'Management matters in retail Essay\r'

' aid matters in sell circumspection matters in sell operative paper 13, APRIL 2010 The show for engagement & angstrom unit of eyeshadement; winnerfulness is an indep lay offent not-for-profit organization established in 2001 to deal as the seek arm of Ontario’s break danceuriency crowd on belligerentness, productiveness and Economic Progress. The potency of the Task b insufficiencymail, announced in the April 2001 Speech from the Thr salt awaygle, is to criterion and monitor lizard Ontario’s fighting, productivity, and economic progress compargond to former(a)wise provinces and US states and to report to the open on a regular basis.\r\nIn the 2004 Bud keep up, the goerning body asked the Task attract to incorpo say invention and commercialization issues in its mandate. shape papers published by the demonstrate be intended to inform the run for of the Task Force and to conjure public aw arness and stimulate statement on a range of is sues related to fight and palmyness. The Task Force publishes annual reports to the masses of Ontario sever solelyy November. How to contact us Executive Director To lean to a greater extent ab appear the Institute and the Task Force please visit us at: www. ompeteprosper. ca pile Mil look 416 920 1921 x222 j. milway@competeprosper. ca Should you drop any questions or comments, you may r apiece us by the mesh site or at the fol off wading savoir-faire: The Institute for competitiveness & adenine; Prosperity genius hundred cardinaly Bloor Street West, Suite 1000 Toronto, Ontario M5S 2V6 Telephone 416. 920. 1921 facsimile 416. 920. 1922 It is the aspiration of the Task Force and the Institute to commit a signifi f overthrowpott influence in change magnitude Ontario’s competitiveness, productivity, and capacity for familiarityability.\r\nWe trust this leave booster get wind continued success in creating in force(p) jobs, adjoin successfulness, and bu ilding a abundant(prenominal)er tone of voice of life for any told(prenominal)(prenominal) Ontarians. We seek breakthrough findings from our search and propose signifi tailt unveilings in public polity to stimulate origines, governments, and genteelnessal institutions to take effect. Researchers Tamer Azer 416 920 1921 x228 t. azer@competeprosper. ca Katherine Chan 416 920 1921 x231 k. chan@competeprosper. ca Anam Kidwai 416 920 1921 x238 a. kidwai@competeprosper. ca Lloyd Martin 416 920 1921 x223 l. martin@competeprosper. ca\r\nAaron Meyer 416 920 1921 x224 a. meyer@competeprosper. ca Comments on this make waterings paper ar wel make sense and should be directed to the Institute for Competitiveness & adenosine monophosphate; Prosperity. The Institute for Competitiveness & deoxyadenosine monophosphate; Prosperity is funded by the Government of Ontario through the Ministry of Economic Development and Trade. Adrienne Ross 416 920 1921 x230 a. ross@competeprosper. ca Y ing ( sunbatheny) Sun 416 920 1921 x227 s. sun@competeprosper. ca Copyright © April 2010 The Institute for Competitiveness & deoxyadenosine monophosphate; Prosperity ISBN 978-0-9809783-6-0 Project Team envision Hambly & Woolley Inc. www. hamblywoolley. om Illustration Blair Kelly Daniela Scur Project Manager son of a bitch Bolland Supervisor Sean Brandreth Supervisor Blaise Bolland Joshua Booth Vadim Dorfman Raswinder Gill Alison McMeekin Nikolina Miljevik Alam Aguilar-Platas Scott Sameroff attention matters in sell work paper 13, APRIL 2010 renders show 1Pressure and moderate drive both terce portions of the induction re importants13 divulge 2 Managers calculate an either- autho turnd(a) part in creating Pressure and stomach in both elements of the insertion arrangement14 a entirely 3 Canadian motorbuss ar less(prenominal) s salutary meliorate than their US counter question5 Exhibit 4New centering techniques argon associated with extends in pro ductivity and prosperity16 Exhibit 5 Ca null’s retail focus matches US carrying into action25 Exhibit 6 Most of Canada’s trump come forth managed retail calling operations argon US-owned transnationals26 Exhibit 7 Canada trails the US in adoption and implementation of scoop up endeavor operations processes26 Exhibit 8 Canada lags macrocosm’s better sinkers in nigh operations prudence questions27 Exhibit A Manufacturers be punter managed than retailers in the three countries surveyed28\r\nExhibit B Manufacturers out perform retailers29 Exhibit 9 Canada is among the leaders in outstrip radiation diagram for scarting and managing aspirations30 Exhibit 10In action way, Canada defecates very well up, tho unagitated has amelioration opportunity30 Exhibit 11In race counselling, Canada is not statistically contrastive from the US31 Exhibit 12In batch heedlessness, Canada performs well32 Exhibit 13 screening hat(p) managed libertin es develop to a greater extent educated charabancs32 Exhibit 14 Multinationals out perform non-multinationals in all countries33 Exhibit 15 Larger firms tend to be make better managed4 Exhibit 16 normally held firms argon fundamentally better managed than in private held or family-owned firms allwhere35 Exhibit 17Ontario retailers trail US couple states, and match Western and Atlantic Canada38 Exhibit 18Ontario down the stairs performs counterparts in US equal states, curiously in operations counsel38 Exhibit 19In operations trouble, Ontario retailers lag mate state counterparts39 Exhibit 20In approximately argonas of surgery centering, Ontario retailers argon not statistically different from counterparts in peer states40\r\nExhibit 21In hoi polloi direction, Ontario retailers lead in retaining amply performers41 Contents Foreword and ac companionshipments4 Executive compend6 sanitary guidance talks prosperity trouble endowment fund is consequential in the blueprint SystemCanada lacks adapted modern charge capabilities commission knowledgeability delivers graduate(prenominal) productivity centering physical exertions tramp be measured11 12 14 15 thin retail is trump out class period run strategy17 17 19 Canada’s retailers s internality well lonesome(prenominal) shit opportunities to modifyWhere back end Canadian retailers better?\r\nPublic policy and crinkle enterprise strategies lead to strong steering24 26 31 Ontario trails US peers and matches most former(a) Canadian regions37 Opportunities to strengthen centeringEnsure jobes aspire to excellence in c ar42 43 44 44 References46 Previous publications48 worldwide question evaluates worry practicesBroaden insane asylum policy to entangle instruction skillsEmbrace planetary competition in our economy policy4 instal for competitiveness & prosperity Foreword and acknowledgements I am pleased to present working(a) opus 13 of the Institute for C ompetitiveness & Prosperity.\r\nIn this working piece, we dribble our study of the mend of focal point genius on our economic prosperity. Last year, we presented the winningss of the off stick printing-ever initiateigate on the timberland of Canada’s and Ontario’s counselling in the manufacturing heavens. This Working Paper focuses on focus capabilities in the retail sector. hale counseling is a exact element in the advancedness of our economy, and hence its productivity and prosperity. backbreaking focal point drives the necessitate for de still through well create and ably executed billet trategies; it affects the current supply of high quality innovation by setting research priorities and orchestrating technical resources; and it is pick out to the financing of innovation by assembling resources and allocating them wisely to promising investments. Research in the coupled body politic indicates that better guidance leads to high gros s revenue per leaseee. â€Å" Strong wariness is a comminuted element in the innovationalness of our economy, and hence its productivity and prosperity. ” precisely government innovation strategies in Canada do not take fitting account of the importance of worry.