Why american management rules the world

3:30 PM Monday June 13, 2011
By Nicholas Bloom, Rebecca Homkes, Raffaella Sadun, and John Van Reenen | Comments (79)

After a decade of painstaking research, we have concluded that American firms are on average the best managed in the world. This is not what we – a group of European researchers – expected to find. But while Americans are bad at football (or soccer, as it’s known as locally), they are the Brazilians of Management.

Over the past decade, a team from Harvard Business School, London School of Economics, McKinsey & Company, and Stanford has systematically surveyed global management. We have developed a tool to measure management practices across operational management, monitoring, targets, and people management. We scored each dimension on a range of practices to generate an overall management score, surveying over 10,000 firms in 20 countries. This has allowed us to create the first global database of management practices.

Here

are some of our findings.

Well managed firms thrash their poorly managed competitors

First, not surprisingly, we find that organizations with better management massively outperform their disorganized competitors. They make more money, grow faster, have far higher stock market values, and survive for longer. (For details see our previous HBR blog post.)

The American Management Century

Second, when it comes to overall management, American firms outperform all others. This U. S. dominance occurs in the manufacturing, retail, and healthcare sectors (but interestingly, not in high schools). Japanese, German, and Swedish firms follow closely behind. In contrast, developing countries like Brazil, China, and India lag at the bottom of the management charts. Southern European countries like Portugal and Greece appear to have management practices barely better than those of most developing countries. In the middle stand countries like the UK, France, Italy, and Australia, which have reasonable but not brilliant management practices.

Bottom dwellers drive the rankings down

While the ranking of countries is certainly eye-catching, the real story lies within the countries. Almost 90% of the cross-country differences are driven by the size of the “tail” of really badly managed firms within each country. Countries like the U. S. that excel have hardly any badly managed firms, while those like India that have low average scores have a mass of very badly managed firms pulling down their averages.

Every country has some world-class firms

But while there are many of these extremely badly managed, every country also hosts some excellent firms. Even bottom-ranking India has dozens of firms that use world-class management practices. A key takeaway is that individual companies are not trapped by the national environments in which they operate – there are top performers in all countries surveyed. Conversely, being in a world-class environment like the U. S. does not guarantee success. Even in America, more than 15% of firms are so badly managed that they are worse than the average Chinese or Indian firm.

What is the secret sauce of management success?

One of the biggest drivers of these differences is variation in people management. American firms are ruthless at rapidly rewarding and promoting good employees and retraining or firing bad employees. The reasons are threefold.

The U. S. has tougher levels of competition. Large and open U. S. markets generate the type of rapid management evolution that allows only the best-managed firms to survive.



Why american management rules the world