An instrument developed by McKinsey asks organizations about performance monitoring, target setting, and incentives/people management. In high performing organizations, information relevant to performance is fed back to workers who are empowered to stop processes to fix problems; goals are established to focus attention on areas for improvement; people are hired and promoted on the basis of performance.
Bloom et al. used the McKinsey survey instrument to examine over 10,000 organizations internationally, mostly manufacturing firms, but also several hundred hospitals and some schools, including those in the U.S., U.K., Japan, Germany, and some developing countries.
In manufacturing, firms that score better are also more profitable and successful. Higher scoring schools do better on standardized tests. Higher scoring hospitals also have better survival rates for heart attacks. Across all three domains, U.S. hospitals have lower management scores than manufacturing firms, but higher than hospitals in other countries.
I’ve now read the Bloom study (ungated here and published by the Academy of Management here). Below is the ten-point summary by the authors. For the health care-specific point I’ve included the chart. For the rest, you can go to the source at one of the prior links.
Before I get to the authors’ summary, though, a word about my interest in this area: Many of my favorite health policy experts have emphasized in conversation the importance of management. To large degree, it seems, what separates a broadly high-quality and efficient health care organization from one that is neither is management and organizational culture, which are intertwined.
This shouldn’t be surprising. If you think about organizations you interact with in other sectors (restaurants, retail stores, and the like) the ones that (a) stick around and prosper and (b) that you enjoy patronizing are, disproportionately and in general, the well-managed and efficient ones. The others, well, suck, and tend to get out-competed. That is, you, in particular, and competition, in general, select(s) for good management.
Relative to some other sectors, we don’t have as much competition in health care for a variety of reasons, some inherent (like a high degree of product differentiation and information asymmetry) and some amenable to policy (a high degree of third-party payment, constraints on market entry). With no strong mechanism to promote the well managed and to weed out the badly manged organizations, what type of organization settles in a given area might be somewhat random. In some places, we find high quality and greater efficiency (e.g., Kaiser, Intermountain, Geisinger, etc.). In others, we don’t.
This raises a set of crucial questions, among them: (1) Assuming weaker market forces in health care than in other sectors, how do we promote good management? (2) To what extent can we promote stronger market forces in health care without sacrificing the important reasons they are weak in the first place? Notice I’ve phrased these to be relevant no matter your policy preferences. The first asks you to assume weaker market forces, without claiming that assumption cannot be loosened. The second lifts that assumption but asks you to recognize that there may be some “important reasons” market forces are weak (you decide which, and note there is heterogeneity among people about what they are) that we may wish to retain.
When I look at what’s happening in health care today, I see an attempt to establish or laud conditions under which better managed organizations will thrive, with all their attendant benefits for patients, efficiency, and so forth. That’s the point of price transparency, pay-for-performance, bundled payments, ACOs, etc. That’s the hope for retail clinics, greater patient cost-sharing, narrow networks, reference pricing, and so on. But, notice, none of them directly promote or measure good management. In well-functioning markets ,we need not worry about that. In health care, we might, particularly if we want to understand more precisely to what extent the myriad approaches to greater efficiency and quality noted above work, if any. Do we know how to measure good management or promote it? I am not qualified to say, but I suspect the answer is somewhere between “no” and “not very well.” Am I right?
Bloom et al. offer a means of measuring good management, though it may be incomplete and have important limitations. Here’s what they found:
1. US manufacturing firms score higher [in management performance] than any other country. Companies based in Canada, Germany, Japan and Sweden are also well managed. Firms in developing countries, such as Brazil, China and India are typically less well managed (Figure 1). [Click through for figures not included below.]
2. In manufacturing, there is a wide spread of management practices within every country. This spread is particularly notable in developing countries, such as Brazil and India, which have a large tail of very badly managed firms (Figure 2).
3. Looking at other sectors, US firms in retail and hospitals also appear to be the best managed internationally, but US schools score poorly (Figure 3).
4. There is also a wide spread of management practices in non-manufacturing sectors (Figure 4).
5. Publicly (Government) owned organizations have worse management practices across all sectors we studied. They are particularly weak at incentives: promotion is more likely to be based on tenure (rather than performance), and persistent low-performers are much less likely to be retrained or moved (Figures 5 and 6).
6. Amongst private sector firms, those owned and run by their founder or their family descendants, especially firstborn sons, tend to be badly managed. Firms with professional (external, non-family) CEOs tend to be well managed (Figure 7).
7. Multinationals appear able to adopt good management practices in almost every country in which they operate (Figure 8).
8. There is strong evidence that tough product market competition is associated with better management practices, within both the private and public sectors (Figure 9).
9. Light labor market regulation is correlated with the systematic use of monetary and non monetary incentives (related to hiring, firing, pay and promotions), but not monitoring or targets management (Figure 10).
10. The level of education of both managers and non-managers is strongly linked to better management practices (Figure 11).