By Lancing Farrell 1200 words
Raffaella Sadun, Nicholas Bloom and John Van Reenen have written an interesting article (Why Do We Undervalue Competent Management?) that explores a deep and persistent problem in organisations across the world. This problem also manifests itself in local government.
The article is based on research over the past 16 years in 34 countries involving 12,000 organisations and 20,000 interviews (see more at http://worldmanagementsurvey.org). A strong evidence base is used in providing some clear insights into a problem that is disturbingly common.
The fundamental premise is that competent management practices make a difference to the productivity, profitability, growth and longevity of organisations.
This seems like such an obvious thing to say or write. Of course, the quality of management is critical to the performance of an organisation. After all, aren’t we are all managers and doing something that makes a positive contribution? This is where the story starts to get interesting.
The authors say that competent core management practices can’t be taken for granted and that there are big differences between and within organisations they have researched. Our experience in local government validates this finding. Every time you move to a new organisation you notice differences in how it is managed (either better or worse than your previous council). You also notice differences when you move from managing one functional area to another within the same council. It is one of the benefits of moving to broaden your experience.
Big differences in management practices within organisations, and organisations not being good at identifying and spreading their own best practices, is relevant to local government. Councils often have ‘pockets of excellence’ within them. These are often the services that also rate highly on community satisfaction surveys, for example, libraries and waste management. We tend not to study those services and learn from them. In fact, the opposite often happens, and organisational drag is ratcheted up to contain them because they are seen as higher risk. What makes them better makes them a problem.
The authors see operational excellence as a critical complement to strategy – it provides the capability to act on strategic intent. Core management competence is the platform for more sophisticated capabilities, such as data analytics, evidence-based decisions making and cross-functional communication. In my experience, this is relevant to local government because we frequently over-reach and try to implement complicated management ideas on a poor foundation.
The authors list the characteristics of the organisations with higher scores in their research:
- Rigorous performance monitoring.
- Systems geared to optimise the flow of information across and within functions.
- Continuous improvement programs that support short and long-term targets.
- Performance systems that reward and advance great employees and help underperformers turn around or move on.
Think about your own organisation. Do you see these things happening? There are reasons that they probably aren’t.
One reason highlighted by the authors is that the costs of improving management practices can be as high as the capital investments organisations make. Imagine a council spending tens of millions of dollars improving management practices – how would the councillors and the community view it? The results are not guaranteed, they are intangible, and the returns on investment are difficult to articulate. Making a building is a lot easier and less risky.
As with many HBR articles, making links between compelling private sector ideas and public sector management takes a bit of imagination. The statement by the authors that operational excellence results in higher profitability, which in turn means firms will grow faster and be less likely to die, started me thinking about a local government equivalent. What can you say about the benefits of operational excellence for a council?
Well, I had a go.
“Councils that create greater public value through operational excellence will have more satisfied residents with a greater willingness to contribute in providing community services and infrastructure”.
I am assuming that the value that matters is public rather than customer or stakeholder or private value. I am also using satisfaction in terms of expectation and experience. The idea that people who feel they are getting value for their money or effort will contribute more, and the contribution will be for services and infrastructure that benefits everyone not just themselves, is also important. Have a go at a statement yourself.
The last section of the article deals with why every organisation isn’t focussing on their management competence or capabilities and in achieving organisational excellence.
In local government, I think part of the answer to this question lies in believing there is a problem. In my experience, councils tend not to see their problems. In many years spent working as a consultant to local government, I noticed this frequently. In situations where you could see an obvious problem or opportunity for improvement (and, of course, an opportunity to sell a service), councils would not see it.
Sometimes they did, and then the issue could be that they would think it was a problem without a solution, or at least a solution they would be able to implement. As a consultant, I spent a lot of time convincing councils that they could solve these problems (and that I was the person to help them.
The authors list six external and internal reasons for the variations in management competence they have identified:
- Intensity of competition – a competitive environment it creates a strong incentive to reduce inefficiencies and badly managed firms will die. In local government, the same incentives don’t apply but a general level of dissatisfaction with, and distrust of, government is creating pressure for change.
- Labour relations – it can be difficult to give opportunities to more talented staff on merit. This is also true in local government, which has the added problem of difficulty dealing with poor performers.
- False perceptions – managers are unable to observe how badly or well their organisation is being run. They might also over-estimate the cost of introducing new practices or under-estimate how much difference they could make. I am sure local government suffers from both problems.
- Governance structures – managers who know what needs to be done and choose not to act for fear that the change will adversely affect them. I have known many leaders who have put their personal ambition and career ahead of the best interests of their organisation.
- Skill deficits – this includes basic capabilities in numeracy and analysis. In local government, it also includes more sophisticated capabilities, such as operations management.
- Organisational politics and culture – this is evident in resistance to change.
The last dot point is addressed by the authors in some detail. They say that resistance to change is most successfully overcome in the organisations they have researched through top management involvement, constant communication, message reinforcement and visibility. Take another moment to think about your organisation.
I will finish with a quote that captures a key challenge for local government:
” … management quality was significantly higher in organisations in which CEOs dedicated a larger portion of their time to employees that to outside stakeholders.”
Sadun, Raffaella , Bloom, Nicholas and Van Reenen, John 2017 Why Do We Undervalue Competent Management? , Harvard Business Review, September –October. https://hbr.org/2017/09/why-do-we-undervalue-competent-management