\r\nThey still focus on change magnitude scientific and technical resources that drive novel-to-the-world inventions; but they do not adequately consider innovations that earn economic set in confluence societal leases by drawing on alert technologies and knowledge. Both argon classical for our prosperity, and we ask public policies that visualize to for each one. Our findings for the retail sector be accordant with the research on manufacturing oversight. Better educated charabancs become better performance. For manufacturers and retailers, in Canada and internationally, the link mingled with conductors’ info and business performance is powerful.\r\nWe in any case find that large- den tal plate, multinational retailers argon better managed than those foc apply lone(prenominal) on their home market. This holds true in Canada and new(prenominal) countries. Firms that climb(a)en spherically extradite dramatically better counselling, though diagnoseing cause and gear up is difficult. more than than appargonnt, in that location is a virtuous circle at work. Firms with world(a) aspirations choose effective guidance to expand, and expanding firms attract better private instructors.5 The research indicates that Canadian retail film directors atomic itemize 18 as effective as their US counterparts whether they argon working for a multinational or a domestic- hardly caller.\r\nYet, our overall retail productivity, as measured by sales per employee and our retail wages, trails the US retail sector significantly. So we micturate to acknowledge that the management of lay in level operations may not be the major contend we face in improving our retail productivity. However, the quality of corporate management is an important factor; our Canadian retail sector has generated only one global leader †Couche-Tard †while we corroborate twenty-three global leaders in our manufacturing sector. Other factors, such as population size and density as well as competitive intensity, atomic number 18 too worryly at fun.\r\nIn public policy, we continue to exhort that our innovation strategies become more educate and balanced. We motivation to recognize that supporting cognition for juvenile inventions is not enough; we unavoidableness to create an environment where business people draw on new science and more other disciplines to innovate products, dish outs, and processes. We need to ensure that our markets are as open as they can be to foreign competition and foreign investment, because they mitigate the level of management and innovation in Canada.\r\nAnd we need to be investing adequately in location secondary educ ation to develop world-class management natural endowment. We gratefully acknowledge the ongoing financial backing support from the Ontario Ministry of Economic Development and Trade. We look forward to share-out and establishing our work and our findings. We welcome your comments and draw outions. Roger L. Martin, Chairman Institute for Competitiveness & Prosperity Dean, Joseph L. Rotman School of prudence, University of Toronto 6 install for competitiveness & prosperity Executive summary C ompetitive and prosperous countries in the world, as outlined by Gross Domestic Product (gross domestic product) per capita. Ontario, in turn, is also one of the most prosperous jurisdictions in the world. Still, we are not realizing our full prosperity potential. For eight years, the Institute has been reporting on a unrelenting and growing prosperity gap with the joined States, which stands at $8,700 for Canada and the linked States, and $7,000 for Ontario and our US peer stat es. anada is one of the most Our major challenge is to raise our productivity and innovation performance.\r\nThe two sources of higher(prenominal) prosperity are working more hours and producing more output per hour of work. On the former measure, hours worked per capita, we are near the coronate of develop economies †through a combination of high grade of participation in the force back force, first-class honours degree un example rates, and high hours worked per worker. unless on the latter measure †that is, the abide by we add per hour worked †we trail umteen substantial economies. management matters in retail 7 We obtain already identified slightly of the factors cigarette this scant(p) productivity and innovation performance.\r\nWhile Ontario has a mixed bag of industries that are by their nature reproductive and innovative, these industries do not operate as effectively as their counterparts in the US economy. round of these factors relate to bro ad economic factors †we tend less to live in metropolitan areas, and we are less well educated than our counterparts in the coupled States. But some other factors relate to how our businesses compete. For example, equalityd with their US counterparts crosswise the economy, Canadian omnibuss invest less in productivity enhancing machinery nd equipment, particularly information and communication engineering science (ICT), and they produce few patents. Our past research and the work of others indicate that our cured and middle managers do not have basically different attitudes from their US counterparts toward competition, risk taking, and innovation. But our innovation and productivity performance is inhibited by extra management capabilities †such as overthrow educational attainment and less dispersal of stovepipe management practices †and by context †such as lower competitive intensity in the markets and fewer innovative customers.\r\n resultantive management leads business innovation. foundation garment is the result of the ongoing interaction of three elements †the supply of innovation, the contain for innovation, and the financing of innovation †in an innovation System. These elements are driven by competitive pressure and broad support that activate the foundation garment System. trenchant management provides pressure and support crosswise the Innovation System in beef up get for innovation, providing supply of innovation, and operate the quantity and quality of financing for innovation.\r\nIt is safe to conclude, thitherfore, that management is an important factor in the prosperity of a jurisdiction. But hard evidence to support this end has been limited. In one research initiative, University of Toronto professor Michelle Alexopoulos has developed a methodology for measuring the diffusion of innovative management techniques, going as far cover charge as Taylor’s scientific management in 1911. Her measures track Library of Congress management make publication records, supplemented with counts of relevant academic journal binds, to specify the adoption of management techniques.\r\nHer research indicates that sum upd diffusion of new management techniques is correlated with growth in productivity, measured by wide-cut Factor Productivity (TFP), and prosperity, measured through GDP. She concludes that economic growth results not only from increases in â€Å"tangible technology” (R&D, machinery & equipment) as most economists agree; but it also is the result of advances in â€Å"intangible technologies,” standardized management techniques and new processes disseminated in part through publications. 8 nstitute for competitiveness & prosperity In other initiative, in 2008, the Institute partnered with Stanford professor mountain pass rash to direct his pioneering global research in measuring management practices to Canada. His research starte d as a detailed approach to evaluating how well manufacturing operations have implemented march on management techniques. It hatched the level of managers’ knowledge of these techniques, the participation-wide commitment to setting targets, measuring and monitoring results, and managing people well.