Better management practices make companies more productive

Increasing labour productivity is crucial for enhancing the quality of life in the Netherlands. In addition to macroeconomic efforts, also managers have a role to play in enhancing productivity of their organisations, argue Chief Economist Barbara Baarsma and Operational Excellence experts Henric van der Ent and Alexander Sendrowicz from PwC.

Previous blogs on this topic have discussed how the labour supply in the Netherlands is decreasing due to aging. With that, apart from immigration, there remains only one possibility to maintain growth and invest in future quality of life improvements: increasing labour productivity. 

This macroeconomic insight translates at the company level into a mandate for leaders to focus on improving labour productivity within their own organisation. In previous studies, we have explored how productivity growth can be achieved in public sector organisations, as well as in the construction and transport sectors. This can be done by modernising IT systems (digitalisation), smartly deploying technology (automation), and using an operating model that logically clusters tasks and activities, along with other strategies. Additionally, organisations can enhance their management practices: methods and techniques that managers use, to further increase the productivity of their teams.

Practical interventions in day-to-day operations

This involves practical, relatively simple measures and working methods to boost productivity in the day-to-day operations. Our approach is grounded in both scientific literature and the practical experience we have gained by implementing our methods worldwide in companies. Labour productivity is defined as the added value per hour worked. In other words, labour productivity increases when: 1) more added value is created, and 2) the time available for this is better utilized. We also emphasize 3) employee engagement, as both literature and our experience demonstrate that it significantly impacts productivity.

Whether it involves processing invoices, producing goods, or treating patients, actively managing these three determinants enhances an organisation's labour productivity. Let’s take a closer look at these three determinants.

1. Enhance added value through focused management

Managers are frequently too busy dealing with immediate issues. They often have little time to focus on the productivity of their team. It is crucial that both managers and team members have a clear understanding of what constitutes as a ‘good performance’ by themselves or their team, but also how productivity can be measured. With this knowledge, managers can provide regular and structured feedback, which helps in improving overall performance.

Create opportunities to adjust and enhance processes through daily huddles

A vital tool for team leaders to drive performance is a structured huddle (also known as daily standup). Next to feedback and workload management, huddles are also used to discuss the key performance indicators (KPIs) for each team member, which are linked to their goals and activities for the upcoming week. A visual management huddle board can help structure the discussion and provide visual information. Consequently, utilising daily huddles gives managers over 250 opportunities each year to manage workflows and refine processes within their team.

Set goals and monitor performance

The Perform approach, developed by PwC to enhance productivity in organisations, is based on scientific literature. It highlights that one of the key drivers of productivity at the corporate level is the quality of management practices. Nick Bloom and colleagues developed a method to measure this quality. They found that the quality of management practices is positively impacted by monitoring business performance and setting goals, thereby boosting productivity and business performance^1.

Applying this method revealed that in 2018, the quality of management in the United States, Germany, Sweden, Japan, and Canada was superior to that in the Netherlands. By adopting practices from these countries, not only is productivity per employee increased, but also profits rise. For instance, the higher management quality in Sweden is associated with a seven percent increase in profit per employee. Dutch companies have significant room for improvement in setting goals, as indicated by the 2018 research².

The effectiveness of setting goals is also evident from an analysis conducted by PwC involving over 12,000 employees at companies where Perform has been implemented³. Employees who set at least four work-related goals weekly were 34 percent more likely to achieve their productivity targets. 

2. Make better use of time

In a world filled with change and distractions, optimising time usage is often not only an individual challenge, but also of strategic importance for organisations. This requires conscious management of teams to use time more effectively and to develop initiatives that lead to more efficient time usage.

