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Management practices explain a large share of productivity gaps. Article by Philip Salter, Forbes.com

Failure will always be a part of business. As the great 20 th century economist Joseph Schumpeter argued, creative destruction drives forward a market economy. But not all business failure is necessary and unavoidable, and not every business owner has the resources or inclination to keep trying. We should want entrepreneurs to be equipped with the very best skills to keep going, and hopefully go on to scale and compete globally.

A new project aims to better understand businesses failure. Business Stay-Up is a research-led campaign, run by the Association of Business Executives (ABE), the Centre for Education Economics (CfEE) and The Entrepreneurs Network. It will raise awareness of the pressures and challenges business owners face as they seek to survive and scale, and uncover what can be done to increase the probability of success.

There are many factors impacting business failure, but human capital might well be the most critical. Good management can be the difference between success and failure, and there are wide variances in outputs as result of good and bad management, even between plants in the same company producing the same stuff. A study from Harvard University looking at 35,000 US manufacturing plants found that management techniques explained the greatest difference in performance - ahead of even R&D, as well as employee skills and IT spending.

Economist Chad Syverson has found that the top 10 per cent of firms produce twice as much with the same inputs as a firm at the bottom 10 per cent of firms. And a 15-year survey of 12,000 firms across 34 countries reveals that management practices explain a large share of productivity gaps.

According to the latest World Management Survey, Great Britain is sixth in its average management scores in manufacturing - behind Canada, Sweden, Germany, Japan and the United States. Andy Haldane, Chief Economist at the Bank of England, has talked a lot about the statistically significant link between the quality of firms' management and their productivity. Haldane explains: "a one standard deviation improvement in the quality of management raises productivity by, on average, around 10 per cent."

Some interventions seem to work. A randomized control trial in Mexico with 432 small and medium enterprises shows the positive impact of access to one year of management consulting services on total factor productivity even after the program had ended. Similarly, a study from India found that even after nine years, improved management practices continued.

UK firms don't invest as much as their counterparts in Europe in ongoing training. The Chartered Institute of Personnel and Development (CIPD) recently found that the UK lies fourth from the bottom on the EU league table on participation in job-related adult learning.