Supervisors are killing your business!

Research has shown that high turnover rates at companies are largely due to supervisors who are jerks. Why should that matter to business people? One reason it should be important is because the expenses of attracting, hiring and training good workers are much higher than business people recognize and can mean the difference between success and failure. As a Forbes article said,

...people don’t leave jobs, they leave managers, and a survey by B2B marketplace Approved Index confirms that this adage is true. In its survey of 1,374 employees in the U.K., nearly half (42%) of them have left a job because of a bad boss and almost a third of them feel their current boss is a bad manager. When asked why they disliked their managers, 41% cited a lack of recognition, while 40% said they felt overworked.

One of the reasons employees feel overlooked, overworked and underappreciated is because supervisors focus on pleasing the manager above them, not on developing a well-functioning team below them. That is human nature.

Creative destruction becoming less destructive

Investors should worry about productivity growth of the firms they invest in because it is one of the major determinants of profits and market share. Innovation should drive old technology firms out of business and improve productivity but that hasn’t been the case for half a century.

Productivity growth has been falling since about 1970 for many companies according to Andrew Haldane, Bank of England Chief Economist, in his speech “Productivity puzzles” at the London School of Economics last month in which he reported what’s happening to productivity in the UK and globally.

Haldane said the future is already here — it’s just not very evenly distributed. Some companies are highly innovative with rapidly growing productivity, but most lag far behind. There are broad differences in productivity growth between advanced economies and emerging market economies, between the US and other advanced economies, across industries and within industries. After providing the fruits of excellent research, however, Haldane offered an anticlimactic solution:

The Mayfield Commission aims to create an app which enables companies to measure their productivity and benchmark themselves against other companies operating in similar sectors and regions. By shining a light on companies’ relative performance, the aim is that this would serve as a catalyst for remedial action by company management.”

Watch out for falling productivity

The government reported recently that productivity in the US rose 1.3% from the last quarter, but that was little comfort to the Maestro, Alan Greenspan, who is worried about the collapse in productivity. Investors should be worried as well. StreetInsider.com reported Greenspan saying:

I think it's the most serious problem that confronts not only the United States but the world at large and more exactly the developed world especially. American productivity is not significantly different from zero growth in the last 6 or 8 quarters. And the cause of that, if you work backwards through the causative chain is capital investment has been inadequate to fund the amount of assets that you need.

The interviewer, Tom Keene responded with “There was a moment when we were bewildered by why nation's productivity was so good and America running on all cylinders. It is a distant memory.”

Why has productivity fallen and what does it mean? The answer lies in Hayek’s Ricardo Effect. Profits in consumer goods sectors will peak near the end of the expansion phase of a business cycle. Profits rise because investment in capital goods sectors has increased employment, and therefore demand for consumer goods before new consumer goods arrive on the market. Prices and profits rise in step.