Nick Bloom and John Van Reenen, Management Practices, 2010 1 Management Practices in Europe, the US...

Nick Bloom and John Van Reenen, Management Practices, 2010 1

Management Practices in Europe, the US and Emerging Markets

Nick Bloom (Stanford Economics)John Van Reenen (Stanford GSB/LSE)

Lecture 7: February 2010

Nick Bloom and John Van Reenen, Management Practices, 2010

To date focused on manufacturing, finding

1. Many firms are not adopting basic management practices• Particularly in family, founder or government firms• Particularly in low competition and/or regulated markets

2. These practices lead to improved performance in terms of profits, growth and stock-market value

3. So the scoring grid provides a benchmark for management practices, a potentially useful tool to drive change

Today look at hospitals, schools and retail sectors


Management in hospitals

Management in schools

Management in retail


Can management explain differences in hospital performance?

Huge spread in performance across hospitals - survival rates from heart attacks varying by 30% (Skinner & Staiger, 2009)

Are these related to management practices?

To check we surveyed ≈ 2000 hospitals across Europe and North America using same methodology as for manufacturing


Score (1): Performance is reviewed infrequently or in an un-meaningful way e.g. only success or failure is noted

(3): Performance is reviewed periodically with both successes and failures identified. Results are communicated to senior staff. No clear follow up plan is adopted.

(5): Performance is continually reviewed, based on the indicators tracked. All aspects are followed up to ensure continuous improvement. Results are communicated to all staff.

MONITORING – e.g. performance reviewHow do you review your departments performance? Tell me about a recent meeting. Who is involved in these meetings? Who gets to see the results. What is the follow-up plan? Can you tell me about the recent follow-up plan?


Score (1): Goals are either too easy or impossible to achieve, at least in part because they are set with little clinician involvement, e.g., simply off historical performance

(3) In most areas, senior staff push for aggressive goals based, e.g., on external benchmarks, but with little buy-in from clinical staff. There are a few sacred cows that are not held to the same standard

(5): Goals are genuinely demanding for all parts of the organisation and developed in consultation with senior staff, e.g., to adjust external benchmarks appropriately

TARGETS – e.g. target stretch

How tough are your targets? Do you feel pushed by them? On average, how often would you expect to meet your targets? Do you feel that on targets all specialties, departments or staff groups receive the same degree of difficulty? Do you just follow government targets or do you develop those relevant to your own hospital?

John Van Reenan

In the UK context this is the critical question


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 hospital/department or to less critical roles as soon as a weakness is identified

INCENTIVES – e.g. removing poor performersIf you had a clinician or a nurse who could not do his job, what would you do? Could you give me a recent example? How long would underperformance be tolerated? Do some individuals always just manage to avoid being re-trained/fired?


The hospital scores show a very strong correlation with better clinical performance

US data


Dependent variable:

Mortality rate from

emergency AMI

(ave=17.1%)

Mortality rate all

emergency surgery

(ave=2.5%)

Total waiting

list(normed to have SD=1)

Health Care Commission overall star

rating (normed to have SD=1)

Management -2.064*** -0.181*** -0.098*** 0.408***

Practices

Obs 140 157 160 161

Better management also associated with lower surgical mortality & shorter wait times

Note: Each cell from a separate regression of performance on Management. Controls: casemix (22 condition-specific age-gender cells), area mortality rate, size, speciality, region, noise (e.g. Interviewer dummies).

UK data


3.00

2.82

2.65

2.57

2.52

2.48

2.39

0 1 2 3 4

US

UK

Germany

Sweden

Canada

Italy

France

10

The U.S. leads the ranking of hospital management followed by the U.K., while Italy and France lag behind

Management practice scores

Hospitals


The cross country differences are particularly notable for people management

Hospitals


There is a wide distribution of management scores within and across countries

Hospitals


0.5

11

.52

Den

sity

1 2 3 4Management Score (16 overlapping questions)

Hospital management scores are lower than manufacturing

Manufacturing averageHospital averageHospitals


Public ownership of hospitals in most countries appears to be one reason for poor management

