Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe,...

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Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics) John Van Reenen (Stanford GSB) Lecture 2: May 14 th, 2009

Transcript of Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe,...

Page 1: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1

Management Practices in Europe, the US and Emerging Markets

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

Lecture 2: May 14th, 2009

Page 2: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

REVISION

• Last session we: – Looked at why management was important for the

wealth of nations– Examined the basics of the “double blind” scoring– Discussed the scoring of performance management

• Today:– We will look at management practices scores across

countries– Discuss the scoring of talent management

2

Page 3: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009 3

Management scores across countries

Talent management

Page 4: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 20092.6 2.8 3 3.2 3.4

mean of management

USGermanySweden

JapanCanadaFrance

ItalyGreat Britain

AustraliaNorthern Ireland

PolandRepublic of Ireland

PortugalBrazilIndia

ChinaGreece

MANAGEMENT PRACTICES ACROSS COUNTRIES?

Average Country Management Score

Distinct groups

Page 5: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

0.5

10

.51

0.5

10

.51

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

Australia Brazil Canada China

France Germany Great Britain Greece

India Ireland Italy Japan

Poland Portugal Sweden US

De

nsi

ty

managementGraphs by country1

TAILS DRIVES DIFFERENCES ACROSS COUNTRIES

Firm-Level Management Scores

Page 6: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009-.4 -.2 0 .2 .4

mean of peo_ops

IndiaPolandChina

Republic of IrelandUS

Northern IrelandBrazil

Great BritainCanadaGreeceJapan

GermanyPortugal

ItalyAustralia

FranceSweden

COUNTRIES ALSO HAVE DIFFERENT RELATIVE STRENGTHS IN MANAGEMENT PRACTICES

Relatively better at ‘operations’ management (monitoring, continuous improvement, Lean etc)

Relatively better at ‘people’ management (hiring, firing, pay, promotions etc)

People management (hiring, firing, pay & promotions) – operations (monitoring, continuous improvement and Lean)

Page 7: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

WE ALSO GOT MANAGERS TO SELFSCORE THEMSELVES AT THE END OF THE INTERVIEW

We asked:

“Excluding yourself, how well managed would you say your firm is on a scale of 1 to 10, where 1 is worst practice, 5 is average and 10 is best practice”

We also asked them to give themselves scores on operations and people management separately

Page 8: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

0.1

.2.3

.4D

en

sity

0 2 4 6 8 10Their self-score: 1 (worst practice), 5 (average) to 10 (best practice)

MANAGERS GENERALLY OVER-SCORED THEIR FIRM’S MANAGEMENT

“Average”“Worst Practice”

“Best Practice”

Page 9: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

0 .5 1 1.5mean of gap

BrazilGreece

IndiaPortugal

ChinaRepublic of Ireland

Northern IrelandAustraliaCanada

ItalyGreat Britain

PolandGermany

JapanSwedenFrance

US

THIS BRAZILIANS OVER-SCORED THE MOST AND THE AMERICANS THE LEAST

Self score (normalized to 1 to 5 scale) – Management score

Page 10: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

-6-4

-20

2la

bp

0 2 4 6 8 10Their self-score: 1 (worst practice), 5 (average) to 10 (best practice)

bandwidth = .8

Lowess smoother

SELF-SCORES ARE ALSO UNINFORMATIVE ABOUT FIRM PERFORMANCE

Labo

r P

rodu

ctiv

ity

Self scored management* In comparison the management score has a 0.295 correlation with labor productivity

Correlation0.032*

Page 11: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

MY FAVOURITE QUOTES:

[Male manager speaking to an Australian female interviewer]

Production Manager: “Your accent is really cute and I love the way you talk. Do you fancy meeting up near the factory?”

Interviewer “Sorry, but I’m washing my hair every night for the next month….”

The traditional British Chat-Up

Page 12: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Production Manager: “Are you a Brahmin?’

Interviewer “Yes, why do you ask?”

Production manager “And are you married?”

Interviewer “No?”

Production manager “Excellent, excellent, my son is looking for a bride and I think you could be perfect. I must contact your parents to discuss this”

The traditional Indian Chat-Up

MY FAVOURITE QUOTES:

Page 13: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

MY FAVOURITE QUOTES:

The bizarre

Interviewer: “[long silence]……hello, hello….are you still there….hello”

Production Manager: “…….I’m sorry, I just got distracted by a submarine surfacing in front of my window”

The unbelievable

[Male manager speaking to a female interviewer]

Production Manager: “I would like you to call me “Daddy” when we talk”

[End of interview…]

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Management scores across countries

Talent management

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Scoring grids

Between the next three classes we will run through the individual practice questions on the grid in detail.

This will be organized into three sections:

• Performance management

• Talent management

• Targets

These all from the management scoring grid out in your binder

In class I would like to discuss each question in detail and get examples from your own experiences

Page 16: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

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

Page 17: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

Score (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

(14) Rewarding high-performance

Page 18: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

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

Page 19: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

Score (1): Failure to achieve agreed objectives does not carry any consequences

(3): Failure to achieve agreed results is tolerated for a period before action is taken.

(5): A failure to achieve agreed targets drives retraining in identified areas of weakness or moving individuals to where their skills are appropriate

(7) Consequence management

Page 20: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

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

Page 21: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

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

Page 22: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

Nick Bloom and John Van Reenen, Management Practices, Spring 2009

Score (1): Senior management do not communicate that attracting, retaining and developing talent throughout the organization is a top priority

(3): Senior management believe and communicate that having top talent throughout the organization is a key way to win

(5): Senior managers are evaluated and held accountable on the strength of the talent pool they actively build

(13) Managing human capital

Page 23: Nick Bloom and John Van Reenen, Management Practices, Spring 2009 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics)

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Summary

Today we covered:

• Stylized facts of management practices within and across countries

• How most firms are unable to self-score their practices

On Thursday we will examine the factors that shape management:

• Competition

• Ownership

• Labor market regulations

• Skills

We will also analyze the basics of target management