Good management practices deliver superior results. Even bad Nepali managers know that. But the extent to which good management makes a company successful has long been a topic fraught with uncertainties. A recent paper, drawing on the conclusions of a study done on 700-plus manufacturing companies in America and Europe by the London Business School and McKinsey & Company, argues that for a company to deliver superior results, the quality of its managers is more important than its industry sector, its regulatory conditions and where it works.
In other words, what managers do inside their companies is a lot more important than the external conditions under which their industries are placed. Managers matter because their decisions have a disproportionately larger effect on their companies' success than money, machinery or location.
But good managers do not happen by accident. For them to do their work, the paper says that their companies need to be in a competitive landscape in the first place. That's because competition is known to spur the introduction of efficient methods and the industry-wide diffusion of new processes. As such, managers who respond to competition tend to be quick to adopt proven best practices "such as lean-production methods on the shop floor and techniques for setting targets and tracking outcomes". Alternatively, an absence of competition means that managers have no incentive to practice better management. Indeed, the study correlated the improvement of one point on a scale of 1 to 5 in the quality of management practices to an increase of six per cent on total productivity.
But in case you thought that increasing productivity in the name of better management meant squeezing the juice out of employees to leave them dry, the study also reported that the same well-managed companies also scored high on metrics such as employee satisfaction and morale. Obviously, good managers seem to know that they cannot deliver the results if they don't have a talented workforce with high morale. As such, good management aimed to boost productivity in a competitive sector also includes employee-friendly practices.
What does all these mean for us in Nepal?
First, it means that competition is essential if we want to introduce better management practices in our companies. Policy-wise, this means that the government needs to recast its role as a promoter of competition in almost all sectors. It can do so by making it easier for domestic and foreign entrepreneurs to compete to provide goods and services to Nepali consumers. There is no reason, for example, why consumers cannot purchase their mobile SIM cards from the offerings made by, say, a dozen competing telecom companies.
True, no one likes competition and there is much resistance to it. But in these times of open borders and cheaper goods and services from abroad, our businesses are better off learning how to profit from competition than resisting it.
Second, Nepali companies need to take their employees seriously. Having better buildings, more land and fancier computers no longer differentiate one top company from another. What is increasingly important is the quality of people working for the company. Hire mediocre people and get mediocre results. As such, spending money on the recruitment, training and professional development of the staff and tracking that investment need to be on the agenda of all forward-looking companies. To this end, companies need to start thinking about making human resources a front-line office and not a backroom bureaucracy.
After all, as the study shows, competition, good management practices and higher productivity are all positively related if we want to boost productivity.