Management Matters

Too often viable companies fail due to bad management even when the fundamental idea behind the business is sound. A body of academic research that finds good management is a better predictor of a firm’s success than R&D spending, IT spending or how skilled their workforce is.

Whether or not firms consistently monitor and improve their processes, set and revise targets, and incentivise employees through merit-based hiring, firing and promotion procedures explains almost a third of the differences in productivity between and within countries.

Report author Sam Dumitriu recommends practical reforms including tax breaks for self-funded work-related training to encourage greater investment in management capability to reduce the rate of unnecessary business failure. Put simply, when businesses are well-managed they create more jobs, pay higher wages, and sell better (and cheaper) products. Better managed workers aren’t just more productive and better paid, they’re happier too.

Human Capital and Business Stay-Up

The first piece of research undertaken as part of the Business Stay-Up project is Human Capital and Business Stay-Up.

In recent decades, governments worldwide have employed an array of different policy tools to try to increase start-up rates in their countries, but relatively little attention has been paid to how to support ‘business stay-up’. In that it is among the fastest growing small businesses that employment growth, innovation and productivity gains are strongest, this lag in the progress of entrepreneurship policy should give us cause for concern.

Of those approaches to supporting business sustainability that have been tried, efforts to improve management practices have shown promise. This report adds to a growing body of evidence in this area, new research supporting the importance of human capital to entrepreneurial outcomes.

Author Gabriel Heller Sahlgren’s research substantiates a relationship between business owners’ specific areas of qualification and the growth of their enterprise. Moreover, and more importantly, he further finds that not all areas of qualification are equal in terms of stimulating success. The training obtained through programmes in business, social science, and law, and in technical areas, such as engineering, appear to lead to employee growth – whereas programmes relating to other subject areas do not.

Accordingly the author argues that governments should seek ways to incentivise training in high impact areas, and in management skills specifically. e most promising approaches, he finds, appear to focus on task-related training, in both an operational and specific sense. To maximise the probability of firm success, owners must therefore learn the operational skills of organisation and management, while at the same time keep up-to-date with the latest developments in the field in which they operate.