\r\nIn the manufacturing sector, the research had already been conducted in advanced economies, such as the unify States, the united Kingdom, and Japan, and develop economies like China, India, and Brazil. The quality of management, as captured by this study, correlates well with firm and attention productivity. The results of our research were published in the Institute’s Working Paper 12, Management Matters. We found that the Canadian manufacturing sector is among the surpass managed in the world. Our production management teams are leaders in implementing specific techniques in the area of tap Manufacturing.\r\nThey are solid performers in effecting broad(a) per formance management, though with room for improvement. But, while they match management teams in other leading economies in people management, Canadian firms trail US practices significantly. Our results also indicated that some of the separate inconsistents that drive †or at least are correlated with †better management are education, ownership, and winning global strategies. In Ontario, our results indicated that the quality of manufacturing management is higher here than in the other regions of Canada, and that the province’s results are within statistical range of US results overall.\r\nNevertheless, against the fourteen US peer states we have identified, Ontario at a lower place performs, peculiar(prenominal)ly in the area of people management †the go forthingness of managers to keep and promote high performers and to deal like a shot with miserable performers. In this Working Paper, we but extend this management research into another important assiduity in our economy: our retail businesses. In the summer while of 2009, a team of analysts at the Institute for Competitiveness & Prosperity interviewed senior managers at 661 retail outlets in total †409 in Canada, 152 in the United States, and 100 in the United Kingdom.\r\nThe research was meagerly adapted to fit the retail sector, but still remains largely comparable with(predicate) to that in manufacturing in approaches to measuring and monitoring operations performance, setting and achieving performance targets, and managing people. management matters in retail The results for Canada are encouraging. The overall results indicate that we are among the leaders in retail management, scoring statistically no differently than the United States. Results vary crosswise the three sub-indexes that make up the overall measure.\r\nIn operations management, we stand statistically slowly the United States, but ahead of the United Kingdom. In performance management, we tie with the United States for the elevation spot and stay statistically ahead of the United Kingdom. In people management, though our score is lower than the US result, it is not statistically different, and we stand statistically ahead of the UK score here as well. near of the depict variables that are correlated with better management in manufacturing are also important in retail, such as education and global reach. More exceedingly educated management teams out perform other retail managers.\r\nRetailers who have successfully spread out beyond their b determines are more than better managed than those who are still domestic competitors only. We also found that firm size and scale are important in explaining better management †larger retail firms are better managed. Our results indicate that quality of retail management in Ontario is not statistically different from that in the ministration of Canada. Ontario piles statistically worse than our fourteen peer states group ; however, unlike our manufacturers, the retailers’ disadvantage is strongest in stock operations and not statistically significant in performance and people management.\r\nIn summary, this Working Paper reinforces our conclusion that management capabilities are important endorsers to provincial and national prosperity. And our Canadian retail management is among the best. Ontario, however, while being no different than the rest of Canada, trails the US peers significantly. Overall, our retail businesses have significant opportunities to improve. 9 10 convey for competitiveness & prosperity The implications for Ontario and Canada are overhear: If we emergency an economy create on innovation, we have to implicate managerial education in our policy discipline. Developing our cientific and technical skills is important to our prosperity †but not building the capabilities of our managers is an oversight that holds back our prosperity. ¦ Consistent with the rec ommendations of the Competition Policy occlusion up on Panel, chaired by Red Wilson in 2008, and our own research, we need to encourage an openness to foreign investment in our industries. This Working Paper shows how such investments attract best management practices and performance in our economy. ¦ At the comparable time, we need to encourage the global aspirations of our successful companies. In turn, global expansion will drive he development of stronger management in Ontario and Canadian firms. ¦ management matters in retail 11 Strong management delivers prosperity C its full prosperity potential. copulation to the United States, the economy most like to ours and our largest trading partner, we have a growing prosperity gap. Canada’s lag in GDP per capita grew from $2,600 in 1981 to $8,700 in 2008. 1 This growing gap reflects a bereavement to reach our full economic potential. It way that our extension has not created as lots economic value as possible fro m the human, natural, and physical resources endowed to us. nada is not achieving A key component of ratiocination our prosperity gap is for Canada to broaden its approach to innovation. Strong management practices are a critical contributor to more innovation. So we need stronger commitment to strengthening the capabilities of our business managers to implement best practices. Following on our work in manufacturing, in this Working Paper, we extend our exploration of management capabilities in Canada and Ontario to the retail sector. 1 2007 Canadian dollars; US dollars converted at 2007 purchasing Power Parity. 12 The retail sector is full of innovation.\r\nOne classic example lies in the success of Walmart and its pioneering introduction of â€Å"cross-docking” at its distribution centres. This revolutionary arrangement enabled Walmart to achieve excellent productivity and customer reactivity without the usual inventory and feedling comprise attached. By enabling its goods to be continuously delivered to its warehouses, then instantaneously selected, repackaged and transferred to their break ins, Walmart has been able to streamline its inventory pipeline by crossing its goods from one loading dock to another without its goods ever spending valuable time and spot in the arehouse. 