Building core management capabilities in companies

Most people think of Strategy as intellectual and exciting, while execution is considered mundane. It is often left to lower and middle level managers to handle on a day to day basis, and not much thought goes into it, especially among small and medium enterprises. Execution means effective management and this means challenges in the form of processes and people. Unless companies actively make necessary investments in these areas, execution is bound to be mediocre at best.  Today, as the bar for survival in business is being set higher, it becomes essential to enhance core management capabilities, making it harder for competitors to imitate. It is perhaps one of the best ways to build a sustainable advantage over others.

Research conducted by Harvard on more than 12000 companies in the area of operational excellence, revealed that the top 10% of the firms are 25% more profitable and 50% more productive than the bottom 10% of the firms. Better managed firms grow faster, are more profitable and are less likely to die. Operational excellence was measured in areas of processes, process documentation, performance management, target setting, control systems etc. On a scale of 1 to 5 (1 being bad and 5 is very good), the grey bars show the global distribution of companies in operational excellence. Blue bars indicate the distribution of companies in the respective countries. As seen, Indian companies are lagging their global peers. (Image courtesy: HBR)

In our work, we’ve found that management practices are better in some companies than in others, because of the following common reasons:

  • Most companies do not invest enough on people and processes. They do not see value in such investments. Managers often underestimate the impact of good processes
  • To allow processes to function, sometimes, managers just need to make their presence felt. When everyone sees top managers walk the talk, things happen. But companies do not often allow managers this leeway, and would like to see everyone producing and achieving individual quotas
  • Stubborn blind spots and deficiencies could prevent companies from knowing their own problem areas. Managers are of the opinion that their processes are good enough and hold on to the “way of doing things here…”
  • Employees who recognise bad practices, seldom bring these to light for fear of being singled out, or given too much responsibility without any authority, or maybe even a fear that an improvement in productivity might lead to job losses

A study of Indian textile industry done by Accenture in a Stanford-World bank project showed that companies never implemented quality systems, production planning process or appropriate reward systems since they were sceptical about its benefits. Consultants were often informed that “such processes will never work here”. But among companies who did adopt processes, significant benefits were recorded.

Family firms have been especially found to have weaker management processes, because adoption of such processes entails significant costs in terms of hiring outside talent, and decision making becomes decentralized, which may not be to the liking of the family, unless they are really comfortable in letting go control in order to scale up.

Typical management practices that can be implemented for starters are:

  • Quick and effective performance management processes
  • Target setting and alignment with overall strategy
  • Processes in sales and marketing to find new customers and reach out to the market
  • Documented processes in support, aftermarket and product development that really allow the company to respond effectively to its customer requirements, reduce risk and respond quickly
  • Structured interactions between teams for regular debriefing and problem solving
  • Management control systems

Implementing core management practices seems simple, and does not involve heavy technology investments. But these are not practices that can be started and stopped at will. They need long term commitment from the top, and a shift in mentality at all levels in the firm. Everyone needs to act as a manager. Strategy is always successful when coupled with execution. Management practices bridge this gap.