Nick Bloom and John Van Reenen, 591, 2011 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics and GSB) John Van Reenen (LSE and Stanford GSB) Lecture 6: Management in schools, hospitals & retail 1

Nick Bloom and John Van Reenen, 591, 2011 To date focused on manufacturing, finding 1.Many firms are not adopting basic management practices Particularly in family, founder or government firms Particularly in low competition and/or regulated markets 2.These practices lead to improved performance in terms of profits, growth and stock-market value 3.So the scoring grid provides a benchmark for management practices, a potentially useful tool to drive change Today look at hospitals, schools and retail sectors

Nick Bloom and John Van Reenen, 591, Management in hospitals Management in schools Management in retail

Nick Bloom and John Van Reenen, 591, 2011 Can management explain differences in hospital performance? Huge spread in performance across hospitals - survival rates from heart attacks varying by 30% (Skinner & Staiger, 2009) Are these related to management practices? To check we surveyed ≈ 2000 hospitals across Europe and North America using same methodology as for manufacturing

Nick Bloom and John Van Reenen, 591, 2011 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 both successes and failures identified. Results are communicated to senior staff. No clear follow up plan is adopted. (5): Performance is continually reviewed, based on the indicators tracked. All aspects are followed up to ensure continuous improvement. Results are communicated to all staff. MONITORING – e.g. performance review How do you review your departments performance? Tell me about a recent meeting. Who is involved in these meetings? Who gets to see the results. What is the follow-up plan? Can you tell me about the recent follow-up plan?

Nick Bloom and John Van Reenen, 591, 2011 Score(1): Goals are either too easy or impossible to achieve, at least in part because they are set with little clinician involvement, e.g., simply off historical performance (3) In most areas, senior staff push for aggressive goals based, e.g., on external benchmarks, but with little buy-in from clinical staff. There are a few sacred cows that are not held to the same standard (5): Goals are genuinely demanding for all parts of the organisation and developed in consultation with senior staff, e.g., to adjust external benchmarks appropriately TARGETS – e.g. target stretch How tough are your targets? Do you feel pushed by them? On average, how often would you expect to meet your targets? Do you feel that on targets all specialties, departments or staff groups receive the same degree of difficulty? Do you just follow government targets or do you develop those relevant to your own hospital?

Nick Bloom and John Van Reenen, 591, 2011 Score(1): Poor performers are rarely removed from their positions (3) Suspected poor performers stay in a position for a few years before action is taken (5): We move poor performers out of the hospital/department or to less critical roles as soon as a weakness is identified INCENTIVES – e.g. removing poor performers If you had a clinician or a nurse who could not do his job, what would you do? Could you give me a recent example? How long would underperformance be tolerated? Do some individuals always just manage to avoid being re-trained/fired?

Nick Bloom and John Van Reenen, 591, 2011 The hospital scores show a correlation with better clinical performance US data

Nick Bloom and John Van Reenen, 591, 2011 Dependent variable: Mortality rate from emergency AMI (ave=17.1%) Mortality rate all emergency surgery (ave=2.5%) Total waiting list (normed to have SD=1) Health Care Commission overall star rating (normed to have SD=1) Management-2.064***-0.181***-0.098***0.408*** Practices Obs Better management also associated with lower surgical mortality & shorter wait times Note: Each cell from a separate regression of performance on Management. Controls: casemix (22 condition-specific age-gender cells), area mortality rate, size, speciality, region, noise (e.g. Interviewer dummies). UK data

Nick Bloom and John Van Reenen, 591, 2011 The U.S. leads the ranking of hospital management followed by the U.K., while Italy and France lag behind 10 Management practice scores Hospitals

Nick Bloom and John Van Reenen, 591, The cross country differences are particularly notable for people management Hospitals

Nick Bloom and John Van Reenen, 591, There is a wide distribution of management scores within countries Hospitals

Nick Bloom and John Van Reenen, 591, 2011 Hospital management scores are lower than manufacturing Manufacturing averageHospital average Hospitals

Nick Bloom and John Van Reenen, 591, Public ownership of hospitals appears to be one factor linked with poor management Public Private Average management score Hospitals (US data)

Nick Bloom and John Van Reenen, 591, Other factors include limited competition, unionization and regulation Competition: in manufacturing badly managed firms exit the market, but this rarely happens in healthcare Unionization: the public sector is much more heavily unionized than the private sector (e.g. 37.4% vs 7.2% in the US) Regulation: pay, promotions and firing is heavily regulated in public sector hospitals (e.g. firing nurses is very tough)

Nick Bloom and John Van Reenen, 591, 2011 My favorite quote: Don’t get sick in Britain Interviewer : “Do staff sometimes end up doing the wrong sort of work for their skills? NHS Manager: “You mean like doctors doing nurses jobs, and nurses doing porter jobs? Yeah, all the time. Last week, we had to get the healthier patients to push around the beds for the sicker patients”

Nick Bloom and John Van Reenen, 591, Management in hospitals Management in schools Management practices in retail

Nick Bloom and John Van Reenen, 591, 2011 Extending the management data to schools Surveyed around 1500 schools across North America and Europe Like hospitals used same methodology as manufacturing 18

Nick Bloom and John Van Reenen, 591, 2011 Management practices in schools are also strongly correlated with performance Schools

Nick Bloom and John Van Reenen, 591, Schools The US does not lead the rankings of school management, but is behind the UK & Sweden

Nick Bloom and John Van Reenen, 591, There is a wide distribution of management scores within countries Schools

Nick Bloom and John Van Reenen, 591, Schools Relative management strengths are more balanced across countries in schools

Nick Bloom and John Van Reenen, 591, Factors around ownership, competition, unionization and regulation appear to matter Ownership: vast majority of schools in every developed country are publicly owned (about 95% in the US and UK) Competition: schools rarely exit, and usually due to demographic reasons rather than poor performance Unionization: teaching profession highly unionized Regulation: in many countries teachers almost unsackable, for example the New Yorker article on the “rubber room”

Nick Bloom and John Van Reenen, 591, Management in UK hospitals Management in schools Management practices in retail

Nick Bloom and John Van Reenen, 591, 2011 Extending the management research to retail Working with Toronto University – hence Canadian focus Surveyed 600 retail firms in Canada, US and the UK Again using virtually identical methodology as for manufacturing, hospitals and schools 25

Nick Bloom and John Van Reenen, 591, 2011 Retail scores basically same as manufacturing, but much higher than public sector Note: Only compared on the same questions (so not lean questions 1 and 2) United States UK Retail United States Canada United Kingdom Overall management scores Retail

Nick Bloom and John Van Reenen, 591, 2011 Retail distribution shows wide variation much like manufacturing, schools and hospitals

Nick Bloom and John Van Reenen, 591, 2011 Multinational retail chains are very well managed, especially the big US multinational retail chains CountryMultinationalCanadian multinational American multinational Domestic companies Canada Multinationals chains Non-multinationals Management score, by country American multinationals are driving high multinational scores in Canada Retail

Nick Bloom and John Van Reenen, 591, 2011 Like manufacturing, founder and family run firms are also badly managed on average Management score, all countries Retail

Nick Bloom and John Van Reenen, 591, 2011 Summary 1.Huge variation in management practices seems common to every sector we have studied to date 2.The very same practices around monitoring, targets and incentives always associated with superior performance 3.Demonstrates there are basic management best practices, with the grid identifying a core set of these