Nicholas Bloom, Rebecca Homkes, Raffaella Sadun & John Van Reenen
After a decade of research, we’ve concluded that American firms are on average the best managed in the world. Our team, which includes representatives from Harvard Business School, the London School of Economics, McKinsey & Company and Stanford University, surveyed more than 10,000 firms in 20 countries. We developed a tool to measure a range of management practices which we then used to generate an overall score for each country. This allowed us to create the first global database of management practices.
Here are some of our findings:
American firms outperform all others. The US’s dominance occurs in the manufacturing, retail and health-care sectors. Japanese, German and Swedish firms follow closely behind, while developing countries like Brazil, China and India lag at the bottom of the charts. In the middle stand countries like the UK, France, Italy and Australia.
Bottom dwellers drive the rankings down. Almost 90 percent of the cross-country differences are driven by how many firms with particularly bad management practices are in each country. Countries like India with low average scores have a mass of very poorly managed firms pulling down their overall rankings.
Every country has some world-class firms. The performance of individual companies isn’t dictated by the business environments in which they operate—there are top performers in every country we surveyed. Conversely, being in a world-class environment like the US doesn’t guarantee success. Even in America, more than 15 percent of firms are managed more poorly than the average Chinese or Indian company.
The secret to success is people management. American firms are ruthless at rapidly rewarding and promoting good employees while retraining or firing bad ones.
But the US shouldn’t be complacent. Other countries are equal or better than the US in some other management areas, such as monitoring, production and setting sensible targets. The manufacturing prowess of Germany, which has helped it weather the recent downturn, is built upon such advantages. And although Chinese management practices are well below America’s standards, China showed the fastest improvement since 2006 of any country we looked at.
Changing the ranks and reaping the rewards is the key to success. Organizations that properly incentivize talented workers, whether through promotion, pay or other rewards, outperform others. As best practices spread and firms continue to implement these techniques, the performance gaps between companies will narrow and firms will reap massive growth and profits.
Nicholas Bloom is a professor of economics at Stanford University. Rebecca Homkes is the director of the Management Project and a research officer at the Centre for Economic Performance at the London School of Economics. Raffaella Sadun is a professor of strategy at Harvard Business School. John Van Reenen is the director of the Centre for Economic Performance and a professor of economics at the London School of Economics.Linkback:
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