I will be blogging about this subject many more times to come (in Finnish). But here is one of the most important results of the research to everyone who is interested in human productivity or companies’ productivity capability in general.
The new research combines management and profitability
The basic setup of the research was clear: how do personnel related management decisions and practices affect financial performance? We surveyed management practices with questionnaires that inquired human productivity, work well being and work activity.
Financially one of the most important variables was the operating profit percentages, which we compared to a spesicif industry median. The operating profit – and especially its difference to the median in percentages represents a company’s profitability well.
Management is clear – it is decisions!
In our researches we have calculated an index on management levels, and following the name change of the research we are calling it the Human Productivity Management Index, HPMI. The HPMI is comprised of the scoring of management practices, the score is higher when the management is good and development processes are put into action.
Divided into three levels, the managemental basic decisions clearly differ, as shown by image 1.
In the lowest level of management, the basic decisions were made by 12% of the companies. A goals decision was not made by a single company. 14% of the companies had a plan, 6% had a superior role and 28% had measured indicators. 32% of the companies were on the lowest level.
On the middle level there were 39% of the companies and 32% of the companies had made decisions. On the highest level there were 29% of the companies and 75% of them had made decisions.
Management levels were divided based on a large questionnaire, but making those basic decisions reflects on everything else as well. When the decision of a superior role is done, managemental jobs and processes are done with greater efficiency etc.
Managemental decisions bring operating profit!
The levels pictured in image 2 show the difference in the companies’ financial performance clearly. In poorly managed companies the operating profit was 3% lower than the median of the industry, while in properly managed companies the operating profit was 3% higher than the industry median.
The result presents a clear formula: with good management you get +3%, with bad management you get -2,4%. The average result of +1,5% above the industry median shows that the questionnaire was answered by companies that perform a bit better than average. Based on operating profits and the companies’ own financial evaluations, there were certainly also poorly performing companies in the research material.
How much is 3%?
In image 2 the differences in the operating profit are plus 3% /minus 2,4%. But how much is that? This question may be answered when we look at the research material’s financial numbers a bit closer. A bit shy of 200 companies’ average revenue was 33 mil. euros a year and the operational profit was 2,8 mil. euros, that corresponds to 8,6% of the revenue. According to the results, poorly managed companies had an operational profit of 6,0% out of their revenue and well managed companies had 11,6%. This brings remarkable differences to operational profit moneys.
A poorly managed company gets nearly a million in minuses, while a well-managed company gets a million in plusses!
A million more or a million less operational profits means a +/- 35% difference to the average operational profit. We could slightly round the numbers in a company of a generous 150 persons – with good management you get a million more operational profits – with bad management you get a million less.
It is the CEO’s choice whether they want two, three or four million!
Good management is the result of systematic and organized work!
The results that are presented here are simply astounding – can management on its own bring millions in operational profits? According to the results, yes. But in the background there of course is a larger entirety. In a properly managed company, everything works well: responsibilities are clear, management work is invested in, etc. Personnel, capability, know-how and well being is taken into consideration when doing anything – it is just that simple!
This makes the matter also very challenging. Getting to that point requires many years of systematic work. The basic decisions are to be made with business in mind and after that implement it into the company’s processes. By this I mean that capabilities that are vital to the business are developed and managed. Deciding them is a good first step, then it is known what is managed – and after that a goal can be set.