Structured management practices lead to better HR outcomes

Pride yourself on your freewheeling, who-needs-rules management style? You may want to rethink that approach. New research from MIT’s Initiative on the Digital Economy shows that firms with structured management practices — that is, regular reviews and consistent hiring and incentive practices — are better at hiring, firing, and retaining workers.

The paper, “Building a Productive Workforce: The Role of Structured Management,” examines with new depth how personnel management practices relate to human resources outcomes and workforce productivity.

The research, led by former MIT Sloan postdoctoral research fellow Daniela Scur, used data from Brazil that offered an unusually nuanced picture of worker movement: an employer-employee matched dataset covering full-time workers for ten years (RAIS), the annual industrial survey (PIA) for productivity data, and the World Management Survey (WMS) for management practices data.

Unlike most other employee-employer datasets, this one allowed researchers to understand the occupation of workers, as well as whether they quit or were fired.

Among the key points the research outlined:

1. Firms with structured management practices do a better job at hiring the “best” people. These are employees with the most valuable portable skills — that is, traits and skills that have value in the labor market as workers move across jobs. Notably, the median manager hired in a structured firm comes from the 58^th percentile in the full distribution of the dataset, whereas a median manager at an unstructured firm comes from the 46^th.
2. Firms with structured management practices do better at keeping those workers over time, retaining a much larger share of workers in the top quantile of worker quality distribution.
3. Structured management firms also maintain lower levels of firing. Scur and colleagues posit that structured firms are better at job matching to begin with, so they need to fire less often — and when that need does arise, they do a better job of identifying which underperforming workers to let go.

Scur and her colleagues consider these facts to be “the first step in an exciting research agenda exploring the labor aspect of this relationship. A whole new set of questions arises based on these patterns, such as whether structured management helps firms mitigate unhelpful managerial biases, whether they’re more able to optimize their internal labor markets, or whether these firms can improve the human capital of their workers,” they write.

In the meantime, their initial findings are firm: Structured managerial practices have a strong effect on firm productivity.