nick bloom, 149, 2015 the modern firm in theory and practice nick bloom and paul milgrom lecture 4:...

Nick Bloom, 149, 2015

The Modern Firm in Theory and PracticeNick Bloom and Paul Milgrom

Lecture 4: Management and firm Performance

1

Nick Bloom, 149, 2015 2

Monitoring management practices

Targets management practices

Danaher


(3) Process problem documentation

1.

2.

3.

4.

5.

(1): No, process improvements are made when problems occur.

(3): Improvements are made in one week workshops involving all staff, to improve performance in their area of the plant

(5): Exposing problems in a structured way is integral to individuals’ responsibilities and resolution occurs as a part of normal business processes rather than by extraordinary effort/teams


The survey scores to question (3), process problem documentation – all countries, manufacturing

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0.1

.2.3

.4D

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1 2 3 4 5Process Documentation

All countries, manufacturing firms (100 to 5000 employees), 9840 observations

Average 3.13


0.1

.2.3

.4D

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5US, manufacturing firms (100 to 5000 employees),1298 observations

Average 3.42

The survey scores to question (3), process problem documentation – US, manufacturing


0.1

.2.3

.4.5

Den

sity


6India, manufacturing firms (100 to 5000 employees),1137 observations

Average 2.64

The survey scores to question (3), process problem documentation – India, manufacturing


0.1

.2.3

.4.5

Den

sity


The survey scores to question (3), process problem documentation – US, Canada and UK, retail

7All countries, retail firms (100 to 5000 employees)661 observations

Average 3.07


0.2

.4.6

Den

sity

1 2 3 4 5Process documentation

The survey scores to question (3), process problem documentation – developed countries, hospitals

8Hospitals, Canada, France, Germany, Italy, Sweden, UK, US, 1183 observations

Average 3.04

Nick Bloom, 149, 2015 9

Score (1): Measures tracked do not indicate directly if overall business objectives are being met. Tracking is an ad-hoc process (certain processes aren’t tracked at all)

(3): Most key performance indicators are tracked formally. Tracking is overseen by senior management.

(5): Performance is continuously tracked and communicated, both formally and informally, to all staff using a range of visual management tools.

(4) Performance tracking


Examples of performance metrics – Toyota

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Example of performance metrics – apparel and textiles

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Shirt factory, Burma Fabric factory, India


Examples of performance metrics – Call Centre

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Examples of performance metrics - Heathrow

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Examples of metrics – Retail Bank (1/2)


Examples of metrics – Retail Bank (2/2)


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1 2 3 4 5Performance Tracking

Performance tracking (4):all countries, manufacturing

16All countries, manufacturing firms (100 to 5000 employees), 9838 observations

Average 3.36

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Score (1): Performance is reviewed infrequently or in an un-meaningful way e.g. only success or failure is noted.

(3): Performance is reviewed periodically with successes and failures identified. Results are communicated to senior management. No clear follow-up plan is adopted.

(5): Performance is continually reviewed, based on indicators tracked. All aspects are followed up ensure continuous improvement. Results are communicated to all staff

(5) Performance review


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.2.3

.4.5

Den

sity

1 2 3 4 5Review of Performance

Performance review (5):all countries, manufacturing


Average 3.33


Interviewer: “Would you mind if I asked how much your bonus is as a manager?”Manager: “I don't even tell my wife how much my bonus is!”Interviewer: “Frankly, that’s probably the right decision...”

SOME FIRMS SEEMED TO BE TOO TRUTHFUL

Manager: “I spend most of my time walking around cuddling and encouraging people - my staff tell me that I give great hugs”

Staff retention the American way

Who rules the home in Ireland

French secretary: “You want to talk to the plant manager? There are legal proceedings against him, so hurry up!!”

The trusted Secretary

Nick Bloom, 149, 2015 20



Danaher


Score (1): Goals are based purely on accounting figures (with no clear connection to shareholder value).

(3): Corporate goals are based on shareholder value but are not clearly communicated down to individuals

(5): Corporate goals focus on shareholder value. They increase in specificity as they cascade through business units ultimately defining individual performance expectations.

(9) Target interconnection


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1 2 3 4 5Target interconnection

Target interconnection (9):all countries, manufacturing


Average 3.01


Score (1): Top management's main focus is on short term targets .

(3): There are short and long-term goals for all levels of the organization. As they are set independently, they are not necessarily linked to each other

(5): Long term goals are translated into specific short term targets so that short term targets become a "staircase" to reach long term goals

(10) Target time horizon


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1 2 3 4 5Target time horizon

Target time horizon (10):all countries, manufacturing


Average 2.99


Score (1): Goals are either too easy or impossible to achieve; managers provide low estimates to ensure easy goals

(3): In most areas, top management pushes for aggressive goals based on solid economic rationale. There are a few "sacred cows" that are not held to the same rigorous standard

(5): Goals are genuinely demanding for all divisions. They are grounded in solid, solid economic rationale

(11) Targets are stretching


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1 2 3 4 5Targets are stretching

Targets are stretching (11):all countries, manufacturing


Average 3.00


Score (1): Performance measures are complex and not clearly understood. Individual performance is not made public

(3): Performance measures are well defined and communicated; performance is public in all levels but comparisons are discouraged

(5): Performance measures are well defined, strongly communicated and reinforced at all reviews; performance and rankings are made public to induce competition

(12) Performance clarity


0.1

.2.3

.4D

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1 2 3 4 5Performance clarity

Performance clarity (12):all countries, manufacturing


Average 2.67

Nick Bloom, 149, 2015 29



Danaher


Danaher has continued to do well

30

Nick starts teaching Danaher case


And the market has really noticed

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From internet searching I believe they areintroducing a new product range


Q1 Why has Danaher been successful as a multi-business conglomerate over the past two decades? What do you see as the core attributes that have allowed it to sustain superior performance during this period?

• Operations• Corporate strategy

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Q2) How easy or difficult is it for other companies to mimic or emulate what Danaher does? Why?

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Q3) What do you consider to be the biggest challenges that Danaher is likely to confront during the next 10-15 years?

What can Larry Culp do to prepare the organization for these challenges?

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Nick Bloom, 149, 2015 36

Basic Lean – floor markings


Excessive Lean – desk markingsThe £7 million guide to a tidy desk, London Times, January 5, 2007

Red tape has given way to black marker tape for thousands of bemused civil servants as part of a £7 million paperclip revolution aimed at ensuring that they keep the tools of their trade in the right place. Office workers have been given the tape to mark out where they should put their pens and pencils, their computer keyboards and to indicate where to place their phones.

National Insurance staff have been chosen as guinea-pigs for the latest phase of the “Lean” programme brought in by the logistics consultants Unipart. The programme prohibits workers from keeping personal items on their desks.

Nick Bloom, 149, 2015 38

Wrap up

1) Large variation in monitoring and targets – best organizations• monitor extensively and continuously improve• set challenging targets that flow from short to long run

2) Variation common across all industries we have looked at

3) Potential for improvement is extensive, especially in family firms, uncompetitive areas & in developing countries

4) On Monday we will focus on Scientific Management & Ctrip

nick bloom, 149, 2015 the modern firm in theory and practice nick bloom and paul milgrom lecture 4:...

Documents

manufacturing slide

practice nick bloom

performance tracking

india slide

firm performance

manufacturing firms

observations average

key performance indicators