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Nick Bloom, 149, 2015
The Modern Firm in Theory and PracticeNick 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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Nick Bloom, 149, 2015
(3) Process problem documentation
1.
2.
3.
4.
5.
(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
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Nick Bloom, 149, 2015
The survey scores to question (3), process problem documentation – all countries, manufacturing
4
0.1
.2.3
.4D
ensi
ty
1 2 3 4 5Process Documentation
All countries, manufacturing firms (100 to 5000 employees), 9840 observations
Average 3.13
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Nick Bloom, 149, 2015
0.1
.2.3
.4D
ensi
ty
1 2 3 4 5Process Documentation
5US, manufacturing firms (100 to 5000 employees),1298 observations
Average 3.42
The survey scores to question (3), process problem documentation – US, manufacturing
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Nick Bloom, 149, 2015
0.1
.2.3
.4.5
Den
sity
1 2 3 4 5Process Documentation
6India, manufacturing firms (100 to 5000 employees),1137 observations
Average 2.64
The survey scores to question (3), process problem documentation – India, manufacturing
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Nick Bloom, 149, 2015
0.1
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.4.5
Den
sity
1 2 3 4 5Process Documentation
The survey scores to question (3), process problem documentation – US, Canada and UK, retail
7All countries, retail firms (100 to 5000 employees)661 observations
Average 3.07
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Nick Bloom, 149, 2015
0.2
.4.6
Den
sity
1 2 3 4 5Process documentation
The survey scores to question (3), process problem documentation – developed countries, hospitals
8Hospitals, Canada, France, Germany, Italy, Sweden, UK, US, 1183 observations
Average 3.04
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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.
(4) Performance tracking
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Nick Bloom, 149, 2015
Examples of performance metrics – Toyota
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Nick Bloom, 149, 2015
Example of performance metrics – apparel and textiles
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Shirt factory, Burma Fabric factory, India
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Nick Bloom, 149, 2015
Examples of performance metrics – Call Centre
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Nick Bloom, 149, 2015
Examples of performance metrics - Heathrow
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Nick Bloom, 149, 2015
Examples of metrics – Retail Bank (1/2)
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Nick Bloom, 149, 2015
Examples of metrics – Retail Bank (2/2)
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Nick Bloom, 149, 2015
0.1
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ensi
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1 2 3 4 5Performance Tracking
Performance tracking (4):all countries, manufacturing
16All countries, manufacturing firms (100 to 5000 employees), 9838 observations
Average 3.36
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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 successes and failures identified. Results are communicated to senior management. No clear follow-up plan is adopted.
(5): Performance is continually reviewed, based on indicators tracked. All aspects are followed up ensure continuous improvement. Results are communicated to all staff
(5) Performance review
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Nick Bloom, 149, 2015
0.1
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.4.5
Den
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1 2 3 4 5Review of Performance
Performance review (5):all countries, manufacturing
18All countries, manufacturing firms (100 to 5000 employees), 9827 observations
Average 3.33
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Nick Bloom, 149, 2015
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...”
SOME FIRMS SEEMED TO BE TOO TRUTHFUL
Manager: “I spend most of my time walking around cuddling and encouraging people - my staff tell me that I give great hugs”
Staff retention the American way
Who rules the home in Ireland
French secretary: “You want to talk to the plant manager? There are legal proceedings against him, so hurry up!!”
The trusted Secretary
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Monitoring management practices
Targets management practices
Danaher
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Nick Bloom, 149, 2015
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.
(9) Target interconnection
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Nick Bloom, 149, 2015
0.1
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1 2 3 4 5Target interconnection
Target interconnection (9):all countries, manufacturing
22All countries, manufacturing firms (100 to 5000 employees), 9813 observations
Average 3.01
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Nick Bloom, 149, 2015
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
(10) Target time horizon
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Nick Bloom, 149, 2015
0.1
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ensi
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1 2 3 4 5Target time horizon
Target time horizon (10):all countries, manufacturing
24All countries, manufacturing firms (100 to 5000 employees), 9814 observations
Average 2.99
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Nick Bloom, 149, 2015
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
(11) Targets are stretching
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Nick Bloom, 149, 2015
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1 2 3 4 5Targets are stretching
Targets are stretching (11):all countries, manufacturing
26All countries, manufacturing firms (100 to 5000 employees), 9819 observations
Average 3.00
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Nick Bloom, 149, 2015
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
(12) Performance clarity
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Nick Bloom, 149, 2015
0.1
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1 2 3 4 5Performance clarity
Performance clarity (12):all countries, manufacturing
28All countries, manufacturing firms (100 to 5000 employees), 9821 observations
Average 2.67
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Monitoring management practices
Targets management practices
Danaher
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Nick Bloom, 149, 2015
Danaher has continued to do well
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Nick starts teaching Danaher case
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Nick Bloom, 149, 2015
And the market has really noticed
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From internet searching I believe they areintroducing a new product range
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Nick Bloom, 149, 2015
Q1 Why has Danaher been successful as a 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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Nick Bloom, 149, 2015
Q2) How easy or difficult is it for other companies to mimic or emulate what Danaher does? Why?
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Nick Bloom, 149, 2015
Q3) What do you consider to be the biggest challenges that Danaher is likely to confront during the next 10-15 years?
What can Larry Culp do to prepare the organization for these challenges?
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Basic Lean – floor markings
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Nick Bloom, 149, 2015
Excessive Lean – desk markingsThe £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.
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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