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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?
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 3
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 6
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
B&H Croatia N.Macedonia Serbia Total
208 217170 162 190
0
200
400
B&H Croatia N.Macedonia Serbia Total
24 2954
17 24
0
50
100
Croatia N.Macedonia Serbia Total Total
Findings
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 7
Management practices are similar in all 4 countries of the region
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 8
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 9
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
B&H Croatia North Macedonia Serbia
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
B&H Croatia North Macedonia Serbia
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
B&H Croatia North Macedonia Serbia
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
B&H Croatia North Macedonia Serbia
Talent management
Our results are robust...
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 10
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
B&H Croatia North Macedonia Serbia
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 11
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 12
*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.
There are significant variations in management scores across industries
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 13
*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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 14
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 15
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
PERFORMANCE MONITORING
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 16
* 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
PERFORMANCE MONITORING
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?
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 17
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 18
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?
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 19
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 20
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
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 21
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.
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 22
Final conclusions
Competence Center for Emerging Markets and CEEWelthandelsplatz 1, 1020 Vienna
Jelena Cerar, M.A. M.Sc.T +43-1-31336-5285jelena.cerar@wu.ac.at
Prof. Dr. Phillip C. NellT +43-1-31336 4535phillip.nell@wu.ac.at
MANUFACTURING MANAGEMENT PRACTICES IN WB6PAGE 23
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