(Source: hbr.org)

Raffaella Sadun, a professor at Harvard Business School, explains why seemingly common-sensical management practices are so hard to implement. After surveying thousands of organizations across the world, she found that only 6% of firms qualified as highly well-managed — and that managers mistakenly assumed they were all above average. She is a co-author of “Why Do We Undervalue Competent Management?” in the September–October 2017 issue of Harvard Business Review.

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SARAH GREEN CARMICHAEL: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green Carmichael.

Telling executives they need to have clear goals and retain talent seems, well, silly. Isn’t that common sense? But the truth is, so many organizations are failing on fundamentals—and don’t even realize.

Harvard Business School professor Raffaella Sadun says it’s time to go back to the basics. And she has the data to prove it. Sadun and other researchers have surveyed 15,000 organizations in 34 countries about core managerial practices. What they’ve found calls into question the conventional wisdom about operational excellence. It’s not just table stakes. Nor is it distinct from strategy. In fact, operational excellence is so rare, so hard to achieve, that it can actually be a strategic advantage.

Joining me now is Raffaella Sadun. She’s a co-author of the new article “Why Do We Undervalue Competent Management?” It’s in the September–October 2017 issue of Harvard Business Review.

Raffaella, thank you so much for being here today.

RAFFAELLA SADUN: Thank you.

SARAH GREEN CARMICHAEL: Are you telling me that the good people of the world are not reading HBR enough?

RAFFAELLA SADUN: They are. Don’t worry. They all read HBR. They all do. What I’m telling you is that maybe they read HBR and they think they are doing what HBR tells them to do. But in practice they don’t. So although we know that certain practices should be done, it’s very rarely that we go and really self-evaluate: What are we doing? Are we really using them? Are we being objective in the way we look at data? Are we even collecting the right data? We are surprised by the fact—we asked managers to self-evaluate, and then we compared their self-evaluation with our score. We found that there was a very large discrepancy. Everybody is above average when you ask them what they are, right?

SARAH GREEN CARMICHAEL: I’m wondering if there was a conversation you remember with a manager where the person sort of realized in the conversation, oh, I’m not as good as I thought I was?

RAFFAELLA SADUN: Oh, yeah. I remember talking with a manager that we interviewed. We had the results on his organization. He came out at the very bottom. And I remember this feeling of, how is that possible? It was a good moment of realization that maybe there were some improvements that could be done. It was a moment of, is this how we want to do things? Maybe we do things because it’s perceived to be better for us. But, you know, can we question? Should we change or not?

SARAH GREEN CARMICHAEL: What are some of the other reasons that companies struggle to improve at management?

RAFFAELLA SADUN: One is awareness—so not knowing that they’re behind. The second one is the issue of skills, which is very important, and I think that that has actually a public policy type of angle to it, too. Some of the practices that we survey require minimal level of literacy and numeracy skills. If your workforce does not have these basic skills, it’s going to be hard to implement them because you’re effectively shifting the discussion to numbers—checking, you know—even if it’s basic stuff, sometimes a workforce cannot apply it. The third one, which I think, it’s fascinating and has not been really started well, but it’s this issue of organizational dynamics and resistance. And I think that it comes down to the fact that you are when you are introducing a process in a company, you’re asking people to standardize what they do to some extent. Nobody likes to be standardized. And especially who doesn’t like it? The very skilled individuals hate it.

SARAH GREEN CARMICHAEL: Yeah people chafe under process sometimes.

RAFFAELLA SADUN: Yeah, yeah. I think I think it’s because sometimes processes are felt as constrained on what you do, and you sort of lose sight of the fact that if you’re able to move the organization toward processes that are not, you know, bureaucracy, but they’re processes conducive to learning and improvement, you get such a large gain as an organization that they overweight your personal cost. I’m fascinated by the idea of studying how this resistance, right? How does it play out, and how do you overcome it?

SARAH GREEN CARMICHAEL: Yeah. Do you have any kind of ongoing research about that now?

