Manufacturing Management Practices in the Western Balkans · PAGE 8 MANUFACTURING MANAGEMENT...

Manufacturing Management Practices in the Western BalkansA study supported by Festo Fellowship

Jelena Cerar, M.A. M.Sc.

Prof. Dr. Phillip C. Nell

Business Conference: Industry 4.0 Technologies & Projects Croatia

September 25th 2019, Zagreb

Management practices are situation generic, highly structured sets of activities that can betransferred across organizations and industries to help operations management personneladdress similar operational problems (Jinhui Wu et al., 2012).

Firms with strong managerial core practices perform significantly better in terms of productivityand profitability*:

Results hold for all companies independent of sector, profitability, past productivity growth andsize.

What are management practices and whyare they so important?

MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 2

*Bloom, N., Schweiger, H., Van Reenen, J. (2012). The land that manufacturing forgot? Management practices in transition countries, Economics of Transition 20(4), pp. 593-635

Cheap and relatively well-educated available labor force

Investors facing the challenge to improve management practices

FDI from Austria and Germany: persisting labor shortages at home and low labor costs inthe region

Multi-annual Action Plan (MAP) for a Regional Economic Area (2017): around half a millioncompanies for the potential further investment

Requirement for substantial improvements in productivity

Improvement of management practices as a solution?

Why Western Balkan countries?


We surveyed 385 plant managers from the region

We surveyed approximately 10% of manufacturing plants with 50+ employees in each country (277 plants in total)

We got additional answers of second plant manager in 108 plants

We travelled to all 4 countries and visited plants to recheck our data and get qualitative data to support our quantitative findings

We personally interviewed managers in 28 plants (10% of our surveyed sample)

We focused on 4 types of management practices:

MANUFACTURING MANAGEMENT PRACTICES IN WB6SLIDE 4

What did we do?

Modern operations Performance monitoring

Target settings Talent management

Our 4 key constructs are further divided into18 topics

Modern operationsIntroduction of modern manufacturing techniques

Rationale for this introduction

Performance monitoring

Process problem documentation

Performance tracking

Performance review

Performance dialogue

Target settings

Types of targets

Target interconnection

Target time horizon

Target stretching

Performance clarity

Talent management

Consequence management

Rewarding & promoting high performance

Removing poor performers

Attracting & retaining human capital

We surveyed ≈10% of manufacturing plantswith 50+ employees and different atributes


Sample size

Number of plants

Number of managers per surveyed plant

Plant attributes*

(Median value)

Number of employees

Plant age

Share of total population of manuf. firms with 50+ employees

53 7636

112

0

100

200

B&H Croatia N.Macedonia Serbia

11% 10% 9% 10% 10%

0%

10%

20%

B&H Croatia N.Macedonia Serbia Total

1,341,39 1,42 1,40 1,39

1,001,101,201,301,401,50


208 217170 162 190

0

200

400


24 2954

17 24

0

50

100

Croatia N.Macedonia Serbia Total Total

Findings


Management practices are similar in all 4 countries of the region


1,80 1,73

2,18

1,83

4,83

4,644,73

4,87

3,42 3,40

3,60 3,55

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

5,00

B&H Croatia North Macedonia Serbia

Minimum Maximum Average

Scores are similar across countries for all practices, and N. Macedonia is a talent leader


3,63 3,68 3,73 3,77

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0


Performance monitoring

3,67 3,61 3,583,78

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0


Modern operations

3,35 3,313,54 3,49

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0


Target setting

3,03 3,01

3,533,17

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0


Talent management

Our results are robust...


Interviews and self-managers’ scores

Correlation** 0.76

* More detailed results for all types of management practices are available in the Appendix on slides 42-44.**Strength of the relationship between the relative movements of the answers of raters (range between -1.0 and 1.0)

We checked survey scores by personallyinterviewing managers who completed oursurvey in 28 plants. Scores based on surveyswere then compared with scores given by theinterviewer. We found a hight correlation (0.76)between these scores.

