1.
Listening
Why do so many badly run companies survive?
To both its admirers and its enemies, the most awe-inspiring feature of capitalism is its ruthless
efficiency. In theory, poorly performing firms are crushed and cast aside as fitter rivals come up
with superior goods or cheaper methods of production. In fact, the system is nothing like as ruthless
as it is cracked up to be. Plenty of suppliers fail to deliver goods on time. Many managers are
hopeless at motivating their staff. And badly run firms survive, even in the same industry as state-
of-the-art-companies.
All of this has long had economists pondering two questions. First, why are there such wide
differences in the productivity of competing companies? Second, why do these differences persist?
They ascribe some of the gaps to differences in the quality of capital equipment, or in the
development and installation of new technology. But there has long been a suspicion that quite a lot
of the discrepancy between fit and flabby firms has to do with the quality of management.
The difficulty lies in putting a number on it. If economists are to explain company
performance in terms of management practices, these must somehow be quantified. But how do you
measure the ‘quality’ of communication with workers or incentives for employees? An intriguing
new study attempts do just that, and goes on to examine why badly run firms survive.
The study is based on interviews with managers at more than 730 manufacturing companies
in America, Britain, France and Germany. The answers were given a score between 1, the worst and
5, the best, in each of 18 categories. For instance, under one heading, a British consumer-products
firm whose managers’ only meaningful performance target was volume (with no mention of quality
or waste) scored 1. A German industrial-goods firm that focused on market share and technological
leadership (but did not make workers aware of these goals) scored 3. An American manufacturer
that communicated financial targets by telling workers that they packed boxes until lunchtime to
cover overheads and after that for profit scored a full 5.
The American companies came out on top, averaging 3.37, followed by Germans (3.32), the
French (3.13) and the British (3.08). However, in each country there was a wide range of scores:
only 3% of the variation could be explained by the country of operation. One-fifth was accounted
for by variation between industries. Three-quarters of it persisted among firms in the same country
and industry. Thus, even among competing neighbours, there was huge variation in management
practices.
Differences in management practices do seem to matter. They account for 10-15% of the
gap in total factor productivity between American and British firms. And higher management-
practice scores correlated with higher returns on capital employed, sales per employee, sales growth
and growth in market share. S, if poor management does not pay, why does it last?
The study suggests three reasons. First is the degree of competition in an industry. In
industries in which there are many rivals, management practices tend to be better. There is little
evidence, though, that competition raises standards by forcing managers to work better. More
important is the second explanatory factor: the age of companies. Competition works mainly be
weeding out young, badly managed firms.
Part I: Listening
Listen to the text and circle the correct answer:
1. What happens to poorly performing firms?
a) They are always crushed and cast aside as fitter rivals come up with superior goods or
cheaper methods of production.
b) They are forced of the market.
c) In theory, they are crushed and cast aside as fitter rivals come up with superior goods or
cheaper methods of production.
2. What has been assumed to be the basic reason for discrepancy between fit and flabby firms?
a) There has long been suspicion that proper market share determines fit and flabby firms.
b) There has been suspicion that the discrepancy is a result of the quality of management.
c) The study claims that bonuses influence the final results of the company.
3. What is the study about company performance based on?
a) The study is based on interviews with managers at more than 730 manufacturing
companies in America, Britain, Germany and France.
b) The study is based on interviews with employees at more than 730 manufacturing
companies in America, Britain, Germany and France.
c) The study is based on interviews with managers and employees at more than 730
manufacturing companies in America, Britain, Germany and France.
4. Differences in management practices do seem to matter and they account for
a) less than 10-15% of the gap in total factor productivity between firms.
b) about one tenth of the gap in total factor productivity between firms.
c) more than 50% of the gap in total factor productivity between firms.
5. According to the study, what are the main reasons to determine for how long badly run firms are
to survive?
a) Incentives and proper work load distribution seem to be the most important factors.
b) Management practices and corporate culture seem to be the most important factors.
c) The degree of competititon and the age of companies seem to be the most important
factors.
Part 2: Reading