2.59

2.97

2.5 2.6 2.7 2.8 2.9 3.0 3.1

Public

Private

Average management score

Hospitals (US data)


Other factors include limited competition, unionization and regulation

• Competition: in manufacturing badly managed firms exit the market, but this rarely happens in healthcare

• Unionization: the public sector is much more heavily unionized than the private sector (e.g. 37.4% vs 7.2% in the US)

• Regulation: pay, promotions and firing is heavily regulated in public sector hospitals (e.g. firing nurses is very tough)


My favorite quote:

Don’t get sick in Britain

Interviewer : “Do staff sometimes end up doing the wrong sort of work for their skills?

NHS Manager: “You mean like doctors doing nurses jobs, and nurses doing porter jobs? Yeah, all the time. Last week, we had to get the healthier patients to push around the beds for the sicker patients”


Management in hospitals


Management practices in retail


Extending the management data to schools

• Surveyed around 1500 schools across North America and Europe

• Like hospitals used same methodology as manufacturing

18


Management practices in schools are also strongly correlated with performance

Schools


2.95

2.80

2.70

2.70

2.54

2.30 2.40 2.50 2.60 2.70 2.80 2.90 3.00

UK

Sweden

US

Canada

Germany

Schools

The US does not lead the rankings of school management, but is behind the UK & Sweden


There is a wide distribution of management scores within and across countries

Schools


Schools

Relative management strengths are more balanced across countries in schools


Similar factors around ownership, competition, unionization and regulation matters for schools

• Ownership: vast majority of schools in every developed country are publicly owned (about 95% in the US and UK)

• Competition: schools rarely exit, and usually due to demographic reasons rather than poor performance

• Unionization: teaching profession highly unionized

• Regulation: in many countries teachers almost unsackable, for example the New Yorker article on the “rubber room” http://www.newyorker.com/reporting/2009/08/31/090831fa_fact_brill


Management in UK hospitals


Management practices in retail


Extending the management research to retail

• Working with Toronto University – hence Canadian focus

• Surveyed 600 retail firms in Canada, US and the UK

• Again using virtually identical methodology as for manufacturing, hospitals and schools

25


Retail scores slightly lower than manufacturing (but much higher than public sector)

2.83

2.99

3.07

3.15

3.14

3.32

1 2 3 4

Retail

Manufacturing

Note: Only compared on the same questions (so not lean questions 1 and 2)

United States

UK Retail

United States

Canada

United Kingdom

Overall management scores

Retail


Retail distribution shows wide variation much like manufacturing, schools and hospitals

0.2

.4.6

.8

1 2 3 4 5 1 2 3 4 5

Manufacturing Retail

Density

normal management

Density

management

Graphs by retail


Multinational retail chains are very well managed, especially the big US multinational retail chains

Country Multinational Canadian multinational

American multinational

Domestic companies

Canada 3.43 3.14 3.45 2.78

2.54

2.85

2.78

2.86

3.26

3.43

1 2 3 4

UK

US

CanadaMultinationals chainsNon-multinationals

Management score, by country

American multinationals are driving high multinational scores in Canada

Retail


Like manufacturing, founder and family run firms are worst managed on average

2.50

2.55

2.66

2.91

3.09

1 2 3 4

Founder

Other

Family (2nd) gen

Private Individuals

Public

Management score, all countries Retail

30

My favourite quote:British English as a foreign language

Interviewer [with a British accent]: “Good day. Could I get the store managers name, please”

Receptionist [from Kentucky]: “I’m sorry ma’am, you need to speak English”

Interviewer again: “The store managers name, please”

Receptionist: “What’s that about Maine? I’m sorry but I only speak English”

Interviewer “That’s perfect – I am English. The store managers name please….”


Summary

1. Huge variation in management practices seems common to every sector we have studied to date

2. The very same practices around monitoring, targets and incentives always associated with superior performance

3. Demonstrates there are basic management best practices, with the grid identifying a core set of these

Nick Bloom and John Van Reenen, Management Practices, 2010 1 Management Practices in Europe, the US...

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