RAFFAELLA SADUN: Yeah, actually in the in the health care setting in a developing country. You know, we’ve been working with a set of 50 hospitals and in particular the neonatal intensive care units. One thing we noticed there is that the basics, for example, hand-washing—you know, the rate of hand-washing in the sense that intensive care unit is below 10 percent on average, which is tragic. Neonatal mortality rates are very high. What we’re realize working with these hospitals is that the extent to which people where nurses were following clinical protocols very much depended on the way their bosses, their clinical head, were working with them. Some of them were very good at sort of creating this coordination with the nurses: meeting with them regularly, talking about how things were done, how things should be done, getting their feedback.

Others were completely disconnected from the nurses, and really there wasn’t this—they were not managing them. So what we’re trying to do is, can we think of a management intervention where we teach the clinical heads to be better coordinators. And can this lead to improve clinical quality and therefore lower infection rates for the kids. That’s one example where I really think basic management can have a powerful effect. And it’s important to study whether that’s true and, you know, study it in a rigorous fashion.

SARAH GREEN CARMICHAEL: What are some of the patterns you’ve seen so far and just between different types of companies or across different countries?

RAFFAELLA SADUN: It’s fascinating. So, the level—the differences that we’ve seen are— first of all, there is a big difference across countries. And that is something that—you know, I mean, I’m an economist, and I came to this research because I was interested in why are certain countries growing more than others, right? And can we link it back to companies? And this is absolutely— you know, if you look at the management data, there is a very large difference across countries: you will see the developed countries, as you would expect, are much more professionalized; the firms are much more professionalized than in developing countries. This is an important finding because it’s telling us that perhaps one of the reasons behind this difference is levels of development can be traced back to the organizations themselves. It’s not just, you know, the government is not working or the education system is not working.

It’s something that has to do with firms, with people: managers. So that’s the first level of differences. And then I think what was really striking and surprised us as much as it surprised other people is the level of different heterogeneity differences, even within countries and even within the same industries within countries. So you look at the US, probably the most developed country. Even within the US, you will observe that there are some companies that are really well-managed and some companies are still not implementing the basics.

SARAH GREEN CARMICHAEL: In your view, what are some examples of managerial basics?

RAFFAELLA SADUN: Yeah. So, let me give you another one of my favorite examples: meetings.

SARAH GREEN CARMICHAEL: OK.

RAFFAELLA SADUN: And I’m not talking about just, you know, the frequency or the length of the meetings, but: how do you approach your meetings? Do you have an agenda that is discussed? Do you have a follow-up plan? Are you using data, or are you just telling people, you know, your gut feeling? Or ordering people what to do. I think it is important because it’s one of those instances where, if run well, you can learn a lot. You can learn, you know, you can learn from the experience of the participants; you can think about new ways of doing things; you can allocate responsibilities and create accountability, if done well. And, you know, if they’re not done well, as we all know, they can be a complete waste of time. So what is interesting is that actually there are some well-known processes on how to conduct meetings, and these are some of the things that we capture.

We ask managers if they have an agenda. We ask them if they have a follow-up plan. We try to understand how the interactions work in these meetings. So that would be one very basic example that I think affects everybody when you look at different firms.

SARAH GREEN CARMICHAEL: One of the big differences you see is the worst managed firms in your sample seem to be founder-led firms and family firms. Why do you think you found that?

RAFFAELLA SADUN: What fascinates me, at least, is that when you look at the family firm, for example, Absolutely there is there is a willingness to make the firm grow or to make it to keep it profitable over the long term. But the family firm also makes as it has a mix of objectives, right? So, one is making money, for sure. But then there is all this other emotional bond: I want to be the boss or, you know, I really would like for my kids to work with me. Well, it turns out your kids are not necessarily always the best managers. And so once you start mixing business with family, you know, you might make decisions that are very good for what we call private benefits of control: being your own boss or giving a job to your kid but day might not be necessarily the best thing for the firm itself or for the managerial quality of the people working in a firm.

SARAH GREEN CARMICHAEL: So people already think they’re doing a good job. They chafe under this sort of mandate to be doing things in a more standardized way. Was there sort of anything else that came up in terms of why it is just so hard to do? I mean, as you say, it’s not rocket science. Like, we sort of know what people should be doing.

