ROI of Effective Managers

Dilbert and Pointy-Haired Boss

Dilbert and Pointy-Haired Boss

Inept managers cause stress, cynical posting of Dilbert cartoons, and foment incredulous recounting of unparalleled cluelessness.
However, the all-too-rare effective manager delivers a creditable Return on Investment.

Edward Lazear

Edward Lazear

Stanford’s Edward Lazear and Kathryn Shaw collaborated with Christopher Stanton, now of of University of Utah to study the impact of nearly 2000 supervisors on more than 23,000 employees’ output productivity in a large  services firm.

Kathryn Shaw

Kathryn Shaw

They found that although there is substantial variation in managerial quality, as measured by their effect on worker productivity, the skillful managers in this workplace improved productivity by 10 percent.

Christopher Stanton

Christopher Stanton

Lazear, Shaw and Stanton demonstrated that replacing managers rated in the lower 10% of boss quality by employee output with managers in the upper 10%, the resulting increase in team total output is about the same amount as adding one worker to a nine member team.

In addition, effective managers are associated with increased productivity among both top-rated workers and the lowest-performing workers, with greater performance increases among the firm‘s top performers.

The researchers noted that employees’ peers had negligible impact on productivity measures, so they concluded that productivity increases are significantly influenced by managerial behaviors.

These findings point to the importance of hiring skilled managers and improving or removing unskilled managers to drive productivity and associated profit.

As a result, pre-employment assessment and managerial training industries are required to demonstrate efficacy in selecting already-skilled managers, and transforming less-skilled managers into top performing supervisors.

Some argue that developing managerial skill is a long-term behavior change because many of the interpersonal behaviors of effective managers have long-standing characterological roots.

For example, Lazear reported that the best managers in this large sample demonstrated humility and a sense of humor in their efforts to teach and motivate employees.
These attitudes develop over years, and may not be amenable to short-term training interventions.

Randy Hodson

Randy Hodson

Randy Hodson of Ohio State University conducted an ethnographic study of “worker citizenship behavior”, including level of work effort, absenteeism, and employee engagement.

He found “manager citizenship behavior” has the greatest impact on employee engagement, work effort, and employee’s related productivity.
These management behaviors include:

  • Leadership practices
  • Communication style
  • Commitment to worker job security
  • Providing appropriate work supplies and tools to achieve workers’ output requirements
  • Absence of “management abuse.”

Managers who respected worker rights and maintained an effective, productive environment for workers  had workers who invested more efforts in work and achieved greater productivity, besides having a better relationship with each other and with bosses.

Watson Wyatt TowersWatson Wyatt’s WorkUSA 2009 survey of 13,000 full-time U.S. workers across all job levels and in all major industries that organizations with highly engaged employees had:

The report found waning employee engagement over job tenure:  Employee engagement is highest in the first six months on the job, and is more than 11 percent higher during that “honeymoon period” than for longer-tenure employees.
Employee engagement drops nine percent after the first six months on the job, and continues to decline.

Watson Wyatt’s regression analysis of these data found that this 11% decline in employee engagement has the same expected impact on employee productivity as a decline of assets per employee of nearly 0.6 percent.

To offset the impact on productivity, a typical firm would need to invest more than $2,700 per employee.

A similar regression analysis controlled for industry, firm size and capital intensity and estimated that 11% decline in engagement is associated with a 1.7 percent reduction in market value.
For the typical S&P 500 firm, this decreased expected market value could be $216 million, suggesting that managerial behavior is a critical determinant of productivity and ultimate market value.

The challenge for top management is to evaluate sustained improvement in managerial behavior attributable to managerial learning and development interventions, to ensure Return on Investment for managerial development.

-*What managerial attitudes and behaviors have you seen increase employee productivity?

Related Post

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©Kathryn Welds

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