In this blog, Jakob Schneebacher from the Office for National Statistics (ONS) discusses what the ONS Management and Expectations Survey (MES) can tell us about the current state of management practices in Great Britain. How has the use of structured management practices changed in recent years? What types of firms have improved the most? And how have better-managed firms fared in the pandemic?
In modern economies, especially service-heavy ones like the UK’s, “soft” or intangible assets are becoming more and more important. Alongside R&D, branding and digital technologies, this includes management practices and organisational capital – in other words, the ability to hire and motivate the right employees, identify market niches for the business, measure the progress the business makes and make timely changes when it does not.
But what do we really know about the use of management practices in Great Britain? What businesses use them? How have they changed over time? How are they related to business outcomes that businesses and policymakers care about, like revenue, innovation, or productivity? In order to find out, the Office for National Statistics (ONS) collaborated with academic partners in the Economic Statistics Centre of Excellence (ESCoE) to produce the Management and Expectations Survey (MES). The MES collects detailed information about firms’ management practices, expectations about the future, and other observable features of the business. The management practices questions cover employment practices, the use of targets, key performance indicators (KPIs) and processes to implement policies of continuous improvement.
Now in its second wave, MES 2020 received responses from roughly 12,000 British businesses. Some of these businesses already responded to MES 2016, allowing us to follow changes in management practices in the same firm over time. Others also answered other ONS business surveys, so that we can combine information on management practices with other actions and outcomes of the firms, such as whether they engage in R&D or broader innovation.
So what does the data we collected tell us? In our ONS article “Management practices in Great Britain, 2016-2020” we show that there has been an overall improvement in the adoption of structured management practices in Great Britain since 2016, driven mainly by increased adoption of structured management practices by a previously sizeable tail of small and medium enterprises (SMEs) with less structured management. In the article, we explore various aspects of the data to investigate if this improvement is real, and not due to differences in who responded to the 2016 and 2020 waves of the survey.
The data also allows us to provide a detailed picture of the variance across regions, industries, and types of firms. As we explain in the article, most of the variation in management practice scores across industries is driven by differences in the lower tails – well-managed firms look quite similar across industries. Overall, the size, human capital (as proxied by the share of employees with degrees or equivalent) and the age of a firm are the strongest predictors of management score: bigger firms, younger firms and firms with a more highly-educated workforce use more structured management practices. Region and industry play a relatively small part in explaining differences between firms.
In our companion article “Management practices, homeworking and productivity during the coronavirus (COVID-19) pandemic”, we investigate how firms with different management practices reacted to the sudden changes required as a result of the pandemic. Better managed firms were more likely to adopt homeworking practices and online sales. This holds even when we compare firms in the same industry and region, and with the same size and ownership structure. Interestingly, this difference only emerges in 2020, suggesting that the management practices measured in the MES are helpful in adapting to changing circumstances, and not necessarily related to homeworking and online sales specifically.
But even outside of the unusual year of 2020, structured management practices are correlated with positive business outcomes. In our article “Management practices and innovation, Great Britain: 2016” we combine data from MES 2016 with firm-level innovation and R&D data from the Business Research and Development (BERD) survey and the UK Innovation Survey (UKIS) of the same year. This is currently the last year for which we have data from all three surveys, though we hope to update the analysis with newer waves soon.
We find that management practices are correlated with R&D activity and innovation across all industries, and that this correlation does not diminish once we control for other observable characteristics of the firm. Better managed firms also invest more on average in R&D, rely more on private-sector funding and see higher labour productivity returns to their investments.
While these findings are based on correlations and cannot settle the question of whether management practices cause firms to have better innovation, adaptation and productivity outcomes, they nonetheless shed interesting new light on the business landscape in Great Britain.
The Management and Expectations Survey (MES) 2020 was developed in collaboration with the Economic Statistics Centre of Excellence (ESCoE). We gratefully acknowledge funding from ESRC grant ES/S012729/1.
More about the author
Jakob Schneebacher is an economist at the Office for National Statistics leading projects on business demography, productivity and management practices.