Economy Watch: Better management and leadership skills improve productivity

By Andrew Webbdirector at Baker Tilly Mooney Moore

Do you have a good boss? Perhaps you are a boss, wondering how to get the best out of your team. I’m sure we can all think of examples of bosses we would have run through brick walls for and those we had voodoo dolls commissioned for.

Some might think that quality of management and leadership isn’t really important – you come in, do your job and get paid, but a good leader can make the difference between a mundane job for a zombie company and a dynamic, growing organisation.

Baker Tilly Mooney Moore is about to start a new piece of research with the Institute of Directors (IoD) on the importance of management and leadership to the Northern Ireland economy.

My thinking has also been prompted by having attended events and meetings where I have listened to some of our most senior business leaders talk about the ‘war for talent’ that we increasingly face to attract staff, but then some of those business leaders go on to refer to recruiting people at the ‘right price point’ and ‘sweating the asset’.

If we are thinking of people solely in price point and asset terms, I fear we have some distance to travel on management and leadership.

At a wider economy level, the quality of management and leadership had come back into sharp focus in recent times, as the UK struggles to identify why productivity performance has been strikingly weak. Before the financial crisis, annual growth rates of about 2% were the norm.

Currently it is close to zero. Output per worker is low in the UK compared to other G7 countries, to the extent that French and German workers can produce in four days what it takes a UK worker a full week to produce.

If the UK is relatively poor on productivity, NI is worse again. Here, we are close to 20 percentage points off the UK’s pace.

Some of that can be explained by our different employment mix, where we have higher concentrations of employment in lower productivity sectors.

There is a myriad of other reasons being offered up too, such as less investment in more productive machinery and equipment and less expenditure on workforce training and development. Management performance is gaining prominence in the debate on productivity, gaining significant attention in a speech by the Bank of England’s chief economist Andy Haldane where he suggested that a lack of quality management was a plausible explanation for the UK’s large cohort of under-productive companies.

This point of view has been supported by research from the Office for National Statistics which scored GB manufacturing and service companies on their management effectiveness on a scale of 0 to 1 across a range of indicators.

This work found significant positive differences in management performance depending on firm size and whether the firm is foreign owned. The research concluded that a 0.1 improvement in management score was linked to a 9% improvement in productivity on average.

The gains in productivity from improved management and leadership are therefore plain to see. So how do we fare in NI?

Unfortunately NI firms weren’t included in the GB study so we have to go back to 2009 to find the last time that this issue was looked at in earnest here. A McKinsey study at that time found then that we have a large population of firms with poor management practices, scoring 2.85 out of five for management practices on average. The global average then was 2.92 and NI was well off the leading score from the US of 3.3. This study suggested that bringing the lowest 50% of Northern Ireland’s firms up to an average score could be worth an additional £300m a year.

This being Northern Ireland, there is no shortage of programmes on offer, each aiming to create better leadership and management.

Convincing managers and leaders to take the time out from the day job might be short-term pain for them but we could all benefit in the long run.

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