One of New Zealand’s dirtiest little secrets is that our businesses are not very well managed. No one likes to talk about it because there are no prizes for doing so.
Politicians looking for ways to shove New Zealand back up the ranks of the OECD don’t mention it, because they might offend their more influential supporters in the commercial world. And the leaders of business lobby groups are hardly going to question the competence of the very people who pay their salaries.
But the truth is that the calibre of New Zealand managers is middling, and it’s holding the economy back. People like Doug Matheson, who has been training managers and directors for years and developed the internationally recognised Management Capability Index, have long known this. “The comparisons [with other countries using the MCI] would say New Zealand is pretty mediocre, every way you want to read it,” he says.
A new study, using methodology developed by the London School of Economics and McKinsey & Co, shines a harsh new light on the problem. Commissioned by the Ministry of Economic Development, it arrives at a few uncomfortable conclusions, including that more New Zealand companies are badly managed than well managed, and that our management of people is woeful.
Benchmarked against other 16 countries that have been surveyed using the same methodology, New Zealand came 10th overall. We trailed far behind the Americans, Swedes, Japanese and Germans, were marginally worse than the French and the Italians and were just a touch better than the Poles.
The researchers interviewed managers in 152 manufacturing companies, assessing 18 different aspects of management under three headings:
operations management (including things like adoption of lean manufacturing methods, continuous tracking of results and systematic problem-solving);
performance management (setting clear, challenging goals that are rooted in economic reality and well-communicated to staff);
people management (holding senior managers to account, dealing with non-performers, and attracting and promoting high-performers).
On operations management, New Zealand ranked 10th out of 17 countries; on performance management 9th; and on people management 14th. Under the latter heading, two areas of failure stand out: Kiwi managers are hopeless at dealing with poorly performing staff, and (perhaps there’s a link here) they don’t try very hard to retain talented people.
According to the study, the best managers are to be found in multinational corporations (both New Zealand-owned ones, which are few and far between, and the local subsidiaries of foreign ones). Family- and founder-owned firms, on the other hand, are blighted with the worst management (although those that employ outside chief executives do slightly better). Publicly listed companies tend to be better run than private companies, probably because they are obliged to be accountable to their shareholders. Big companies tend to be better managed than medium-sized ones, and good managers are more likely to have a university degree than bad ones.
The blockbuster finding (and a good clue as to why we do so badly) is that New Zealand managers think they are much better than they are. “Managers consistently overrate their firms’ management performance,” say the researchers. Furthermore, “focusing on management improvement is simply not a priority for these firms”.
The researchers don’t go into the reasons for Kiwi managers’ poor showing, but I’m willing to give it a go. New Zealand is a country of tiny businesses, where managers are too busy simply getting through the day to spare the time and energy to go on management courses. And in any case, training is a low priority in many companies: at best, it’s seen as an inconvenience for those left to mind the shop; at worst, it’s a luxury the company can’t afford. The complexity of management is also hugely underestimated – thanks to that mythical No 8 wire mentality, there’s a tendency to believe a good reservoir of common sense is all a manager needs.
Yet the rewards for lifting the standard of business leadership are there for the taking – for a country that aims to close the economic gap with Australia, it’s probably the lowest-hanging fruit. The link between the quality of management and productivity is obvious (anyone who has worked for a terrible manager surely knows this). The study shows that a one-point increase in the LSE/McKinsey management score increases profit per employee by $46,000, sales by 17% and staff numbers by 30%.
But we won’t make gains like these by continuing to hide from the inconvenient truth.