RAFFAELLA SADUN: Yeah, and I think it really comes down to the fact that it’s not going to be—you know, if it’s only one person doing it this type of process, is typically doesn’t have a strong impact on organizational performance. You really want to have different parts of the organization working together with this common language. When that happens, the gains can be really large; but until you get to that point, it’s a costly process. And so, you know, you might have organizations that decide to start a Lean trajectory. How many Lean initiatives are there? Many. But, you know, what happens in practice? Well, the, you know, manufacturing people are very excited about it. But sales and marketing really hates it. And so, what happens next? Well, it’s the, you know, flavor of the month. It’s abandoned, and it’s not part of the culture of the organization, and so you just leave it there.

SARAH GREEN CARMICHAEL: Does it matter what the CEO is like? Does it matter if a CEO is a great manager? You know, can he or she sort of push that through the whole organization, or does it just not quite get that far?

RAFFAELLA SADUN: I think the CEO can have a very strong influence on management practices. And I think what’s really interesting is, if you have strong processes, the CEO doesn’t have to check constantly and what people are doing. It’s a little bit counter-intuitive: a CEO can have a strong effect, as long as the CEO is able to convey this idea of, you know, we have to work together on this, so it’s more a kind of building consensus. That’s where I see the role of the CEO as being really important in translating what moving towards a process-oriented organization is across the hierarchy and making sure that there is a strong signal of, this is how things are going to be done; this is how we work together. What happens is, so in doing that, CEOs have to realize that they will start to delegate much more. So, you know, they’re not in charge of operations anymore, necessarily, because they have established processes that allow other people to do this job.

So the effectiveness of the CEO is—I think CEOs can be very effective once they give themselves, if you like, a new job description, which is not so much working on the minutia or the micromanagement piece, but they can really step up to this role of coordination and persuasion.

SARAH GREEN CARMICHAEL: I’m wondering if you’ve seen a kind of similar transformation in a company where the CEO or senior team has managed to really turnaround people’s thinking and actually really improve the management of their firms?

RAFFAELLA SADUN: As you can hear from my accent I’m Italian. So, one is an Italian company that—Moleskin. And it was really interesting, you know, Moleskin is relatively, you know, was really small when they decided that they wanted to professionalize what they were doing and hired a professional manager to do that. And what was fascinating to me was to see how the professional manager changed the way things were done within Moleskin, introducing processes that were foreign to the company up to that moment because it was led through this sort of tacit knowledge that was embodied in the founder. And that is a transformation that took some time to do, and it took a very strong partnership with the founders themselves to realize, which, I think was a point. Imagine had the, you know, they were backed by a private equity company; imagine a different approach, where you would have just you know walked in on day one and said, this is how we do things today. What would have been the odds of success in that case? Through the partnership, he was really able to understand what they knew, what the founders knew, and scale it up so that that knowledge was accessible to many different people.

SARAH GREEN CARMICHAEL: So, in the article you recount the kind of famous story of how GM tried to adopt the Toyota production system and failed. What is the difference between a company that kind of successfully makes this transition and a company like GM that says, “Hey, this is great; we’re going to do this” and then it just totally just sputters out?

RAFFAELLA SADUN: Yeah. You know the case of GM, I think, it’s fascinating because my interpretation of what happened is that there was an underestimation of really the type of implicit agreements that you need to have between the top of the organization and the workforce for these processes to be embraced. In the GM case, the relationship between the workforce and the management was—there was a trust between the two of them. So you cannot—once say tried to introduce processes that would lead to higher productivity, the thought was, if we become more productive as a workforce, they’re going to fire us; they don’t need us anymore. And that is a major obstacle, right, because you have to convince people to do things in a different way. And the threat to the workforce is that by becoming more productive they’re going to lose their jobs. And this is something that is not just GM. GM is just an example of why using management processes is hard.

