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Australian Study Reveals Link Between Management Capability and Business Performance
Submitted by Leslie Allan on March 3rd, 2010
Enterprise Connect conducted a recent study of management practices in today’s organizations. It draws some highly valuable conclusions on the impact that management capabilities and actions have on business performance.
The research was conducted by the University of Technology Sydney, the Macquarie Graduate School of Management and the Society of Knowledge Economics as an extension of the international study conducted by the London School of Economics, Stanford University and McKinsey & Co. In 2009, the researchers conducted patterned interviews with 439 medium and large-sized manufacturing companies in Australia, along with a smaller number of services organizations.
Practices were examined across eighteen different dimensions in three management categories; people, performance and operations. Each management practice was scored on a scale from one (worst practice) to five (best practice). The study found significant correlations between management practices and business performance. Amongst its key findings were:
A single point increase in management score is associated with an increase:
- in sales of 13%
- in output equivalent to a 56% increase in the labor force
- in output equivalent to a 44% increase in invested capital
In the area of creativity, the highest scoring firms were found to be about 50 times more innovative than the lowest scoring companies. The study also drew a clear link between management education and capability on the one hand and company productivity and profitability on the other. It found that:
- 64% of managers in the highest scoring firms are university educated (only 3% in the lowest scoring firms)
- 20% of non-management employees in the highest scoring firms are university educated (only 1% in the lowest scoring firms)
With higher management skill levels leading to more effective management practices, researchers concluded that organizations need to focus more on training and development initiatives aimed at upskilling managers and the wider workforce. One impediment to such upskilling, the report authors noted, is the disconnect between how managers perceive their own company’s management capability and the real level of capability. In the survey, managers consistently overrated their own firm’s management performance. This can lead to a “blind spot” impeding further improvement in management skills. The report also highlighted the importance of granting more autonomy to managers and front-line workers as a way of fostering innovation and a sense of accountability.
Looking at the performance of Australian firms in particular, the report made the following findings:
- Australian management practices overall rate slightly above average, ranking sixth among the sixteen countries participating in the survey.
- In the area of operations management practices, Australia ranks seventh among the sixteen countries.
- In the area of performance management practices, Australia ranks sixth among the sixteen countries.
- In the area of people management practices, Australia ranks eighth among the sixteen countries.
For the researchers, people management arose as an area in which Australian organizations need to devote significantly more of its energies. The report highlighted the closing performance gap between the emerging powerhouses of China and India. For Australian businesses to remain competitive in this new deregulated environment, it noted, local firms need to improve their human capital practices. In particular, they need to focus more on attracting, retaining and developing their talent and fixing poor performance issues.
- Management Matters in Australia: Just how productive are we? – Findings from the Australian Management Practices and Productivity global benchmarking project
- Report commissioned by the Australian Government, Department of Innovation, Industry, Science and Research
ISBN 978 0 642 72626 1