Prevent multitasking by limiting distractions

In the short term, it is crucial to avoid the pitfalls of multitasking, which often involves continuous distractions and task fragmentation. Scientific research has repeatedly shown that constantly switching between tasks can negatively affect productivity, especially when the tasks are complex or unfamiliar, resulting in significant time loss⁴. This emphasises the importance of focusing on one task at a time and creating a work environment where distractions, such as emails and incoming calls, are minimized. For example, one can do this by turning off email notifications and checking emails only at set times during the day⁵. Additionally, encouraging employees to complete a task in one session or in a few sessions, rather than dividing it into many fragmented pieces, can be beneficial.

Build a culture of continuous improvement

For the long run, it is important to invest time in a culture focused on continuous and collective learning and improvement, which also establishes a foundation for long-term competitive advantage⁶. Standardising work processes is an example of an improvement initiative that clearly contributes to higher productivity. This is because standardisation reduces complexity, improves quality, and increases transparency. Furthermore, standardisation better facilitates the monitoring of process-related KPIs⁷.

3. Increase employee engagement

In addition to focusing on added value and making more efficient use of time, engaging employees is a crucial determinant of labour productivity growth⁸. This third determinant is often overlooked. A meta-analysis, based on 456 studies that analysed the relationship between employee engagement and productivity, has shown that there is a positive correlation between employee engagement and productivity⁹.

Invest in coaching and development

This engagement increases by investing in coaching and development¹⁰. Research on management practices by Nick Bloom also indicates that HR management is essential for labour productivity growth. We recognise this in our own practice: providing systematic coaching, offering training, and encouraging employees to actively work on their own development, contribute to an organisation's productivity. 

Involve, acknowledge and celebrate

Managers can enhance employee engagement by involving them in adjustments to work agreements, granting them autonomy in their work, recognising and acknowledging their performance and efforts, and by celebrating successes¹¹. This could involve successfully addressing a recurring problem in the day-to-day operations or achieving a personal or team objective: valuable aspects which can be structurally promoted during daily huddles.

_{¹ Bloom, N., & Van Reenen, J. (2007). Measuring and Explaining Management Practices Across Firms and Countries. Quarterly Journal of Economics, 122(4), 1341-1408. 
² Dieteren, J., Groenewegen, J., Hardeman, S., Garretsen, H., Stoker, J., & de Haan, L. (2018). Managementkwaliteit in Nederland gemeten. ESB, Jaargang 103(4765)
³ This data was collected using our Perform Plus application, based on a sample of 12,000 employees in the United Kingdom. More information about the research can be found here: https://www.pwc.com/gx/en/issues/workforce/big-power-small-goals.html 
⁴ Rubinstein, J. S., Meyer, D. E. & Evans, J. E. (2001). Executive Control of Cognitive Processes in Task Switching. Journal of Experimental Psychology: Human Perception and Performance, 27, 763-797.  
⁵ Jackson, T., Dawson, R., & Wilson, D. (2001). The cost of email interruption. Journal of Systems and Information Technology, 5(1), 81-92.
⁶ Bessant, J., & Caffyn, S. (1997). High-Involvement Innovation Through Continuous Improvement. International Journal of Technology Management, 14. https://doi.org/10.1504/IJTM.1997.001705
⁷ Beimborn, D., Gleisner, F., Joachim, N., & Hackethal, A. (2009). The Role of Process Standardization in Achieving IT Business Value. 2009 42nd Hawaii International Conference on System Sciences. doi: 10.1109/HICSS.2009.453
⁸ Kompaso, S., & Sridevi, M. (2010). Employee Engagement: The Key to Improving Performance. International Journal of Business and Management, 5, 89. https://doi.org/10.5539/ijbm.v5n12p89
⁹ Harter, J. K., Tatel, C. E., Agrawal, S., Blue, A., Plowman, S. K., Asplund, J., Yu, S., & Kemp, A. (2024). The Relationship Between Engagement at Work and Organizational Outcomes. Q12® Meta-Analysis: 11th Edition.
¹⁰ Ibid
¹¹ Fisher, J. G. (2015). Strategic Reward and Recognition: Improving Employee Performance Through Non-Monetary Incentives. Kogan Page.}