Man­ag­ing Ob­jec­tives

The Economic Times - - The Edit Page -

Good man­age­ment mat­ters. If you’re read­ing this you prob­a­bly don’t need con­vinc­ing, but one of the most sig­nif­i­cant mile­stones in eco­nomic re­search was doc­u­ment­ing em­pir­i­cally that it re­ally is true. A new pa­per builds on this work and takes it one step fur­ther. Its main find­ing is that the dif­fer­ence be­tween well-man­aged and poorly man­aged firms de­pends in large part on the qual­ity of the peo­ple they hire as man­agers.

Well-run com­pa­nies set stretch tar­gets on pro­duc­tiv­ity and other pa­ram­e­ters, base the com­pen­sa­tion and pro­mo­tions they of­fer on meet­ing those tar­gets, and con­stantly mea­sure re­sults — but many firms do none of those things. Sec­ond, our in­di­ca­tors of bet­ter man­age­ment and su­pe­rior per­for­mance are strongly cor­re­lated with mea­sures such as pro­duc­tiv­ity, re­turn on cap­i­tal em­ployed and firm sur­vival.

In­deed, a one-point in­cre­ment in a five-point man­age­ment score that we cre­ated — the equiv­a­lent of go­ing from the bot­tom third to the top third of the group — was as­so­ci­ated with 23% greater pro­duc­tiv­ity. Third, man­age­ment makes a dif­fer­ence in shap­ing na­tional per­for­mance. For ex­am­ple, vari­a­tion in man­age­ment ac­counts for a quar­ter of the roughly 30% pro­duc­tiv­ity gap be­tween the US and Europe. It makes sense that hir­ing the right peo­ple in man­age­rial roles mat­ters a lot. Well-man­aged firms also tend to pay their work­ers bet­ter.

From: Proof That Good Man­agers Re­ally Do Make a Dif­fer­ence

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