The potential of management in developing a company’s profitability is immense! A while back I calculated, that through the development of management companies could get 9,4 billion euros more operating profit. When all companies develop management to the level of the best one third, that is possible.
The calculation is based on a research published in January 2019, Henkilöstötuottavuuden johtaminen 2018, in Finnish (Human Productivity Management 2018). Its reports and results can be found here. In the research we (Ossi Aura, Guy Ahonen, Tomi Hussi and Juhani Ilmarinen) researched management practices and calculated the coverage of them based on the companies’ financial statements.
In the February of 2019 we published Johtaminen ja tuottavuus, in Finnish) (Management and Productivity) research paper in the Aalto University’s publication. The paper’s footnote of the headline tells a lot: managing personnel as a success factor. In that paper we analyzed 225 industrial companies’ management practices and financial statements between the years 2009-2016. The research results highlight the significance of the management’s decisions in raising profitability.
What do we recommend to a CEO?
In the industrial company research, we gave some recommendations based on the results. We, the recommenders who are two professors, Guy Ahonen and Timo Kuosmanen, and two PhDs, Ossi Aura and Juha Eskelinen. To CEOs, our recommendations are the following:
Based on the research results and our own experiences the recommendations may be made into a TOP-3 list to different stakeholders as follows:
Company management, especially the CEO
- Decide clear and measurable goals for improving staff capabilities.
- Decide responsibilities for developing capabilities in a process involving different people.
- Ensure that there are sufficient temporal and financial resources to improve staff capabilities.
The essence of the recommendation is to ensure the high quality of capabilities that are vital to a company.
1. Decide clear and measurable goals for improving staff capabilities.
In point one, we highlight the importance of deciding goals. Without clear goals the work is awkward and fumbling. A measurable goal means deciding on a goal and its indicator at the same time. If the goal is to improve personnel motivation, then at the same time the method of measuring personnel motivation should be decided. In our research series that began in 2009 we have always highlighted the importance of deciding goals. A known, clear goal boosts working.
2. Decide responsibilities for developing capabilities in a process involving different people.
As stated in point two, discussing the responsibility of the improvement of personnel capabilities is important, as without responsibilities goals will not be reached. In our researches we have surveyed the responsibilities that are given to the superiors. The portion of the companies that have made this decision has varied between 24-32% between the years, the focus group is companies that employ 20-1000 persons. Image 1 points out that superiors’ responsibility has also financial significance.
3. Ensure that there are sufficient temporal and financial resources to improve staff capabilities.
Resources are naturally an essential part of development. Our research series and the two aforementioned researches indicates that managing resources is more important than money. Good management and development bring results, but they cannot be achieved with only money. Of the superior’s resources we have surveyed capability, motivation and time. Usually that ‘time’ is critical – in 2018, only 19% of companies evaluated the superiors’ temporal resources as good or excellent. In the research the matter was surveyed from the point of personnel development.
What significance does a CEO’s decisions have?
As singular decisions the points 1-3 have great significance when it comes to profitability. Image 1 shows a conclusion of the results.
The image’s interpretation is clear: the management’s decisions are reflected on the operating profit by an amount of 2,0 - 3,5%. At a net revenue of 100 million euros the company that has made these decisions will make 2 – 3,5 million euros more in operating profit compared to a company that has not. At a net revenue of one billion euros the difference is 20 - 35 million euros – an incredibly significant sum.
At the end I would like to present the main goal of every managemental level.
Our strategical main goal is to improve human productivity by 15% – along with it our personnel will make all our business goals happen!
- Ossi Aura, 24.9.2020