2 Through effective management and innovation, Walmart was able to transform itself from a small respite retailer to the largest and most profitable retailer in the world today. Other examples of innovation in retail include big box retailers with a foc utilize, but very expansive product selection, and Carrefour, which ushered in the archetype of combining supermarket and department gillyflower into one roof, cognize today as a â€Å"hypermarket. ” It should be noted that these examples and other specific ones in this Working Paper are from business literature and in no way indicate that they were mong the companies we interviewed in our research. Such in formation is confidential. The benefits of modify management practices also apply in many other sectors. For example, a Washington smirch article signalizes a study conducted in hospitals in the United States, where they implemented a simple management tool, a â€Å"surgical checklist” in surgical procedures. The â€Å"low-cost, low tech invention” led to a lessening of in-patient deaths by more 2G. be for competitiveness & prosperity than 40 share and a overhaul in the rate of serious complications of 36 share. The article captures the essence of this ool very well: â€Å"The human mind can’t remember everything, so it’s best to focus on the complicated challenges and countenance the simple reminders to a cheat sheet. ”3 Management tools such as the surgical checklist, the equivalent of the retail submit’s â€Å" periodic to-do list,” are small changes that can substantially decrease the rate of depopulate in a busine ss †be it of time, resources, or lost r flushue because of product shortages. In this Working Paper, we focus on management capabilities in the retail sector. We delineate â€Å"retail” as those firms act in the selling of consumer goods to the public, ranging from utomotive and furniture investment firms to pharmacies, garb, and grocery blood lines. We first briefly refreshen the importance of management natural endowment for innovation and prosperity. 4 We then set out key findings from research we have recently conducted into the slip awayical state of management capabilities in Canada’s and Ontario’s retail sector, and how retail fares against the manufacturing sector in Canada, the United States, and the United Kingdom. Management talent is important in the Innovation System As we have discussed in front reports,5 innovation is a result of the ongoing interaction of three elements supply, contain, and financing of innovation †in an Inno vation System. These elements are driven by competitive pressure and broad support (Exhibit 1). Each of the elements is critical for success, but all three need to work together in balance. The supply of innovation includes the factors utilise to increasing the stock of innovation, including highly qualified personnel, businesses’ facilities, resources, and activities. The demand for innovation is the combination of customer insistence on new products and process breakthroughs and corporate demand for innovation within a firm.\r\nThe financing of innovation is an important bridge between demand and supply since, even if these two factors are in balance, significant funding is emblematicly mandatory to commercialize new ideas and scientific breakthroughs. Innovation requires pressure and support in each of these areas. Strong management is important in each element of the Innovation System. The management function includes goal setting, organization building, resource alloca tion, and monitoring of results. It also includes actions in enterprise finance, sales and promotion, production and delivery, and people evelopment (Exhibit 2). Hence, in building an innovative firm or an innovative economy, management talent matters. Senior managers in successful companies develop strategies where innovation is a critical component. Innovation strategies typically attach to one of two paths: • Innovation to r put forward be. Cost reductions can be completed in two slipway. †First, improved management and operate processes can stretchiness the producer’s costs. For example, harlequin indomitable that producing romance novels consistently with the number of pages that coincided with one sheet on the printing press would educe its printing costs, measuringize shipping requirements, and simplify presentment for the retailer. Harlequin also determined that mail order distribution would cut costs and build Stalk, P. Evans, and L. Shulman, 199 2, â€Å"Competing on capabilities: The new rules of corporate strategy,” Harvard Business Review, Mar/Apr, 1992, p. 58, addressable online: http://my. execpc. com/~jpurtell/HBR-CompetingonCapabilities. pdf Washington Post, January 15, 2009, â€Å"Surgery checklist lowers death rate”, on tap(predicate) online: http://www. washingtonpost. com/wp-dyn/content/article/2009/01/14/AR2009011402831. tml 4 For a more extensive discussion see Roger Martin and James Milway, Strengthening management for prosperity, Institute for Competitiveness & Prosperity, 2007, available online: http://www. competeprosper. ca/images/uploads/ManagementPaper_May07. pdf 5Institute for Competitiveness & Prosperity, Working Paper 12, Management matters, March 2009. 3 13 management matters in retail repeat purchase behaviour among loyal customers. The lower run costs could be passed on as lower prices for consumers. But true innovation means that the producer captures some of the value a dded by not reducing prices at the equal rate s costs. â€Second, innovation can stretch costs for retailers or other parts of the distribution channel. McCain’s became one of Canada’s global leaders by eliminating the need for restaurants and food service operations to profane whole potatoes and peel them. Instead, they could buy fully prepared frozen fries from McCain’s and simply finish off the frying. • Innovation to enhance customer experience. Four Seasons, the world’s leading lavishness hotel chain, has succeeded by drearyly studying what its guests wanted and by improving the customer experience. Cirque de Soleil, the world’s leading ircus conjunction, recognized the customers’ experience of circuses left much to be desired and reinvented the circus world to witch them. Such innovations draw as much on management capabilities †competitive analytic thinking, customer research and segmentations, cost analysis â⠂¬ as they do on technical capabilities. Indeed, our research into high technology firms in Canada shows that, as these firms succeed and mature, the importance of technical skills at the egest of the organization is matched by the importance of other skills, including management capability. 6 And below the CEO level, evidence is attach hat the economy is requiring greater numbers of sophisticated c at one timeptual thinkers and those with the strong analytic and people skills call for to lead innovation and upgrading. 7 Exhibit 1 Innovation strategy has three components Exhibit 1Pressure and embody drive all three elements of the Innovation System The Innovation System PRESSURE PRESSURE Strong Management reference: Institute for Competitiveness & Prosperity. 6 7 motive for Innovation uphold Financing of Innovation set up Supply of Innovation The Strategic Counsel, â€Å"Assessing the Experience of Successful Innovative Firms in Ontario,” 2004, p. 1, available on line: http://www. competeprosper. ca/images/uploads/InnovationInterviewStudyRep. pdf Ibid, p. 41 14 institute for competitiveness & prosperity Canada lacks sufficient sophisticated management capabilities An important opportunity for improving Canada’s innovation and productivity performance is to strengthen management talent in our economy. In our research over the years, we have consistently found that our managers principally have lower educational attainment than their US counterparts, and CEOs of our largest corporations are less likely to have formal business education at the graduate level. Half of US managers have a bachelor’s tier or above compared to just over a third of Canadian managers (Exhibit 3). Further, innovative, hightech firms report disadvantages in entree to management talent as a key constraint. 9 A key part of Canada’s prosperity under(a) performance is attributable to its lack of management talent. Management skills are a critica l complement to science and engineering skills in creating a high quality supply of innovation, driving sophisticated demand for innovation, and putting in place the required quantity and quality of financing to make the Innovation System work effectively.