New Australian Study Reveals Link Between Management Capability and Business Performance

Leslie Allan
Director
Business Performance Pty Ltd
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Enterprise Connect conducted a recent study of management practices in today's organizations. It draws some highly valuable conclusions on the impact that management capabilities and actions have on business performance.

The research was conducted by the University of Technology Sydney, the Macquarie Graduate School of Management and the Society of Knowledge Economics as an extension of the international study conducted by the London School of Economics, Stanford University and McKinsey & Co. In 2009, the researchers conducted patterned interviews with 439 medium and large-sized manufacturing companies in Australia, along with a smaller number of services organizations.

Practices were examined across eighteen different dimensions in three management categories; people, performance and operations. Each management practice was scored on a scale from one (worst practice) to five (best practice). The study found significant correlations between management practices and business performance. Amongst its key findings were:

A single point increase in management score is associated with an increase:

 • in sales of 13%
 • in output equivalent to a 56% increase in the labor force
 • in output equivalent to a 44% increase in invested capital

In the area of creativity, the highest scoring firms were found to be about 50 times more innovative than the lowest scoring companies. The study also drew a clear link between management education and capability on the one hand and company productivity and profitability on the other. It found that:

 • 64% of managers in the highest scoring firms are university educated (only 3% in the lowest scoring firms)
 • 20% of non-management employees in the highest scoring firms are university educated (only 1% in the lowest scoring firms)

With higher management skill levels leading to more effective management practices, researchers concluded that organizations need to focus more on training and development initiatives aimed at upskilling managers and the wider workforce. One impediment to such upskilling, the report authors noted, is the disconnect between how managers perceive their own company's management capability and the real level of capability. In the survey, managers consistently overrated their own firm's management performance. This can lead to a "blind spot" impeding further improvement in management skills. The report also highlighted the importance of granting more autonomy to managers and front-line workers as a way of fostering innovation and a sense of accountability.

Looking at the performance of Australian firms in particular, the report made the following findings:

 • Australian management practices overall rate slightly above average, ranking sixth among the sixteen countries participating in the survey.
 • In the area of operations management practices, Australia ranks seventh among the sixteen countries.
 • In the area of performance management practices, Australia ranks sixth among the sixteen countries.
 • In the area of people management practices, Australia ranks eighth among the sixteen countries.

For the researchers, people management arose as an area in which Australian organizations need to devote significantly more of its energies. The report highlighted the closing performance gap between the emerging powerhouses of China and India. For Australian businesses to remain competitive in this new deregulated environment, it noted, local firms need to improve their human capital practices. In particular, they need to focus more on attracting, retaining and developing their talent and correcting poor employee performance issues.

Management Matters in Australia: Just how productive are we? - Findings from the Australian Management Practices and Productivity global benchmarking project
Report commissioned by the Australian Government, Department of Innovation, Industry, Science and Research
November 2009
ISBN 978 0 642 72626 1

Read the full report at http://www.innovation.gov.au/General/Corporate/Documents/ManagementMatte...

About Leslie Allan

About Leslie Allan

Leslie Allan is Managing Director of Business Performance Pty Ltd; a management consulting firm specializing in people and process capability. He has been assisting organizations improve their capability for over 20 years. Mr. Allan has contributed in various roles as manager, consultant and trainer within the manufacturing and service industries, both for public and private sector organizations. 

Mr. Allan is a prolific writer on business issues, with many journal and web articles to his credit. He is also the author of five books on employee capability, training and change management. Mr. Allan currently serves as Divisional Council Member for the Australian Institute of Training and Development and is a member of the Australian Institute of Management, the Graduate Management Association of Australia and the American Society for Quality. 

His company, Business Performance Pty Ltd, started life in 2003 and provides business and management consulting services globally. The company delivers coaching and consulting services in a range of business areas, from small business, leadership and management, strategic planning and organizational change to employee development and career coaching. All services are provided by highly experienced consultants specializing in their area of expertise. 

From its website, Business Performance Pty Ltd also proudly supplies a wide selection of business and management software products designed to make managing organizations easier and more effective. Products featured include tools, templates and guides in the areas of training and employee development, project management, organizational change, career planning, and web development. All products can be purchased and downloaded easily from anywhere in the world from the Business Performance Pty Ltd website at www.businessperform.com

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