
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (18), retaining human capital all countries, manufacturing
32 All countries, manufacturing firms (100 to 5000 employees), 9782
observations Average 2.55
Slide 34
Nick Bloom and John Van Reenen, 591, 2012 33 Some drivers of
good management Incentives/People Management practices Targets
Management
Slide 35
Nick Bloom and John Van Reenen, 591, 2012 34 Targets management
Run through 5 dimensions on targets management (questions 8 to 12
on the grid) The concept is around the setting of stretching
targets As before, while the data is mainly for manufacturing,
these questions have been used in retail, hospitals, schools,
healthcare clinics, tax collection agencies, charities, PPPs and
law firms
Slide 36
Nick Bloom and John Van Reenen, 591, 2012 Score(1): Goals are
exclusively financial or operational (3): Goals include
non-financial targets, which form part of the performance appraisal
of top management only (they are not reinforced throughout the rest
of organization) (5): Goals are a balance of financial and
non-financial targets. Senior managers believe the non-financial
targets are often more inspiring and challenging than financials
alone. (8) Target balance
Slide 37
Nick Bloom and John Van Reenen, 591, 2012 (8) Target balance
(1): Goals are exclusively financial or operational (3): Goals
include non-financial targets, which form part of the performance
appraisal of top management only (they are not reinforced
throughout the rest of organization) (5): Goals are a balance of
financial and non- financial targets. Senior managers believe the
non-financial targets are often more inspiring and challenging than
financials alone. 1. 2. 3. 4. 5.
Slide 38
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (8), target balance all countries, manufacturing 37 All
countries, manufacturing firms (100 to 5000 employees), 9824
observations Average 2.89
Slide 39
Nick Bloom and John Van Reenen, 591, 2012 38 India,
manufacturing firms (100 to 5000 employees), 1136 observations
Average 2.44 The survey scores to question (8), target balance
India, manufacturing
Slide 40
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (8), target balance US, Canada and UK, retail 39 All
countries, retail firms (100 to 5000 employees) 661 observations
Average 2.74
Slide 41
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (8), target balance: developed countries, hospitals 40
Hospitals, Canada, France, Germany, Italy, Sweden, UK, US, 1183
observations Average 2.73
Slide 42
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (8), target balance: developed countries, schools 41
Schools in Canada, Germany, Sweden, UK, US 777 observations Average
2.70
Slide 43
Nick Bloom and John Van Reenen, 591, 2012 Score(1): Goals are
based purely on accounting figures (with no clear connection to
shareholder value). (3): Corporate goals are based on shareholder
value but are not clearly communicated down to individuals (5):
Corporate goals focus on shareholder value. They increase in
specificity as they cascade through business units ultimately
defining individual performance expectations. (9) Target
interconnection
Slide 44
Nick Bloom and John Van Reenen, 591, 2012 (9) Target
interconnection 1. 2. 3. 4. 5. (1): Goals are based purely on
accounting figures (with no clear connection to shareholder value).
(3): Corporate goals are based on shareholder value but are not
clearly communicated down to individuals (5): Corporate goals focus
on shareholder value. They increase in specificity as they cascade
through business units ultimately defining individual performance
expectations.
Slide 45
Nick Bloom and John Van Reenen, 591, 2012 Target
interconnection (9): all countries, manufacturing 44 All countries,
manufacturing firms (100 to 5000 employees), 9813 observations
Average 3.01
Slide 46
Nick Bloom and John Van Reenen, 591, 2012 Score(1): Top
management's main focus is on short term targets. (3): There are
short and long-term goals for all levels of the organization. As
they are set independently, they are not necessarily linked to each
other (5): Long term goals are translated into specific short term
targets so that short term targets become a "staircase" to reach
long term goals (10) Target time horizon
Slide 47
Nick Bloom and John Van Reenen, 591, 2012 (10) Target time
horizon 1. 2. 3. 4. 5. (1): Top management's main focus is on short
term targets. (3): There are short and long-term goals for all
levels of the organization. As they are set independently, they are
not necessarily linked to each other (5): Long term goals are
translated into specific short term targets so that short term
targets become a "staircase" to reach long term goals
Slide 48
Nick Bloom and John Van Reenen, 591, 2012 Target time horizon
(10): all countries, manufacturing 47 All countries, manufacturing
firms (100 to 5000 employees), 9814 observations Average 2.99
Slide 49
Nick Bloom and John Van Reenen, 591, 2012 Score(1): Goals are
either too easy or impossible to achieve; managers provide low
estimates to ensure easy goals (3): In most areas, top management
pushes for aggressive goals based on solid economic rationale.
There are a few "sacred cows" that are not held to the same
rigorous standard (5): Goals are genuinely demanding for all
divisions. They are grounded in solid, solid economic rationale
(11) Targets are stretching
Slide 50
Nick Bloom and John Van Reenen, 591, 2012 (11) Targets are
stretching 1. 2. 3. 4. 5. (1): Goals are either too easy or
impossible to achieve; managers provide low estimates to ensure
easy goals (3): In most areas, top management pushes for aggressive
goals based on solid economic rationale. There are a few "sacred
cows" that are not held to the same rigorous standard (5): Goals
are genuinely demanding for all divisions. They are grounded in
solid, solid economic rationale
Slide 51
Nick Bloom and John Van Reenen, 591, 2012 Targets are
stretching (11): all countries, manufacturing 50 All countries,
manufacturing firms (100 to 5000 employees), 9819 observations
Average 3.00
Slide 52
Nick Bloom and John Van Reenen, 591, 2012 Score(1): Performance
measures are complex and not clearly understood. Individual
performance is not made public (3): Performance measures are well
defined and communicated; performance is public in all levels but
comparisons are discouraged (5): Performance measures are well
defined, strongly communicated and reinforced at all reviews;
performance and rankings are made public to induce competition (12)
Performance clarity
Slide 53
Nick Bloom and John Van Reenen, 591, 2012 (12) Performance
clarity 1. 2. 3. 4. 5. (1): Performance measures are complex and
not clearly understood. Individual performance is not made public
(3): Performance measures are well defined and communicated;
performance is public in all levels but comparisons are discouraged
(5): Performance measures are well defined, strongly communicated
and reinforced at all reviews; performance and rankings are made
public to induce competition
Slide 54
Nick Bloom and John Van Reenen, 591, 2012 Performance clarity
(12): all countries, manufacturing 53 All countries, manufacturing
firms (100 to 5000 employees), 9821 observations Average 2.67
Slide 55
Nick Bloom and John Van Reenen, 591, 2012 My favourite quotes
Interviewer: How many production sites do you have abroad? Manager
in Indiana, US: Wellwe have one in Texas Americans on geography
Production Manager: Were owned by the Mafia Interviewer: I think
thats the Other category..although I guess I could put you down as
an Italian multinational ? The difficulties of defining ownership
in Europe
Slide 56
Nick Bloom and John Van Reenen, 591, 2012 55 Wrap up 1) Large
variation in targets practices best organizations set broad, clear
and balanced targets which are tough but feasible 2) Variation
common across all industries we have looked at manufacturing,
retail, schools, hospitals, clinics and charities 3) As with
monitoring potential for improvement is extensive, especially in
smaller organizations and developing countries
Slide 57
Nick Bloom and John Van Reenen, 591, 2012 The survey scores to
question (15), removing poor performers: developed countries,
schools 56 Schools in Canada, Germany, Sweden, UK, US 777
observations Average 2.50