We additionally checked the validity of managers‘answers by going through production facilityin 24 plants and looking at their processes.

In 108 cases where 2 managers from the same plant completed a survey we comparedfinal scores when using 3 different sub-samples for counting management score in these factories:

Sub-sample 1 – answers of less senior managers

Sub-sample 2– average answers of both managers

Sub-sample 3– answers of more senior managers

Our results are unchanged with all 3 sub-samples.

3,42 3,403,60 3,55

3,40 3,393,61 3,58

3,38 3,403,61 3,55

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

5,00


Sub-sample 1 Sub-sample 2 Sub-sample 3

... For different sub-samples, based on seniority of respondents

... And for a different survey method

Plants owned by foreign MNC are better run than domestic plants


MNC plants are 5-11% better managed than domestic plants (depending on the type of practice.

MNC plants are better run than domestic plants in all countries of the region.

3,95

3,88

3,64

3,30

3,69

3,52

3,58

3,28

3,13

3,38

1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0

OPERATIONS

PERFORMANCE MONITORING

TARGET SETTING

TALENT MANAGEMENT

TOTAL MNG SCORE

Domestic Foreign MNC

3,30 3,213,50 3,523,60 3,65

3,863,65

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

5,00

B&H Croatia North

Macedonia

Serbia

Domestic Foreign MNC

Our results are in line with porevious findingsfrom 33 countries around the world


*Bloom, N., Schweiger, H., Van Reenen, J. (2012). The land that manufacturing forgot? Management practices in transition countries, Economics ofTransition 20(4), pp. 593-635

**Graph from Management Matters Manufacturing 2014 report, available at: https://cdnstatic8.com/worldmanagementsurvey.org/wp-content/images/2015/06/Manufacturing-Report-2014-EUROPE-ENGLISH.pdf

Previous findings* from 33 countries aroundthe world, where MNC outperformeddomestic firms in all countries where surveywas made, as shown on the graph** on theleft side.

https://cdnstatic8.com/worldmanagementsurvey.org/wp-content/images/2015/06/Manufacturing-Report-2014-EUROPE-ENGLISH.pdf

There are significant variations in management scores across industries


*Basic metals and fabricated metal products, except machinery and equipment (n=35)**Textiles, apparel, leather and related products (n=22)***Other manufacturing, and repair and installation of machinery and equipment (n=10)

*Computer, electronic products and electrical equipment (n=18)**Rubber and plastics products, and other non-metallic mineral products (n=23)***Wood and paper products, and printing (n=20)

3,58

3,59

3,61

1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00

Wood and paper***

Rubber and plastics**

Computers and electronics*

Top 3 industries

TOTAL MNG SCORE

3,44

3,42

3,14

1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00

Other manufacturing***

Textiles and leather **

Basic metals and metal products*

Worst 3 industries

TOTAL MNG SCORE

Plants in computer and electronicindustries are the best run.

Plants in basic metals and metal products industries are the worst run.

Family and founder owned plants have thebest management practices


Family and founder owned plants haveslightly better management scorescompared to plants of other ownershiptypes.

This leading position is, however, muchstronger when it comes to talentmanagement practices.

*Other than founders, **Owned by government, private equity funds and managers of the firm

3,593,313,47

3,053,31

2,92

1,00

2,00

3,00

4,00

5,00

TOTAL MNG SCORE TALENT MANAGEMENT

Family and founder ownership (n=125)

Dispered shareholders (3+) and owned by private individuals* (n=128)

Others** (n=21)

Privatized plants still use some of formerstate-owned management practices


Privatized plants are on average 4%worse managed than privatelyestablished plants.

The highest difference (7%) betweenprivatized and not privatized plants ispresent in talent management.