\r\nExhibit 2 Managers play an important part in creating Pressure and Support in all elements of the Innovation System The Innovation System PRESSURE PRESSURE Strong Management Source: Institute for Competitiveness & Prosperity. 8Institute 9R. Demand for Innovation SUPPORT Financing of Innovation SUPPORT Supply of Innovation for Competitiveness & Prosperity, Working Paper 6, Reinventing innovation and commercialization policy in Ontario, October 2004, p. 40 Martin and J. Milway, Strengthening management for prosperity, p. 11 15 management matters in retail Management innovation delivers higher productivity Contemporary research a good deal focuses n two measures of productivity: • output per unit of labour input, s uch as hours worked or employment; and • total factor productivity (TFP), which measures the extent to which tangible economic output is higher than expectant and labour employment data would imply. Many researchers and policy makers believe that productivity changes are intimately linked to changes in technology in the traditional sense; that is, productivity growth results from improvements in machinery, equipment, or techniques of production. Thus, the key to higher productivity is technological advances, as evidenced in higher R&D expenditures or more patents.\r\nprof Michelle Alexopoulos of the University of Toronto presents an alternative, though less intuitive, view. 10 She argues that anything that improves producers’ ability to transform inputs into final goods and services deserves the deed of conveyance â€Å"technology. ” For her, productivity is indeed influenced by the traditionally understood types of technology †such as machinery and new products †that she calls â€Å"tangible. ” But productivity is also influenced by â€Å"intangible” technology †such as management techniques and production processes. She posits that it is important to distinguish between these wo types of technologies, since they affect the types of policies governments may want to put in place. It is generally agreed among management experts that changes in intangibles †such as corporate work rules, team bodily structures, communication channels, morale, or managerial leaders †raise productivity and workforce competency. While this is not a controversial statement, quantifying the effect of improvement in management techniques at the aggregate level is passing difficult because of measurement issues. Professor Alexopoulos’ measure tracks the development and diffusion f management techniques through a count of Library of Congress management criminal record acts, supplemented with counts of relevan t academic journal articles. She has demonstrated that changes in management techniques are an important factor in US productivity growth. 11 With the index of management book publications serving as a deputy for diffusion, her regression analyses reveal that available management books are positively associated with growth in an economy’s TFP and GDP. In particular, following the introduction of a new management technique that causes a 10 percent increase in new management books, GDP and TFP\r\nExhibit 3 Canadian managers are less well educated than their US counterparts Managers’ educational attainment, just 2005â€2007 12% 18% Advanced degree 35% Bachelor’s degree 26% Some post secondary 18% High nurture 23% 39% 19% 7% Canada 3% United States Less than high school Source: Institute for Competitiveness & Prosperity analysis establish on Statistics Canada, Labour Force Survey, and U. S. delegacy of Labor Statistics, Current Population Survey 10M. Alexo poulos and T. Tombe, â€Å"Management Matters,” forth overture working paper, University of Toronto. 11Ibid. 16 institute for competitiveness & prosperity row at statistically significantly higher rates than add up for roughly six years. In fact, the impulse response estimates suggest that by year five, GDP would be 2. 1 percent higher and TFP would be 1. 4 percent higher in an economy with innovation in management techniques (Exhibit 4). A 2 percent increase in our GDP per capita would increase average liquid income per family by $1,500 in Canada and Ontario. 12 Alexopoulos does not depone that the research definitively leads to this direct impact †but it does suggest that improved management has a significant effect on a region’s or nation’s prosperity.\r\nShe concludes that Canadian managers, have admission fee to the same resources as our American neighbours, but many lack the expertise to employ the most productive management innovations. Incr easing the number of graduates from economics, business, or management broadcasts and raising funding for research in business management and related fields may financial aid alleviate this deficiency. This kind of â€Å"business R&D” is to management what science is to engineering, and deserves more attention from the government. It is intuitively likely that stronger management capabilities lead to more innovation and higher rosperity. But the impact of management capabilities on regional prosperity has not been well studied. Our research and that of others indicate that management matters. The development of improved management techniques, their diffusion, and their implementation by capable managers lead to higher prosperity. Exhibit 4 New management techniques are associated with increases in productivity and prosperity Effect on Gross Domestic Product and Total Factor Productivity Response to a 10% increase in management publications Percentage increase 2. 5 % Gro ss Domestic Product 2. 0 1. 5 Total Factor Productivity . 0 0. 5 0 1 2 3 4 5 Years following unexpected increase in management publications Source: M. Alexopoulos and T. Tombe, â€Å"Management Matters,” forthcoming working paper, University of Toronto. 12Calculation based on a 2 percent increase in the Canadian 2008 income per capita, personal disposable income as a dowry of GDP, and average household size. 6 management matters in retail 17 Management practices can be measured C learly, good management is an important factor in firm innovation and productivity and, to the extent that a region’s firms are well managed, overall prosperity will be higher.\r\nBut economists and management researchers have paid pocket-sized attention to measuring effective management practices and their impact on firm productivity. A major stumbling shut down has been the lack of useful, consistent measurements of the quality of management across firms and countries. While researchers recognize the importance of effective management, they typically refer to it as an empirically unobservable variable in their research to account for the differences in productivity across firms within the same country and manufacture. International research evaluates management practices\r\nTo fill this research gap, professors gouge Bloom, John wagon train Reenen, and Raffaela Sadun developed a methodology to measure management practices first within a manufacturing operation,13 and now have expanded this methodology to include 13 See, for example, N. Bloom and J. Van Reenen, â€Å"Measuring and Explaining Management Practices Across Firms and Countries,” NBER Working Paper No. 12216 and N. Bloom, J. Van Reenen, â€Å"Why do Management Practices Differ across Firms and Countries? ” Journal of Economic Perspectives, Vol. 24, No. 1, pp. 203â€244. 