SPIEGEL: You examined how important it is for productivity who runs a company. How exactly did you go about it?
Kamalini Ramdas: We focused on productivity because it’s easy to quantify. I’ve been researching the auto industry for a long time. We have at 66 car factories of several manufacturers – GM, ford, Chrysler, Toyota – looked at who directed them and how they performed over a period of 14 years. A lot of these factories are in small towns – when the manager changes there, the local newspaper reports. It was also a bit of detective work. We compared this data with the productivity data, for which there is a simple measurement in the automotive industry: the hpv, hours per vehicle. They are well documented on a weekly basis.
To person
Kamalini Ramdas teaches at the London Business School in the Department of Management Science and Operations and holds the Deloitte Chair in Innovation & Entrepreneurship.
SPIEGEL: Does that mean exactly?
Ramdas: The number of all paid working hours including paid breaks is divided by the number of vehicles that were manufactured during the measurement period. Of course, this value has fallen in the course of our investigation because processes are being further optimized. But there are surprisingly big differences not only between different manufacturers, but also between individual factories. And it plays a very important role who leads it. You can see that by tracing the paths of each manager and comparing how productivity changes when a particular manager takes over a different plant. We’ve examined many of these leadership changes and have been able to see exactly how productivity goes up or down depending on who came.
MIRROR: How big is the effect?
Ramdas: If we divide the managers we studied into four performance groups, there is a difference in productivity of about 30 percent between a company employing someone from the top quartile and one from the bottom quartile. In other words, if you get a better woman or man at the top, it takes almost a third less time to make a car. This is a surprisingly high value. Also, we could clearly see in the data that apart from productivity, variability in production is also influenced by the manager. Less variability can indicate better processes: changing quality, supply bottlenecks and days off drive the number up. Factory managers have a number of tools they can use to respond to the needs of the business: overtime, more shifts, the speed of the assembly line. Anyone who masters these instruments well can react better to new requirements.
The study
The study “Leadership and Productivity: A Study of US Automobile Assembly Plants” was conducted by Soledad Giardili (University of Edinburgh), Kamalini Ramdas and Jonathan W. Williams (University of North Carolina at Chapel Hill) and published this year. For this purpose, 66 US automobile factories were examined and the career paths of 115 managers followed, some of whom had managed several of the factories during their careers. Factories’ productivity depended heavily on whether a new model was being built there. That reduced the productivity value by an average of 22 percent – but so did who ran the plant: Experienced and successful managers were able to reduce the time required for assembly by almost a third.
SPIEGEL: Can that be transferred to other sectors?
Ramdas: We’ve looked at this in the auto industry, but our approach would work for just about any industry — in retail, you can measure sales and see the difference it makes who runs the store. The effect is far greater than that brought about by a change at the top of the company. There is always a lot of talk about the bosses of the companies. It’s easy to lose sight of the tremendous effect that middle and lower management levels have.
SPIEGEL: What did the best do better than the bottom quarter?
Ramdas: Of course we also spoke to many of the managers. We have heard time and again that two things are crucial: Firstly, how you communicate – and secondly, whether you manage to establish a personal connection with the employees. Do you not only see them as people who stand on the assembly line and are supposed to create something, but also know: He just got married, there was a death in their family, someone has become a mother here. Such things are important. A manager told me: The biggest problem is malicious obedience.
MIRROR: What is that?
Ramdas: You go to the production line and you slap an employee for screwing something up – he might listen to you calmly and do what you say. But maybe he’ll go from turning ten turns on the wrench to eight because he has a grudge against you. And if something like this happens more often, you get a quality problem that is difficult to locate and solve. Interestingly, I heard another piece of advice: You also have to know when to get loud.
MIRROR: Excuse me?
Ramdas: I found that strange too. I definitely don’t think it’s okay to yell at employees. But maybe it’s more about the fact that at some point you have to show your colors and say what you stand for and what you don’t think is right. But what makes more sense is that in order for it to be successful, you have to explain to people the why of every measure, as several of the top performers have told us.
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SPIEGEL: Do you have an example?
Ramdas: One of the managers was faced with the challenge of having to implement stricter measures against absenteeism; they should be recorded in more detail. This did not go down well with the staff. But the manager managed to communicate this well because he was genuinely concerned that the location would end up on the list of those who might want to close and he wanted to avoid that. So he got his people on board. At its core, it is always about good communication.
SPIEGEL: What can companies learn from your research? It’s obvious that you’re trying to get good people.
Ramdas: Perhaps they should realize how much of the company’s success is determined by these middle management positions. We read a lot about CEO salaries, some of which reach absurd levels. By squeezing some of that money to get and keep the really good people at the manager level or, in the case of retail, the store manager level, the company gains more. The value of staying on board can also be measured: For every year in which management did not change, factory productivity increased by an average of 1.6 percent.
“For every year that management did not change, factory productivity increased by an average of 1.6 percent.”
SPIEGEL: Experience is an enormously important factor in a manager’s success. Does age matter?
Ramdas: The respective age has no significant effect. It’s more about special knowledge. Anyone who is already familiar with a specific car model knows which predetermined breaking points there are during its production. A new product launch is always associated with a massive drop in productivity in the industry. Some companies do it faster than others; but what really makes a difference is whether the manager already knows the product. And also whether he has experience with other products previously made at the factory. We calculated this using an example: A factory switched its production from large SUVs to a smaller, fuel-efficient model. If she had hired the manager for this or recruited the most experienced person from her own ranks who already knew the model, she could have lowered the hpv value by 25 minutes. It could easily have saved three or four million dollars in the first few years. And that in just one factory!
“It’s good to tell employees which mountain to climb, but most of the time it’s best for them to choose the route themselves.”
SPIEGEL: What did the worse-performing managers do wrong?
Ramdas: That’s hard to pinpoint. A lot of knowledge is always lost with a change. It would be important for companies to keep this loss low and to establish a culture of exchange. Just getting people talking to each other so they can consult with each other about what to do and how. Not only the low performers could benefit from this, but everyone involved. A bad pattern we’ve seen a lot is micromanagement. It’s good to tell employees which mountain to climb, but most of the time it’s best for them to choose the route themselves. The second point is trust. And not only trust in your employees, but also their trust in you. It’s very simple: if you promise to do something, then do it. If you don’t, your people will remember and you’ll have a much harder time motivating them to do anything.