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Management practices - new survey compares firms in the UK, Europe, United States and Asia

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American firms continue to have the best management practices in the world: only one in every 50 can be described as 'very badly managed', compared with roughly one in 12 in the UK and more than one in five in Greece and India. These are among the conclusions of a new survey of over 4,000 firms across the UK, continental Europe, the United States and Asia.

The research by the Centre for Economic Performance, McKinsey & Company and Stanford University uses an innovative approach to surveying management practices. The results of the study, which is launched today (Thursday 12 July 2007), reveal that:

  • US firms are on average the best managed, with Swedish, Japanese and German firms also very well run. Greek and Indian firms are the worst managed, and UK firms are in the middle of the pack alongside France and Italy.
  • These differences across countries are largely driven by the 'tail' of badly managed firms. Fewer than 2 per cent of US firms are 'very badly managed', while the UK has 8 per cent, and the Greeks and Indians have over 20 per cent.
  • Managers are very poor at self-assessment:
    • Over 85 per cent of managers say that their firm is better managed than average.
    • Self-assessed management has almost no link with actual firm performance or the management 'scores' that the researchers calculate.
  • Four factors help to explain management practices:
    • Tougher competition - which weeds out the badly run firms and spur existing firms to improve.
    • 'Traditional' family firms - those that appoint the eldest son as the CEO - are usually worse managed.
    • Education of both workers and managers - which improves management practices.
    • Strict labour market regulations impair the ability of companies to improve their people management.
  • The UK-US management gap is driven predominantly by the UK's high share of 'traditional' family firms and lower levels of education of workers and managers.
  • There are also differences across countries in relative management strengths:
    • UK, US and Indian firms are relatively stronger at people management (for example,
      performance rewards and merit-based promotion).
    • Japanese, German, French, Italian and Swedish firms are relatively stronger at shopfloor operations management (for example, monitoring and continuous improvement).
  • Multinationals tend to achieve excellent management practices wherever they are located.

Professor Nick Bloom said: 'These results are worrying for US and European firms. While the typical Indian firm is badly managed, they also have some extremely well run firms. In fact, the top 30 per cent of Indian firms are better managed than the average UK firm. Combined with their cheap labour costs, this makes them formidable competitors.

'Family firms that hand down the CEO position to the eldest son are typically very badly managed. Imagine if we picked the England team as the eldest sons of the 1966 World Cup winners - I doubt we'd ever win a match.'

Raffaella Sadun said: 'The US supremacy in management practices appears to be driven by some simple ingredients: free markets, low regulation and merit-based promotion.

'Private equity owned firms are some of the best managed while traditional family firms are some of the worst. So, private equity firms may play an important role in preserving UK manufacturing when they buy out traditional family firms.'

Professor John Van Reenen said: 'It is surprising just how bad managers are at assessing their own firm's management. The average manager's self-assessment is 'well above average', bearing almost no relation to either their firm's performance or actual management practices. Maybe this is why so many people find David Brent so painfully realistic in The Office.'

Click here to download the summary report| (PDF)

Ends

Contact:

For further information please contact Romesh Vaitilingam on (mobile) 07768 661095, email romesh@compuserve.com|

Notes

Management Practices and Productivity: why they matter is by Nick Bloom (Stanford University), Stephen Dorgan (McKinsey & Company), John Dowdy (McKinsey & Company), Raffaella Sadun (Centre for Economic Performance, London School of Economics) and John Van Reenen (Centre for Economic Performance, London School of Economics)

For more details of the results, see http://cep.lse.ac.uk/management/| 

The research will be presented for the first time at a seminar at the Institution of Mechanical Engineers, 1 Birdcage Walk, at 6pm on Thursday 12 July.

Speakers:

  • Stephanie Flanders, economics editor, BBC Newsnight
  • John Dowdy, partner, McKinsey & Company
  • John Van Reenen, director of the Centre for Economic Performance, LSE

Chair: Dominic Casserley, managing partner, UK & Ireland McKinsey & Company

The research project is financially supported by the: The Advanced Institute of Management Research; The Anglo-German Foundation (CSGE project); The Economic and Social Research Council; and The Ewing Marion Kauffman Foundation

Press cuttings

Bolton News
Managers' training is vital says study (28 Aug 07)
A recent study of management practices and productivity conducted by the London School of Economics, McKinsey and Stanford University, found that one in 12 British firms were very badly managed'.
http://www.theboltonnews.co.uk/news/boltonbusiness/boltonbusiness/|
display.var.1643918.0.managers_training_is_vital_says_study.php| 

Taipei Times
Nurturing your own ideas is key to productivity
(25 July)
Reinforcement for this view comes from a new report from the London School of Economics' Centre for Economic Performance, McKinsey & Co and Stanford University entitled Management Practice and Productivity: why they matter, which supports the common-sense notion that the way firms are managed is one of the most important ways of distinguishing between them.
http://www.taipeitimes.com/News/editorials/archives/2007/07/25/2003371202| 

Economic Times, India
Desi MNC mfrs next only to US (13 July)
Indian multinational manufacturers are second only to their US counterparts when it comes to possessing competent management capabilities, according to a survey by consultancy firm Mckinsey and London School of Economics.
http://economictimes.indiatimes.com/Desi_MNC_mfrs_next|
_only_to_US_in_management_skills/articleshow/2199053.cms|

CIO Insight
India Rates Best, Worst in Management Study (13 July)
http://www.cioinsight.com/article2/0,1540,2158491,00.asp| 

Baseline magazine
India Rates Best, Worst in Management Study (13 July)
http://www.baselinemag.com/article2/0,1540,2158473,00.asp| 

FinFacts
US firms are on average the best managed (13 July)
American firms continue to have the best management practices in the world: only one in every 50 can be described as 'very badly managed', compared with roughly one in 12 in the UK and more than one in five in Greece and India. The research by the Centre for Economic Performance at the London School of Economics, McKinsey & Company and Stanford University uses an innovative approach to surveying management practices.
http://www.finfacts.com/irelandbusinessnews/publish/article_1010586.shtml| 

Eweek, India
India Rates Best, Worst in Management Study (13 July)
http://www.eweek.com/article2/0,1895,2158302,00.asp| 

Contractor UK
UK excels in IT, but its managers are lax (13 July)
http://www.contractoruk.com/news/003346.html| 

Financial Times
Multinational managers in India rival US for skill (12 July)
Multinational manufacturers in India have a management capability second only to equivalent companies operating in the US, according to a survey published today by McKinsey, the strategy consultants, and the London School of Economics. 

There's only room for one big boss at Alliance Boots (12 July)
According to research out today from the Centre for Economic Performance at the London School of Economics and McKinsey, by handing their businesses down to their children, entrepreneurs may be sustaining a long 'tail' of underperforming companies and holding back the UK's score for good management practice compared with, say, the US.
Source: Vocus 

Daily Telegraph
UK 'good at IT despite poorly-managed firms' (12 July)
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/12/cnit112.xml| 

12 July  2007

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