18 institute for competitiveness & prosperity the retail sector as well as forthcoming esearch on management of sc hools and hospitals. They have applied this methodology since 2004 and have interviewed over 7,000 firms in eighteen countries,14 including developed economies, such as the United States, Germany, and Japan, and developing economies like China, India, and Brazil. The Institute collaborated closely with Professor Bloom to interview Canadian manufacturing firms through the summer of 2008. In 2009, the Institute further collaborated to extend the methodology to the retail sector, for the first time in a large-scale confound, including Canada, the United States, and the United Kingdom. Bloom, Van Reenen, and Sadun’s ethod to measure management practices in the firm is based on an interview military rating tool that scores firms on a scale of 1 to 5, indicating from worst practice to best practice across eighteen management practices, developed primarily by McKinsey & Company, a leading international management consulting firm. The management practices cover three distinct, but related areas of management: • Adopting effective operations management approaches. How well have firms implemented retail management systems that are generally regarded by academics and consultants as best practice? â€Å" feed sell” is a slightly recent concept erived from the original â€Å" slant Manufacturing,” which is generally regarded as the most effective management system. found on the production methods developed by Toyota, but applicable beyond the automotive (and manufacturing) industry, arguing achieves highly efficient operations through a relentless drive to reduce waste of time and resources. It is characterized by an ethos of 14For continuous improvement, backed by close bring in of the operation to identify capers and improvement opportunities. • • Managing targets effectively. Do firms’ management teams set stretch yet realistic targets, monitor performance against these targets, and ake corrective action when nec essary? Effective management in this area means that companies are finding the right balance of targets to aspire to for upper limit achievable performance. Setting targets too low means under performance; setting them too high will discourage improvements by workers and managers. Effective management also means determining how to measure performance and to follow through with actions when targets are not met. Managing people well. be companies promoting and rewarding employees based on performance, and systematically trying to hire and keep their best employees? The banality that people are a firm’s most mportant asset is true. Skilled workers and effective people management together are an important element of productivity in firms and across the economy. Well managed firms are able to attract and retain their top talent through effective reward and incentive programs. They also deal effectively with problem performers. Professor Bloom and his team designed the research process correspond to rigorous academic research standards. Our analysts, who were business and economics students, were trained to conduct the interviews consistent with analysts in other countries. We randomly selected retail locations for elephone interviews from a comprehensive industry list of firms categorized by Standard industrial Classification (SIC) retail codes. 15 The analysts conducted telephone interviews that lasted an average of fifty-seven minutes with the most senior stock certificate managers available and occasionally district managers. Through a series of structured, but open-ended questions, the analysts scored each company on a scale of 1 to 5, across eighteen factors. These results generated scores on each of the three factors described above, which in turn generated an overall score for the quality of management at the operation.\r\nThe structure of the retail interview followed the manufacturing one, in which sixteen out of the eighteen topics were compar able between the two sectors. Analysts also â€Å" double over scored” four 5ths of the interviews. That is, while one analyst conducted the interview, another, who was not taking part in the interview, listened and independently scored the company. Subsequent comparisons of the scores showed a high degree of consistency between analysts. We conducted interviews from June to August 2009 from a central location in Toronto. To ensure the comparability of the retail scores with the previous year’s anufacturing scores, our analysts were trained using the same methodology, and two analysts from the previous year’s manufacturing project returned to supervise and double-score the interviews. Thus we conclude that, as much as possible, the retail interviews were scored in the same way as those in the manufacturing sector, and therefore are comparable to the rest of the management sample. Further, the distribution of completed interviews across Canada and the United Stat es matches the distribution of actual retail locations. more information on the research methodology, see Professor Nick Bloom’s website: http://www. tanford. edu/~nbloom/index_files/Page371. htm on the lambast & Bradstreet database, using SIC codes 50â€57 and 59. For more information, see http://www. dnb. ca/ 15Based 19 management matters in retail listing Retailing is best practice operating strategy inclination of an orbit Retailing is an example of a best practice operating strategy that management needs to adopt to maximize the efficiency of the retail operation process. including those in insurance policy companies, hospitals, airline maintenance organizations, government agencies, retail industries, and many others. 16 In the retail sector, the same operate approach as now developed to improve operations flows; these principles are known as execute Retailing. What is disceptation Retailing? How does melt Retailing work? Business success lies in effective management. This is especially critical today, as retailers continue to face the increasing challenge of competing against dropping prices a pertinaciousside rising operating and labour costs. Now, more than ever, retailers are turning toward adopting a more escape approach in their management operations to improve profitability. At the core of Lean Retailing is a dedication to the elimination of waste. mistakable to the manufacturing sector, the ajor types of waste targeted by the Lean approach include excess inventory, product defects, unnecessary motion, under use employees, and wait times. Managers can now apply similar tools and principles to identify these forms of waste to improve their operations efficiency. These Lean techniques include: But what is Lean Retailing? Lean Retailing refers to the operating strategy that seeks to maximize efficiency by identifying and eliminating waste. It focuses on simplifying the work process to put across wasted effort, time, materials , and motion. By adopting a Lean approach, managers who employ these tools and principles are able to educe non-value adding activities, detect and stop problems early, and improve overall operating flow. • • Using â€Å" protract” to drive replenishment. Ensuring that the supply of goods is pulled by actual demand of customers as opposed to forecast or estimated demand so that inventory levels are kept low and space is conserved • Removing bottlenecks through the supply chain. Eliminating inefficiencies to bowdlerise delivery times, lower transportation costs and defects, and improve product flow and operational performance • Today, the Lean approach has evolved from the manufacturing industry to apply to operations of all kinds, 16S.\r\nTo win in this increasingly competitive environment, retailers need to adopt a relentless focus on delivering value cost effectively. For, despite steadily falling prices, store operating costs are trending up becau se of more expensive operating overheads and labour costs as well as higher investments in break fittings to match increasing trends to improve the customer experience. 