The more talented the managers, the more productive the company will be. An empirical hypothesis that might have seemed obvious, but it was not so. For the first time, three economists from the Bank of Italy, Audinga Baltrunaite, Giulia Bovini and Sauro Mocetti, compared the talent of executives with managerial practices, to analyze any complementarity. And the evidence from the paper, published today, is that there is a strong relationship between the two. An aspect that could be crucial in the post-Covid-19 pandemic economic recovery phase.
“Almost a fifth of the productivity of Italian companies is attributable to the skills of their managers, an effect which, moreover, is comparable with that of studies based on other countries”. In the work “Managerial talent and managerial practices: are they complements?”, The three economists of the institution of Via Nazionale proposed an estimate of the skills of the managers of Italian companies to quantify their importance in influencing the productivity of companies. “This is a variable that does not exist in itself and that, in any case, is difficult to measure”, explain the authors, who examined the scenario starting from information taken from a sample survey by the Bank of Italy of companies. And it emerged that the measure of managerial skills estimated in the work is correlated with other proxies of their skills ex-ante, such as levels of education, and ex-post, such as the accuracy of forecasts on the company’s future performance.
One of the most significant elements of the analysis, which could be useful for companies in the new normal after the arrival of the Sars-Cov-2 coronavirus, is given by one of the evidences found by Baltrunaite, Bovini and Mocetti. That is, the «significant complementarities between the manager’s skills and the managerial practices adopted, such as setting oneself with objectives (more or less complex to achieve) and associating remuneration and / or promotions with the results achieved». Specifically, the study points out, if the adoption of a performance-pay system is associated with an increase in productivity, about 9% in a decade, this effect almost doubles if adopted by more talented individuals. “A more capable manager, in fact, will likely be more able to observe the skills and performance of a worker and to make him grow, placing him in positions where he can bring greater added value,” say the authors.
From the more operational point of view, that relating to the possible consequences on active policies, the Bank of Italy paper admits that it is difficult to draw implications in the field of corporate governance. This is because «the selection of the manager and the adoption of some organizational practices are decisions taken ultimately within the company». Nonetheless, it is pointed out, public interventions can influence the general context in which companies operate. And in that context, there is evidence that higher education is associated with superior managerial talent. The policy maker can, therefore, invest in human capital, thus improving – quantitatively and qualitatively – the pool of talents from which the managers are selected. Then there is, and it is not of secondary importance, the question of competitiveness. According to the study, managerial talent is more important in more competitive markets. In this sense, favoring market competition can play an important role in obtaining a positive impact on the efficiency of company management, both internally and in relations between companies. Removing obstacles in the allocation of talents within the economy, Baltrunaite, Bovini and Mocetti point out, could be functional to the systemic improvement under the competitive aspect. At the same time, “promoting organizational and managerial culture can help spread productivity-enhancing practices in the private sector.” A field in which Italy still lags behind the European teams.
According to Raffaella Sadun, Professor of Business Administration at the Harvard Business School, there are many points for reflection. «The importance of management – a specific form of intangible capital – for productivity is confirmed. And it is not enough to focus on tangible capital, but to increase productivity we must also consider human capital, and above all organizational and management skills ”, explains Sadun. And from the point of view of policy, says the economist, there are three possible arguments. First, on the fact that we need to increase the demand for managerial capital, which is still low among Italian companies, especially in the case of small and medium-sized enterprises (SMEs), for mainly cultural reasons, i.e. we do not trust the competence that comes from external, Sadun points out. «This constraint can have an effect by creating incentives for hiring external management (vouchers that have been used in the past for hiring export managers, for example). But also by acting in a more general way on business culture. For example, trade associations could play an important role in communicating the need for change even to the most reluctant, ”he says. Then there is the supply side. And here, says Sadun, «we need to think about how to improve the quality of entrepreneurial and managerial training. Beyond the most prestigious and recognized centers, it is important to think of paths that can also be accessible to medium / small businesses, both to train their own managers and to hire new ones ».
Finally, according to the Harvard professor, there is a point not touched by the Bank of Italy article, but an important one. In other words, complementarity does not stop with managerial figures. «In general, greater human capital (and remuneration) at the managerial level is also accompanied by more qualified and paid workers. So it is essential to understand how to facilitate reskilling and the qualification of workers, as well as that of managers ”, concludes Sadun. Two aspects that, with the innovations brought about, or accelerated, by the pandemic, will be crucial for the recovery phase to come. Not only to make the economic development model more sustainable, but also to make it more inclusive and homogeneous.