Economics of Human Resources

1. Economics of Human Resources Nick Bloom (Stanford Economics) Lecture 6: Management in schools, hospital & retail

2. To date focused on manufacturing, finding • Many firms are not adopting basic management practices • Particularly in family, founder or government firms • Particularly in low competition and/or regulated markets • These practices lead to improved performance in terms of profits, growth and stock-market value • So the scoring grid provides a benchmark for management practices, a potentially useful tool to drive change Today look at hospitals, schools and retail sectors

3. Management in hospitals Management in schools Management in retail 3

4. Huge spread in performance across hospitals - survival rates from heart attacks varying by 30% (Skinner & Staiger, 2009) Are these related to management practices? To check we surveyed ≈ 2000 hospitals across Europe and North America using same methodology as for manufacturing Can management explain differences in hospital performance?

5. MONITORING – e.g. performance review How do you review your departments performance? Tell me about a recent meeting. Who is involved in these meetings? Who gets to see the results. What is the follow-up plan? Can you tell me about the recent follow-up plan?

6. TARGETS – e.g. target stretch • How tough are your targets? Do you feel pushed by them?On average, how often would you expect to meet your targets?Do you feel that on targets all specialties, departments or staff groups receive the same degree of difficulty? Do you just follow government targets or do you develop those relevant to your own hospital?

7. INCENTIVES – e.g. removing poor performers • If you had a clinician or a nurse who could not do his job, what would you do? Could you give me a recent example? How long would underperformance be tolerated? Do some individuals always just manage to avoid being re-trained/fired?

8. The hospital scores show a correlation with better clinical performance US data

9. Better management also associated with lower surgical mortality & shorter wait times UK data Note: Each cell from a separate regression of performance on Management. Controls: casemix (22 condition-specific age-gender cells), area mortality rate, size, speciality, region, noise (e.g. Interviewer dummies).

10. The U.S. leads the ranking of hospital management followed by the U.K., while Italy and France lag behind Hospitals Management practice scores 10

11. 1.89 The cross country differences are particularly notable for people management Hospitals 11

12. There is a wide distribution of management scores within countries Hospitals 12

13. Hospital management scores are lower than manufacturing Hospitals Hospital average Manufacturing average

14. 2.55 Public ownership of hospitals appears to be one factor linked with poor management Hospitals (US data) Private Public Average management score 14

15. 2.55 Other factors include limited competition, unionization and regulation • Competition: in manufacturing badly managed firms exit the market, but this rarely happens in healthcare • Unionization: the public sector is much more heavily unionized than the private sector (e.g. 37.4% vs 7.2% in the US) • Regulation: pay, promotions and firing is heavily regulated in public sector hospitals (e.g. firing nurses is very tough) 15

16. My favorite quote: Don’t get sick in Britain Interviewer : “Do staff sometimes end up doing the wrong sort of work for their skills? NHS Manager: “You mean like doctors doing nurses jobs, and nurses doing porter jobs? Yeah, all the time. Last week, we had to get the healthier patients to push around the beds for the sicker patients”

17. Management in hospitals Management in schools Management practices in retail 17

18. Surveyed around 1500 schools across North America and Europe Like hospitals used same methodology as manufacturing Extending the management data to schools 18

19. Management practices in schools are also strongly correlated with performance Schools

20. The US does not lead the rankings of school management, but is behind the UK & Sweden Schools 20

21. There is a wide distribution of management scores within countries Schools 21

22. Relative management strengths are more balanced across countries in schools Schools 22

23. 2.55 Factors around ownership, competition, unionization and regulation appear to matter • Ownership: vast majority of schools in every developed country are publicly owned (about 95% in the US and UK) • Competition: schools rarely exit, and usually due to demographic reasons rather than poor performance • Unionization: teaching profession highly unionized • Regulation: in many countries teachers almost unsackable, for example the New Yorker article on the “rubber room” http://www.newyorker.com/reporting/2009/08/31/090831fa_fact_brill 23

24. Management in UK hospitals Management in schools Management practices in retail 24

25. Working with Toronto University – hence Canadian focus Surveyed 600 retail firms in Canada, US and the UK Again using virtually identical methodology as for manufacturing, hospitals and schools Extending the management research to retail 25

26. Retail scores basically same as manufacturing, but much higher than public sector Retail United States Overall management scores United States Canada United Kingdom UK Retail Note: Only compared on the same questions (so not lean questions 1 and 2)

27. Retail distribution shows wide variation much like manufacturing, schools and hospitals

28. Multinational retail chains are very well managed, especially the big US multinational retail chains Management score, by country Retail Multinationals chains Non-multinationals American multinationals are driving high multinational scores in Canada

29. Like manufacturing, founder and family run firms are also badly managed on average Management score, all countries Retail

30. Summary • Huge variation in management practices seems common to every sector we have studied to date • The very same practices around monitoring, targets and incentives always associated with superior performance • Demonstrates there are basic management best practices, with the grid identifying a core set of these