Why Managers Matter
In the past year, I’ve seen the layoffs of excellent managers in companies that should have long ago recognized the key role they play in creating great teams and bringing innovations to information development. In a 2005 study, McKinsey and the London School of Economics proved my point. Good managers are key not only to team performance but to the financial performance of companies as a whole. The study surveyed 700 manufacturing companies in the US, the UK, France, and Germany and compared their responses to the financial performance of the companies, including market share, market growth, and shareholder value. They found that excellent managers produce excellent results, and mediocre managers lead to mediocre corporate performance. Those managers who follow best practices in defining standards, measuring results, and promoting the effectiveness and productivity of their teams, as well as corporate assets and capabilities, achieve results that are measured in the bottom line.
The McKinsey study concludes that one of the best ways for managers to learn what works and what doesn’t is through the sharing and publication of industry best practices. That, of course, is the principle on which CIDM is built. Good managers look for and rapidly adopt innovative practices among their competition and the best in class. Among the best practices that McKinsey studied were methods used by managers to decrease the cost of operations by adopting lean methods, to set goals and reward employees for achieving them, and finding ways to find, attract, and retain talented employees.
One of the most interesting measurements that the study used to correlate management with company performance was Total Factor Productivity (TFP). TFP defines an efficiency measure that captures factors other than hours worked or capital investment. It includes management techniques, use of technology, the use of public infrastructure, and just plain luck. They found that one point on the management scale (1 to 5) of 18 characteristics correlated with six percentage points on the TFP scale. That percentage correlated statistically with a 35 percent gain in return on capital employed (ROCE). That is quite amazing. It shows that good management produces the best corporate results.
Some companies, of course, thrive because they deliver unique technologies to niche markets, despite poor management practices. The problem that such companies have is sustaining their niche against disruptive competition, especially if the disruptors are better managed. If the technology-focused company also embraced management best practices, think what they might accomplish and the time they might gain to stay on top.
The study also asked why some poorly managed companies manage to survive and even thrive. The study found that these companies usually are older and large, have few, if any, competitors, are in regulated industries, or are in countries that make it difficult by law to develop innovative approaches to management.
Better managed companies are generally more flexible and have workforces that are more likely to support change. They have more training and opportunities for professional development, and they support more autonomy in decision making. Interestingly, they discovered that companies with more female managers tended to have more flexible and autonomous teams. Better managed companies provide for a better work-life balance.
Information-development managers, particularly those who are CIDM members, are concerned with managing a productive and responsible work environment at the same time that they support a work-life balance. If your pursuit of best practices goes unappreciated by your senior management, just show them the McKinsey study of the effect on the corporate bottom line.