1. Nick Bloom and John Van Reenen, Management Practices, 2010 1 Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics) John Van Reenen (Stanford GSB/LSE) Lecture 7: February 2010

2. Nick Bloom and John Van Reenen, Management Practices, 2010 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

3. Nick Bloom and John Van Reenen, Management Practices, 2010 3 Management in hospitals Management in schools Management in retail

4. Nick Bloom and John Van Reenen, Management Practices, 2010 4 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

5. Nick Bloom and John Van Reenen, Management Practices, 2010 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?

6. Nick Bloom and John Van Reenen, Management Practices, 2010 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?

7. Nick Bloom and John Van Reenen, Management Practices, 2010 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?

8. Nick Bloom and John Van Reenen, Management Practices, 2010 The hospital scores show a very strong correlation with better clinical performance US data

9. Nick Bloom and John Van Reenen, Management Practices, 2010 9 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 Obs140157160161 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

10. Nick Bloom and John Van Reenen, Management Practices, 2010 10 The U.S. leads the ranking of hospital management followed by the U.K., while Italy and France lag behind Management practice scores Hospitals

11. Nick Bloom and John Van Reenen, Management Practices, 2010 11 The cross country differences are particularly notable for people management Hospitals

12. Nick Bloom and John Van Reenen, Management Practices, 2010 12 There is a wide distribution of management scores within and across countries Hospitals

13. Nick Bloom and John Van Reenen, Management Practices, 2010 13 Hospital management scores are lower than manufacturing Manufacturing averageHospital average Hospitals

14. Nick Bloom and John Van Reenen, Management Practices, 2010 14 Public ownership of hospitals in most countries appears to be one reason for poor management Public Private Average management score Hospitals (US data)

15. Nick Bloom and John Van Reenen, Management Practices, 2010 15 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)

16. Nick Bloom and John Van Reenen, Management Practices, 2010 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”

17. Nick Bloom and John Van Reenen, Management Practices, 2010 17 Management in hospitals Management in schools Management practices in retail

18. Nick Bloom and John Van Reenen, Management Practices, 2010 Extending the management data to schools Surveyed around 1500 schools across North America and Europe Like hospitals used same methodology as manufacturing 18

19. Nick Bloom and John Van Reenen, Management Practices, 2010 Management practices in schools are also strongly correlated with performance Schools

20. Nick Bloom and John Van Reenen, Management Practices, 2010 20 Schools The US does not lead the rankings of school management, but is behind the UK & Sweden

21. Nick Bloom and John Van Reenen, Management Practices, 2010 21 There is a wide distribution of management scores within and across countries Schools

22. Nick Bloom and John Van Reenen, Management Practices, 2010 22 Schools Relative management strengths are more balanced across countries in schools

23. Nick Bloom and John Van Reenen, Management Practices, 2010 23 Similar factors around ownership, competition, unionization and regulation matters for schools 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” http://www.newyorker.com/reporting/2009/08/31/090831fa_fact_ brill http://www.newyorker.com/reporting/2009/08/31/090831fa_fact_ brill

24. Nick Bloom and John Van Reenen, Management Practices, 2010 24 Management in UK hospitals Management in schools Management practices in retail

25. Nick Bloom and John Van Reenen, Management Practices, 2010 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

26. Nick Bloom and John Van Reenen, Management Practices, 2010 Retail scores slightly lower than 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

27. Nick Bloom and John Van Reenen, Management Practices, 2010 Retail distribution shows wide variation much like manufacturing, schools and hospitals

28. Nick Bloom and John Van Reenen, Management Practices, 2010 Multinational retail chains are very well managed, especially the big US multinational retail chains CountryMultinationalCanadian multinational American multinational Domestic companies Canada3.433.143.452.78 Multinationals chains Non-multinationals Management score, by country American multinationals are driving high multinational scores in Canada Retail

29. Nick Bloom and John Van Reenen, Management Practices, 2010 Like manufacturing, founder and family run firms are worst managed on average Management score, all countries Retail

30. 30 My favourite quote: British English as a foreign language Interviewer [with a British accent]: “Good day. Could I get the store managers name, please” Receptionist [from Kentucky]: “I’m sorry ma’am, you need to speak English” Interviewer again: “The store managers name, please” Receptionist: “What’s that about Maine? I’m sorry but I only speak English” Interviewer “That’s perfect – I am English. The store managers name please….”

31. Nick Bloom and John Van Reenen, Management Practices, 2010 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