What do you think of when you think of good management? Open communication? Happy employees? Other good stuff? Nobody is against good management, because in the abstract, it’s an objectively good thing.
It has “good” in the name – doesn’t get any simpler.
But until recently, there hasn’t been any real data to back up the fact that it’s good. Other seemingly objectively good things like investment in research and development, skilled employees, and high quality IT have plenty of research backing up their individual value to a standard company.
Good management, though, is usually discussed in terms of giants like Google and Facebook, which aren’t exactly typical firms.
The Harvard Business Review recently released the data they collected through a new study on the real world effects of management practices, and now we have legit proof that good management is good. In collaboration with the U.S. Census Bureau, the HBR collected vast quantities of info on a large number of small and large manufacturing firms across the nation. In total, 35,000 plants were surveyed on three key management metrics: monitoring, targets, and incentives.
The results were pretty clear: management matters.
Only 20 percent of the surveyed plants reported using 75 percent or more of the performance-focused techniques for management mentioned in the survey. These rare good management plants performed dramatically better than did the other 80 percent of plants. The good management plants that use monitoring and incentives-based techniques proved to be more productive, creative, and ultimately, profitable.
Each 10 percent increase in the management index of a plant correlated to a full 14 percent increase in productivity.
That increase was even found true for plants that weren’t already doing well saw performance gains. A higher management index was also found to be an indicator of business expansion, and a sign that the plant was less likely to go out of business.
The above average management techniques also appeared to explain 18 percent of the difference in performance between the top 10 percent of plants and the bottom 10 percent. In contrast, R&D only accounts for 17 percent, employee skills represent 11 percent, and IT spending accounts for 8 percent. AKA management matters most.
Keep an eye open
So what does a firm with good management look like? It starts with their geographical location. Companies in more pro-business states tend to have better management thanks to Right to Work laws. Competitive industries also tend to breed better management, because competition is just magic that way.
College also plays a factor, in a couple of ways.
Businesses with more degree-holding employees, and even the companies that are close to universities, seem to use better management techniques. Proximity to big, successful industry peers also improved practices, likely because smaller local businesses had the opportunity to learn from the big fish.
That doesn’t account for all the variation, so individual leaders may play a large role in the quality of the management. That means that, independent of all other factors, entrepreneurs and other leaders have the ability and autonomy to re-direct management practices toward the more productive methods.
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There’s no excuse not to invest as many resources as you can into achieving it.