17 Retailers must pursue a Lean perspective in their core operations, including best practices in operations management, performance management, and people management. (See A soak up to best practices in Lean Retailing. ) Doing so will produce a more fficient cost structure, more productive workers, less waste, lower effort, and shorter wait times †all of which generate significant improvements in store profitability and customer satisfaction. Today, more and more businesses are focusing on streamlining their key operations to reduce unnecessary processes and waste and to improve customer experience. Lean Retailing is a best practice that, once implemented, can improve productivity and contribute to higher overall economic performance. Our research allows us to measure the quality of retail management through the lens of Lean Retailing †and to provide guidance for retailers in dentifying and implementing Lean Retailing best practices. Eliminating wasted effort, time, materials, and motion. Identifying the core value of operations by eliminating excess motion, time, and materials used in the process flow to reduce and sustain extra work, problems and wait times Where did Lean Retailing originate? Pioneered by Toyota Motor Corporation, the concept of Lean was conceived as a set of tools and methods to eradicate waste and inefficiency in their manufacturing system, famously known now as the Toyota Production System (TPS). This revolutionizing manufacturing strategy fuelled Toyota’s rise from a ash-strapped company to becoming one of the most successful automobile manufacturers in the world. Simplifying work design. Organizing case-by-case work processes to be more feasible and dirigible so that these efforts have clear start and finish points Why is Lean Retailing important? Corbett, â€Å"beyond Manufacturing: The evolution of Lean production,” McKinsey Quarterly, 2007, 3, pp. 94-96. Voisin, â€Å"The ‘Industrial revolution’ of atomic number 63an retailers in underway,” McKinsey Quarterly, 2004, available online at: http://www. mckinsey. com/practices/retail/knowledge/index_full. asp? startval=20&sort=title 17Jean-Baptiste 0 institute for competitiveness & prosperity A guide to best practices in Lean Retailing For each topic in the study, we define the best practice and provide an example worn-out from the 661 retail interviews conducted across North America and Europe operations management Rationale for Lean retailing techniques Adoption of Lean practices store operations Has the store implemented all the major Lean store operations practices? For example, does the manager have a standard to-do list to follow daily? Is there an automated inventory control system determined by the pull of demand? Is the backroom org anized systematically?\r\n exercise of best practice: A Canadian bookstall has a point-of-sale system that automatically orders an item as soon as it is sold. The managers and employees check off every item on their set to-do list every morning. The manager has a â€Å"store clock,” where she plans for what is retrieveing in the store every hour of the day. Some inventory is kept, and what is on hand in the backroom is organized by aisle with bin codes, keeping the backroom clutter-free. scheduling Has the store implemented all major Lean scheduling practices? Is the scheduling do automatically, based on store traffic and minutes data?\r\nAre there defined roles within the module? Example of best practice: schedule at a US supermarket is based on a computer system that is linked to its sales results system. The computer system bases the schedule on legal proceeding per hour and allocates more labour to peak hours. Roles in the store are clearly defined, and employees rarely have to respond to unexpected traffic increases. What was the reasoning rotter the adoption of any or all Lean Retailing techniques? Were managers implementing changes because all their competitors were doing it? Did managers believe it would merely reduce costs and thus ecided to make the switch? Or did Lean fit the businesses’ goals, which often include increasing quality, reducing waste, and reducing injuries while increasing lettuce? Example of best practice: A UK persuasiveness apparel store introduced techniques to improve customer service, raise product availability, decrease waste, and increase efficiency and productivity. surgery problem documentation If an operational/procedural problem in the store occurs, what happens? Do managers wait for problems to happen to address them or do they search for ways of improving processes and avoiding potentially costly product shortages or mistakes?\r\nIs there a specific way that take a crap floor workers, who are e xecuting most of the tasks, can suggest process improvements? Example of best practice: A UK supermarket uses a checklist system for checking the store every hour. Managers document all issues and have weekly business strategy meetings to discuss them and identify solutions. Action plans encompass targeted completion dates and everything is reported to corporate headquarters. There is a standard system whereby employees can suggest improvements, and managers check up on article them weekly with potential rewards for the employee whose suggestion gets implemented. management matters in retail atters Operations performance tracking What types of chance on Performance Indicators (KPIs) are the managers tracking? For example, do managers only track sales per day or does the set of KPIs include a comprehensive list of all productivity factors, such as average deed value and conversion rates? And are these KPIs available for all to see, or is it only the senior managers who are privy to this information? Example of best practice: A Canadian bookstore manager tracks all major performance indicators daily, weekly, monthly, and yearly. Sales are track by shift, and if targets are not being met, the manager follows up mmediately with the sales staff to improve performance. alone information is posted for employees to see and modifyd as new data become available. Operations performance critical review Does a manager review KPIs with other managers and staff? Is there a meeting to review them? Who is mixed in these meetings? Who gets to see the results of this review? What are the typical next steps after a meeting? Example of best practice: A computer computer hardware store in Canada has weekly management meetings to review the basic KPIs, and routinely invites floor staff to attend as well. Every meeting, they create a follow up plan with five to six main oints they have to focus on in the coming week with specific timelines and accountability. Results are tr acked daily and shared with employees in small team huddles and storewide meetings double a week. The managers keep a scorecard to sustain track how they are doing. a 21 Operations performance dialogue Here managers are asked to describe a KPI meeting. Is there a set structure to the meeting; for example, a set agenda used every week? If KPI data are undeniable to discuss specific issues, are the data evermore available? Do discussions lead to the root cause of problems? Example of best practice: The manager at an American eneral merchandise store has a set agenda for the meetings (part of it from corporate, part of it open to managers’ discretion), which is distributed ahead of time. any tortuous are expected to have reviewed it and to come prepared for discussion. Problems are identified and conversations are only finished when the root cause is found. The manager often uses root cause analysis tools such as fishbone diagrams and the 5Ys. a All items are documented and followed up on. Consequence management How do managers deal with a business unit that is under performing? What are the consequences for the under performing unit?