Why does productivity differ between businesses?

Productivity

Productivity in business is a hot topic across every industry. We’re constantly trying to solve its greatest mysteries. How can we improve it? What’s holding us back? How can we make staff more productive? The answers often lie in investing in research and development, employing a more educated workforce, and adopting better technology. 

But a new study suggests there is one surprising factor at play which affects levels of productivity between companies, and also between internal teams of the same business. The study suggests a team’s management practices can account for more than 20% of the variation in productivity in the US. Could this help the UK solve their productivity problem?


The study

The research comes from Nicholas A. Bloom, an economics professor at the Stanford Graduate School of Business, and other researchers. They partnered with the U.S. Census Bureau, surveying over 35,000 manufacturing plants. Their findings showed management practices accounted for around one-fifth of the variation in productivity levels among the plants.

They also noted management style had similar impacts as spending on research and development for influencing productivity levels. It also had twice the impact of technology spending in explaining productivity differences. 

In business, we evaluate the best and worst of management styles and their impact on productivity extensively. However, the research we base these views on largely consists of case studies, built on small sample sizes with limited representativeness. This study was the first of its kind in the US and provided some interesting insights.


What management practices were most successful?

The study discovered plants where managers carefully monitored the manufacturing process, employee performance, production targets, and used data to make informed decisions and changes were more successful. 

In contrast, teams where managers rarely reviewed performance indicators and targets, and promoted employees based on connections rather than their achievements, were worse off in terms of productivity. And this remained the case even after controlling for the education levels of workers, the age of the business, and many more variables. 

Teams with more structure performed better than others within the same organisation. Also, when some companies adopted more of the characteristics of the more productive teams, they became more productive over time. 


What did we learn?

The study isn’t proof that standardised management causes better performance. However, the study suggests it plays an important role. The practices mentioned are strongly related to higher productivity. 

What is surprising is management styles seemed to have a greater impact on productivity than technology. In other words, this could suggest that without the right management styles in place, teams cannot implement or make use of the right technology for their business to boost productivity.

But the relationship may go two ways. The management practices which seemed to boost productivity included monitoring the manufacturing process, employee performance, production targets, and the use of data to inform better decisions. So it seems using technology is essential to collect, monitor, and analyse data in all these areas.

This may be one flaw of the research in question. It doesn’t discuss why some organisations have better management practices initially. Maybe this is where the research should go next. 

Inform People is a unique, tailored software solution for large businesses who want to boost productivity, connectivity, and management practices in all teams across the organisation. With our automated audits, data collection tools, paperless processes, and Insights which help you analyse and use data to make better decisions, you’ll be able to build a well-performing team and organise meaningful performance reviews. To see more about our platform and how it can regenerate productivity, visit our website

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