Do Managers Matter? Management Practices in post-COVID Northern Ireland
Northern Ireland has a persistent productivity gap to the rest of the UK. Northern Ireland, as with the rest of the UK and Europe, also has a long tail of low productivity SMEs and micro businesses. An important contributor to a firm’s productivity is its management. Managers make decisions regarding the allocation of labour and capital that affect whether a firm is at or below its production possibility frontier.
In this study, we focus on the managerial practices of businesses in Northern Ireland. We explore the correlates of good management practices and examine the consequences of good management practices for firm performance, innovation, exporting intensity, and working from home. Our study is the first to conduct a large-scale survey of management practices in Northern Ireland. To allow comparability, this survey was largely based on the Management and Expectations Survey run by the Office for National Statistics. We included additional questions to capture the extent of government support received, digitalisation within the firm, leadership training for managers, and trading links. We received 272 responses, and our sample was representative of the population in terms of firm size and business sector.
The average management practices score for Northern Ireland in 2022 is higher than the average score for Great Britain in both 2016 and 2020. The Northern Ireland distribution is negatively skewed, with a long tail of less well-managed firms, similar to the previous distributions for Great Britain.
In terms of the determinants of good management practices, there are several key findings. First, the proportion of managers having taken a leadership course, and the proportion of highly qualified managers, are important determinants of high management practices score. Second, management practices scores increase with the size of the firm. Third, firms that generate a higher proportion of their turnover within Northern Ireland have a lower management practices score. Fourth, second-generation family-managed firms have lower management practices scores. Fifth, receiving government support and multinational status are not associated with a firm’s management practices score when other factors are controlled for.
Relative to the reference industry of Business services, no other industry had a higher management score. But after accounting for other firm-level characteristics, two industries had lower scores: Real estate and Manufacturing. There are differences in management practices scores across the 11 local government districts. However, these differences simply reflect differences in the characteristics of firms, rather than anything existing at local government level.
Our evidence suggests that management practices matter. Better managed firms perform better, are more likely to be exporters, and are more innovative as evidenced by their greater digitalisation. We also find tentative evidence that better managed firms are more likely to permit managers (but not non-managers) to work from home.
This report has several implications for both businesses and government. First, in the attempt to drive productivity, government policy increasingly focuses on innovation, and good management practices should be central to attempts to increase digitalisation and new technology adoption in businesses.
Second, the findings from this report reinforce the importance of a well-qualified workforce, specifically managers. Firms, government, and further and higher education institutes should be working together to identify the skills required to lead and manage in the twenty-first century economy. This will take time to bear fruit, but our findings also highlight the importance of leadership programmes to developing good management practices and more productive firms. Firms and government should therefore focus their attention on upskilling managers by putting them through appropriate leadership training.
Third, the findings in the report suggest where government should direct its resources to boost the management practices of firms. The characteristics of firms which are likely to have management practices further from best practice are small, second-generation family-managed, with less qualified managers, primarily selling to the domestic market. We find that two sectors have poorer management practices: real estate and manufacturing. Government policy should therefore target firms with these characteristics and in these sectors. Notably, our findings suggest that there is no local council area in Northern Ireland where management practices are worse, which suggests that instead of a place-based approach to management practices, policymakers should target policy interventions based on firm characteristics.
Recommendations for government
1. Improving management practices is a key element in supporting new technology adoption and greater digitalisation.
2. Enhancing the human capital of managers – through qualifications and leadership training – is key to better management practices.
3. Government policy should target improving management practices in firms which are small, second-generation family-managed, and selling to the domestic market.
Recommendations for business
1. The ability to adopt new technology and increase digitalisation is linked to a business’s management practices.
2. Adopting best practice in management requires investment in the human capital of managers, particularly regular leadership training.
3. Businesses with characteristics associated with poorer management practices should proactively seek opportunities to improve their managers.
Authors: David Jordan, Sweta Pramanick, John D. Turner (Queen’s University Belfast)