Good management is universal, so why does practice differ so much?

Last week, I started this mini-series on management practices and the link to productivity (in this case, we are talking about total factor productivity, TFP). As I pointed out then, there are significant differences between countries and regions when it comes to management quality. Poorer countries tend to have lower management quality due to a lack of resources, but why are there differences between highly industrialised countries? Are these cultural differences and if so, does that mean that there is no such thing as a universal benchmark for ‘good management’?

Two decades of research of the World Management Survey has found that management best practices that work in one country, also work in other cultures and countries. The management practices tested in the World Management survey tend to be so core to the effective management of a business that poor implementation will inevitably reduce productivity. There is no valid excuse that the Anglo-Saxon model of management doesn’t work in Asia, Africa, or even France, Germany, or Italy. Differences in productivity are meaningfully explained by differences in management quality.

This allows me to go through the data and check for country-to-country differences in the components of the overall management score. Last week, I showed the differences between several high-tech countries on the overall management score, and we saw that the US is ahead of the rest of the world, followed by a group of successful high-tech countries like Germany, Japan, and Sweden. Then there is a gap with other industrialised countries like the UK, France, Italy, etc.

Average management quality in highly industrialised countries

Source: World Management Survey

But where does that gap come from? Why is the UK scoring lower than relatively similar countries like Sweden and Germany, let alone the US?

Before we come to that, let me show you an area where UK businesses do quite well. Talent management practices in the UK are of roughly the same quality as in Germany and Sweden. These are questions surrounding the focus on promoting people based on merits and the quality of their work, attracting highly qualified people, and retaining them, promoting strong performers and exiting poor performers. In that respect, UK businesses seem to be doing a world-class job in fostering meritocracy.

It clearly isn’t as good as in the US, where businesses have higher labour market flexibility and thus are better able to foster talent and exit underperformers (more on that next week) but it still ranks sixth out of the 35 countries in the World Management Survey or fourth in our chart (Canada and Singapore are the two other countries scoring above the UK in talent management).

Average talent management quality in highly industrialised countries

Source: World Management Survey

On the other hand, there is one area where UK manufacturing businesses stand out as a clear underperformer: Implementing lean operations. There is a large gap in the score for lean operations between the UK and the other countries in our sample.

Average lean operations score in highly industrialised countries

Source: World Management Survey

This gap is due to two effects. The smaller (though still significant) gap to Germany, Sweden, or the US is visible when it comes to the implementation of key lean operations practices like just-in-time delivery, automation, or the use of flexible manpower. Here, in my view, it is particularly the lack of automation and digitalisation that holds the UK back. No matter what statistics you look at (whether it is robot penetration or the use of industry 4.0 technologies), UK manufacturing is typically very far behind Germany, Japan, Korea, etc. But it is this automation that increases productivity.

So, all we need to do is automatise the hell out of our manufacturing businesses then? Nope, because the even larger gap between the UK and similar high-tech countries is visible when asked about the reasons for introducing lean operation practices. Here, UK manufacturing businesses show that even if they introduced lean manufacturing technologies, they didn’t know why or what it is good for. There is a lack of purpose in introducing such practices, whether it is to reduce costs or improve product quality. Instead, these processes tend to be relatively more likely to be adopted because other competitors have done so already and the company feels the need to jump on the bandwagon.

But if you don’t know why you are doing something, how can you ever reap the benefits of introducing automation and other lean operations practices?

So, here is a call to action for managers in UK manufacturing: Check if and how you can introduce lean operation practices to your business to catch up with international competitors or – even better – overtake them. But before you start spending a lot of money, develop a clear strategic plan for why and how you want to invest in these technologies and processes. Be very precise about what you expect the outcome to be for the business and how you manage progress towards this outcome as well as what constitutes success. In other words, invest with a purpose, not just because there is this new shiny technology that promises productivity gains.

And if you ask me where to start, I suggest you think about AI as a case study. Do you need to invest in AI or are you abandoning rational thought just so you can tell your shareholders that you, too, are now using AI in your business (see here for a couple of idiotic examples in the consumer world)? I think if you do that, you can probably save a lot of money on technologies that look promising but won’t help your business that much and rather invest the capital in more established technologies that can boost your productivity more.