You know this is one of the concerns. And so, I think that again it goes back to the idea that we tend to say this process are so, so basic We’re just going to tell people to do things in a different way. You really have to work with, you know, getting a mutual understanding with your employees. And that it’s only at that they will believe, you know, the fact that by changing the way of doing things there would be a benefit not just for you but also for them.

SARAH GREEN CARMICHAEL: The kinds of firms that seem to come out at the top end of the best managed firms are private equity firms. And I’m just sort of curious about that tension, because usually when a firm is bought by a PR firm, the staff do feel like, oh, we’re all going to be fired. So can you just explain like how does that work? How do PE firms pull this off, even, maybe, if there’s not a lot of trust?

RAFFAELLA SADUN: You know, you don’t have to rebuild trust. You’re basically starting from the assumption that there is a minimal level of trust. There is selection of the workforce. So, in some cases, some firms actually, you know, change the entire top team. There is a conscious understanding that if you want to change the way things are done, you have to work with people that believe in what you’re doing. You know, that already is creating a more homogenous sort of set of beliefs across the workforce. And then there is that accountability. And so, you know, if it’s accountability that is built—sometimes it’s built through monetary incentives; sometimes it’s built through, again, the creation of our common language of performance results. That’s my understanding, is that there is this way of doing it systematically from the top to the bottom that helps create a common set of understanding of how things are going to work forward.

SARAH GREEN CARMICHAEL: There is this kind of debate about, like, which comes first: If you have a great culture and a trusting culture, do you then have operational excellence? Or is it operational excellence that creates a sort of culture of winning and trust? Where do you come out on that chicken-versus-egg question?

RAFFAELLA SADUN: You know, it also has some strong historical roots. For example, we’ve measured the extent to which managers delegate to other people and you can see that the patterns of delegation vary very much across geographies, even within the same county. Let me give you the Italian example. Firms in the north tend to delegate much more to the workforce than plants in the south. And Italy is one of those countries where the level of generalized trust—forget about these individual companies varies tremendously for historical reasons within the country. In the north, they tend to be more trusting, relative to the south; it relates back to social capital. So, to some extent, trust is exogenous. It depends on where you know where your firm is, the history of the company, the patterns, the relationship that you had with your employees, going back to the GM example right?

At the same time, trust is a variable that can be changed. I go back to the idea that the top of the organization can play an important role in building trust.

But if you want organization to follow management principles, you as a CEO should make sure that you know you buy into them right.

SARAH GREEN CARMICHAEL: You know what is the proper role of places like business schools and training programs? Because it seems like there are a lot of expensive and prestigious programs, and managers learn a lot of things there, but are they learning things that would help them address this specific issue?

RAFFAELLA SADUN: Yeah, yeah. Well, I guess you know I have the I have the experience of my students at HBS. And when we discuss cases where it’s clear that what distinguishes an organization is the use of processes, but the use of processes, you know, throughout the hierarchy, as we discussed before, you know, they question whether, you know, is really something that is going to lead to competitive advantage. They can’t believe that these things which are so basic and so known can actually be a source of performance differentials. So, I think that maybe one aspect that I’d love to see more is really exposing the students to this variety of how things get done in practice. Maybe you can embed them in organizations and you can see, this is a well-run organization; this is a badly run organization. What do you make of it? And what’s your role? How would you change how things are done? And it’s the same with executive students, which come, and they have this moment of realization that they could do things differently. If it’s only one person from an organization coming and getting exposed and then he or she goes back and there isn’t a commitment from the top, it’s going to be hard to change. So, when you think about training program, I think it’s important to think about training from not just learning the abstract but thinking proactively, how am I going to adapt? How I’m going to use this when I go back?

SARAH GREEN CARMICHAEL: Raffaella, thank you so much for being with us.

RAFFAELLA SADUN: Thank you so much.

SARAH GREEN CARMICHAEL: That’s Raffaella Sadun. She’s a professor at Harvard Business School. And she’s a co-author of the article, “Why Do We Undervalue Competent Management?” Read it in the September–October 2017 issue of Harvard Business Review—or on HBR.org.

Thanks for listening to the HBR IdeaCast. I’m Sarah Green Carmichael.

More Info: hbr.org

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