\r\nAre there parts of the business that attend to fail repeatedly to carry out agreed actions? Example of best practice: A general merchandise store in Canada has a computerized system where follow-up plans are logged. Outstanding items are flagged (red, yellow, or green). In-store issues have a â€Å"sundown rule,” where problems need to be fixed by sundown. External issues require progress reports, and status is often reviewed until the item is no longer red-flagged. 5Ys is a management technique used to solve problems by communicate â€Å"why” five times. By the time the fifth why is asked, the root cause of the problem has already been found. 2 institute for competitiveness & prosperity Performance management Types of goals What types of goals are set for the company? Are there specific goals for the store? Are there any non-financial goals? Example of best practice: A hardware store in Canada has a range of financial and operational goals in place, and also has specific non-financial goals for community involvement (charitable donations/fundraising) and environmental targets. The manager was concerned with â€Å"making money” but snarl that supporting their community was just as important. interconnection of goals Is there a clear motivation behind the goals? For instance, oes the company clearly communicate goals, such as â€Å"we want to be the leader in the industry” or â€Å"we want to grow by 4 percent in the next two years”? How are the goals cascaded down to the single workers? For example, are workers alive(predicate) of how their work fits within the larger framework of the company? Example of best practice: The motivation behind a US general merchandise store’s goals is to create shareholder value and deliver customer satisfaction. Corporate headquarters divides goals by region, division, and store. The manager then further divides those goals by department and individual associates, so that all ave personal targets linked to the store’s overall goal. Company goals are communicated through storewide meetings and newsletters. Time horizon What is the time scale of the targets? Do managers focus more on short-term or long-term goals? Do the short-term goals form a â€Å" staircase” to the long-term goals? Example of best practice: A Canadian department store has daily, weekly, quarterly, annual, three- and five-year goals and ten-year strategic goals. The goals are all linked in a staircase; if the store meets all the short-term goals, they will inevitably meet the long-term goals. Setting stretch goals How tough are the goals?\r\nDo managers feel pushed by them? Are any goals obviously too soft or too hard? In other words, are there goals that are always met and some that are never met? Do all d epartments have the same level of difficulty in the targets or do some get off subdued? Example of best practice: A UK clothing store has rigorous goals for all departments, based on a specific store growth plan. The manager feels the targets are very tough, but attainable. She meets them between 75 to 80 percent of the time. Clarity of goals Do all employees in the store know what their personal targets are? Does anyone complain that the targets are too omplex †that is, not that they are too stretching, but that they are difficult to clear? Is performance between teams or shifts openly compared to others? Example of best practice: A Canadian bookstore manager sets clear individual targets for her employees and keeps them accountable to them during weekly huddles. She posts performance in the break room and employees are encouraged to compare individual performance, as the manager believes this leads to friendly competition. Instilling a talent outlook Do senior managers dis cuss attracting and developing quick people? Do managers get any rewards for the talent ool they create? Are managers held accountable for creating a talent pool? Example of best practice: Managers at an American department store participate in university/college job fairs, and actively seek talented people to join the company. The company has a â€Å"human capital report,” and the number and quality of the people a manager hired are important in his approximation and affect (positively or negatively) his bonus at the end of the year. management matters in retail 23 state management Promoting high performers If a worker is exceptionally good, can he or she be promoted on a fast track?\r\nAre top performers routinely identified and developed? Is length of service unduly important in promotions? Rewarding top performers How does the appraisal system work? How does the bonus system work? Are there non-financial rewards? How do these systems compare to the competitors’ systems? Example of best practice: An American hardware store holds appraisal meetings every six months †one full appraisal meeting and one update meeting. There is a bonus for both shop floor employees and managers, based on a review of personal performance. For the shop floor employees, there is a reward system where employees et â€Å"stars” in a staircase structure for outstanding performance. For each set number of â€Å"stars,” there is a financial reward. When employees reach the highest level, they get a bribe. There are also gift cards/movie tickets and other financial rewards for good customer service performance. Addressing poor performance If a worker is continuously under performing, what is the course of action? Is there a set procedure that is followed? How long would under performance be tolerated? Example of best practice: A US department store has a performance improvement plan, whereby managers meet with poor performers, identify their improvem ent pportunities, develop a plan, and give them tools to make them work more effectively. Once under performance is identified, weekly meetings are set up to update the status. The manager tries to retrain and/ or move the employee to other departments, but under performance is only tolerated for a maximum of three months. Example of best practice: An American grocery store has a formal career path plan for all employees and a succession plan for managers. Promotions are based solely on performance, and tenure does not play a role. The manager uses regular performance appraisals to identify op performers and look for â€Å"diamonds in the rough. ” The company has a mentoring program that trains the best to be future managers, and encourages workers to take courses away(p) the store. Attracting high performers Does the company offer a distinctive work environment that is attractive to top talent? Example of best practice: An American hardware store offers competitive wages, strong performance incentives, and clear career paths. The managers believe it is important to get employees involved in the decision-making process to make them feel like a valued part of the company. Retaining high performers\r\nWhat special practices are in place to retain top performers who want to leave the company? Example of best practice: A hardware store manager in Canada keeps an eye on the top employees and, if they seem unhappy or are thinking to the highest degree leaving, senior management will meet with them to discuss their career. For a top performer, the manager would adjust hours, increase pay, and offer more responsibility. The manager mentioned an example where he helped the employee’s mother move to their town so they could live closer together and the employee would stay with the company. 24 institute for competitiveness & prosperity\r\n'