3,80

3,73

3,46

3,24

3,56

3,66

3,69

3,37

3,01

3,43

0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 4,00

OPERATIONS


TARGET SETTING

TALENT MANAGEMENT

TOTAL MNG SCORE

Privatised (=104) Not privatised (n=174)

Plants owned by MNC from DACH* region have similar scores like average MNC owned plants


* Acronym used to represent the dominant states of the German language area – Germany (D for Deutschland), Austria (A) and Switzerland (CH for Confoederation Haelvetica)

3,94

3,87

3,63

3,28

3,68

3,97

3,90

3,59

3,27

3,69

1,00 1,50 2,00 2,50 3,00 3,50 4,00 4,50 5,00

OPERATIONS


TARGET SETTING

TALENT MANAGEMENT

TOTAL MNG SCORE

DACH plants Average foreign MNC plants

Out of 129 MNC plants, 48 were from theDACH region (12 Austrian, 29 Germany, 7Switzerland).

DACH plants have average MNCmanagement scores.

Among DACH plants from our sample, Swiss-owned plants had the highest scores andAustrian-owned the lowest scores, except inmodern operations.

Which MNC HQ resources improve the level of management practices in their production plants?



Which HQ resources improve the level of management practices in their subsidiaries?

+1 level in availability of written procedures and instructions from HQ* is associated withan increase in management practices scores of 0.27-0.35 on a 1-5 scale, depending on a typeof management practices.

We do not find any significant effect of the presence of international business travelers(expatriates, short-term assignees and business travelers) in the plant on the level ofmanagement practices in their subsidiary plants. This is also the case with trainings in HQ orother subsidiaries abroad.

*On a scale: not at all / only a few are available / high number is available, but not in all fields / high number is available in all fields / all procedures in all fields are available

Which external conditions prevents plants to improve their management practices and attract more investment?


Managers’ answers during personal interviews

* The following pages contain the attitudes of managers’ whose answers were involved in the study and do not express the attitudes of the Competence Center nor authors of the study.

• Emigration taking away highly-skilled workforce

• Inflexible labor law

• Education system: more qualified technicians (grade 5), qualifiedmanual workers and better dual education system.

• Need to promote school profiles for manual work and dual education

• Getting permits for the construction of plants and buildingsproblematic and slow, too much paper work is required and final decisionsare mainly politically driven.

• Inefficient administration and justice system are inefficient

• Too high payroll taxes

• The whole economy is vulnerable to EU business cycle.

• Management board of big companies dismisses workers as soon as thecrisis arrives


Croatia

Labor

Government, institutions and

politics

Taxes, contributionsand benefits

Others

Emigration taking away highly-skilled workforce

Lack of qualified manual workers and modern education system

Workers overprotected by Labor law

Inefficient public sector and local government

High bureaucracy

Large informal economy and work in grey sector

Too high payroll taxes


Summing up – all 4 countries are facing withsimilar issues

Labor

Government, institutions and

politics

Taxes, contributionsand benefits

Plants in all four countries are run at a similar level of management practices.

Plants in tech industries are the best run and the worst one are in metal industry.

Family and founder owned plants have slightly better management scores compared to plants of all other ownership types. This leading position is, however, much stronger when it comes to talent management practices.

Privatized plants still continue to use some of former state-owned management practices.

Foreign MNC plants are much better run than domestic plants.

Higher number of written procedures and instructions from HQ how to run a plant are associated with higher level of management practices. This is not the case with international business travelers sent from HQ, nor with trainings organized in HQ or other subsidiaries abroad.

Similar external issues are identified by managers in all 4 countries: emigration, grey economy, high payroll tax, strict labor law, inefficient public sector, lack of qualified manual workers.


Final conclusions

Competence Center for Emerging Markets and CEEWelthandelsplatz 1, 1020 Vienna

Jelena Cerar, M.A. M.Sc.T [email protected]

Prof. Dr. Phillip C. NellT +43-1-31336 [email protected]


mailto:[email protected]

mailto:[email protected]

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