Nick Bloom and Paul Milgrom
Lecture 4: Management and firm Performance
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Monitoring management practices
Targets management practices
Danaher
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(3) Process problem documentation
(1): No, process improvements are made when problems occur.
(3): Improvements are made in one week workshops involving all staff, to improve performance in their area of the plant
(5): Exposing problems in a structured way is integral to individuals’ responsibilities and resolution occurs as a part of normal business processes rather than by extraordinary effort/teams
Nick Bloom, 149, 2015

The survey scores to question (3), process problem documentation – all countries, manufacturing
Average 3.13
1 2 3
Process Documentation
4 5
All countries, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
9840 observations
4

The survey scores to question (3), process problem documentation – US, manufacturing
Average 3.42
1 2 3
Process Documentation
4
US, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
1298 observations
5
5

The survey scores to question (3), process problem documentation – India, manufacturing
Average 2.64
1 2 3
Process Documentation
4 5
India, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
1137 observations
6

The survey scores to question (3), process problem documentation – US, Canada and UK, retail
Average 3.07
1 2 3
Process Documentation
4
All countries, retail firms (100 to 5000 employees)
Nick Bloom, 149, 2015
661 observations
7
5

The survey scores to question (3), process problem documentation – developed countries, hospitals
Average 3.04
1 2 3
Process documentation
4 5
Hospitals, Canada, France, Germany, Italy, Sweden, UK, US,
Nick Bloom, 149, 2015
1183 observations
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(4) Performance tracking
Score (1): Measures tracked do not indicate directly if overall business objectives are being met. Tracking is an ad-hoc process
(certain processes aren’t tracked at all)
(3): Most key performance indicators are tracked formally.
Tracking is overseen by senior management.
(5): Performance is continuously tracked and communicated, both formally and informally, to all staff using a range of visual management tools.
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Examples of performance metrics – Toyota
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Example of performance metrics – apparel and textiles
Shirt factory, Burma Fabric factory, India
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Examples of performance metrics – Call Centre
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Examples of performance metrics - Heathrow
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Nick Bloom, 149, 2015

Nick Bloom, 149, 2015

Performance tracking (4): all countries, manufacturing
Average 3.36
1 2 3
Performance Tracking
4 5
All countries, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
9838 observations
16

(5) Performance review
Score (1): Performance is reviewed infrequently or in an unmeaningful way e.g. only success or failure is noted.
(3): Performance is reviewed periodically with successes and indicators tracked. failures identified. All aspects are
Results are communicated to senior followed up ensure continuous improvement. management. No clear follow-up plan is adopted.
(5): Performance is continually reviewed, based on
Results are communicated to all staff
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Performance review (5): all countries, manufacturing
Average 3.33
1 2 3
Review of Performance
4 5
All countries, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
9827 observations
18

SOME FIRMS SEEMED TO BE TOO TRUTHFUL
Who rules the home in Ireland
Interviewer: “Would you mind if I asked how much your bonus is as a manager?”
Manager : “I don't even tell my wife how much my bonus is!”
Interviewer : “Frankly, that’s probably the right decision...”
Staff retention the American way
Manager: “I spend most of my time walking around cuddling and encouraging people - my staff tell me that I give great hugs”
The trusted Secretary
French secretary: “You want to talk to the plant manager?
There are legal proceedings against him, so hurry up!!
”
Nick Bloom, 149, 2015

Monitoring management practices
Targets management practices
Danaher
Nick Bloom, 149, 2015
20

(9) Target interconnection
Score (1): Goals are based purely on accounting figures (with no clear connection to shareholder value).
(3): Corporate goals are based on shareholder value but are not clearly communicated down to individuals
(5): Corporate goals focus on shareholder value. They increase in specificity as they cascade through business units ultimately defining individual performance expectations.
Nick Bloom, 149, 2015

Target interconnection (9): all countries, manufacturing
Average 3.01
1 2 3
Target interconnection
4 5
All countries, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
9813 observations
22

(10) Target time horizon
Score (1): Top management's main focus is on short term targets .
(3): There are short and long-term goals for all levels of the organization. As they are set independently, they are not necessarily linked to each other
(5): Long term goals are translated into specific short term targets so that short term targets become a
"staircase" to reach long term goals
Nick Bloom, 149, 2015

Target time horizon (10): all countries, manufacturing
Average 2.99
1 2 3
Target time horizon
4 5
All countries, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
9814 observations
24

(11) Targets are stretching
Score (1): Goals are either too easy or impossible to achieve; managers provide low estimates to ensure easy goals
(3): In most areas, top management pushes for aggressive goals based on solid economic rationale.
There are a few
"sacred cows" that are not held to the same rigorous standard
(5): Goals are genuinely demanding for all divisions.
They are grounded in solid, solid economic rationale
Nick Bloom, 149, 2015

Targets are stretching (11): all countries, manufacturing
Average 3.00
1 2 3
Targets are stretching
4 5
All countries, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
9819 observations
26

(12) Performance clarity
Score (1): Performance measures are complex and not clearly understood.
Individual performance is not made public
(3): Performance measures are well defined and communicated; performance is public in all levels but comparisons are discouraged
(5): Performance measures are well defined, strongly communicated and reinforced at all reviews; performance and rankings are made public to induce competition
Nick Bloom, 149, 2015

Performance clarity (12): all countries, manufacturing
Average 2.67
1 2 3
Performance clarity
4 5
All countries, manufacturing firms (100 to 5000 employees),
Nick Bloom, 149, 2015
9821 observations
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Monitoring management practices
Targets management practices
Danaher
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Danaher has continued to do well
Nick starts teaching
Danaher case
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And the market has really noticed
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From internet searching I believe they are introducing a new product range
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multi-business conglomerate over the past two decades? What do you see as the core attributes that have allowed it to sustain superior performance during this period?
Operations
Corporate strategy
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The £7 million guide to a tidy desk, London Times, January 5,
2007
Red tape has given way to black marker tape for thousands of bemused civil servants as part of a £7 million paperclip revolution aimed at ensuring that they keep the tools of their trade in the right place. Office workers have been given the tape to mark out where they should put their pens and pencils, their computer keyboards and to indicate where to place their phones.
National Insurance staff have been chosen as guinea-pigs for the latest phase of the “Lean” programme brought in by the logistics consultants Unipart. The programme prohibits workers from keeping personal items on their desks.
Nick Bloom, 149, 2015

Wrap up
1) Large variation in monitoring and targets – best organizations
• monitor extensively and continuously improve
• set challenging targets that flow from short to long run
2) Variation common across all industries we have looked at
3) Potential for improvement is extensive, especially in family firms, uncompetitive areas & in developing countries
4) On Monday we will focus on Scientific Management & Ctrip
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