A good manager can be just as important to a company's performance as the combined productive capacity of its employees. This is shown in a new international study, published in The Quarterly Journal of Economics. The study also shows that those who are most eager to become managers are not necessarily the best suited to the role.
Research has previously shown that leadership plays an important role in organisational performance. Good managers can increase productivity by monitoring work, allocating tasks effectively and motivating employees. At the same time, it has been difficult to measure managers' actual impact, as managers in real organisations are not appointed at random. This makes it difficult to determine whether a team's performance is due to the manager's leadership or to the employees' skills.
A method for measuring managers' contributions
In the new study, the researchers developed a method to isolate the manager's contribution to team performance. In an international laboratory experiment, managers were randomly assigned to multiple different teams while also controlling for team member skill. This enabled the researchers to distinguish between the manager's leadership ability from both the manager's own productivity and the capacity of the team. In the experiment, the teams were tasked with solving three different types of problems under the manager's leadership.
"We find that the manager's overall leadership ability is roughly as important for team performance as the total productive capacity of the employees," says Joseph Vecci, Associate Professor of Economics at the School of Business, Economics and Law at the University of Gothenburg and one of the researchers behind the study.
Economic decision-making more important than charisma
The results also show that managers' success cannot primarily be explained by personality or demographic factors.
"Good leadership is often associated with self-confidence, charisma or personality, but our results show that measures that are more closely associated with on-the-job tasks are much stronger indicators of manager success," says Joseph Vecci.
This was also demonstrated in a related field study by the same researchers, in which managers at a large retail chain were studied. When manager quality increased from average to good, annual sales rose by 25 per cent.
The researchers also examined how managers are selected. The results show that people who are most motivated to become managers do not necessarily perform best in the role. The study also shows that women expressed interest in the managerial role to a lesser extent than men, even though they performed just as well when randomly assigned to it.
The researchers argue that the findings support the use of more structured and competence-based promotion processes.
