Good managers can lift team performance—but exactly how much value do they add?

Replacing a poor manager with a strong one can be equivalent to adding a fifth employee to a team of four, according to a study of two retail chains by University of Southern California’s Robert D. Metcalfe, the International Monetary Fund’s Alexandre B. Sollaci, and Chicago Booth’s Chad Syverson.

The researchers started by examining store-level operations—including sales, employment, store size, and more— for the two multibillion-dollar chains, a British company that shared 2014–17 data and a US company that shared 2018–20 data. They focused on manager moves between stores of the same company. With the companies’ management systems as a constant, it was possible to analyze the effects of individual people switching from store to store.

A good supervisor made a store run more efficiently, the research finds. Individual managers accounted for 25–35 percent of the variation in productivity at the store level, according to the study. “If we could wave a magic wand and make the 10th percentile manager as good as we measure the 90th percentile manager to be, the productivity (sales per employee) of the 10th percentile manager’s store would go up by 25 percent, or even more in some cases,” says Syverson.

Managers applied their skills in various ways. The data indicate that those who obtained high sales from their employees also did a better job of controlling their employer’s energy costs. And at the US retailer, managers who did well in times of stable growth also did well during a turbulent economic time, namely during the COVID-19 pandemic.

Granted, better managers had a bigger impact on revenue at a productive store than at an unproductive one, the researchers find. They estimate that had the best managers been paired with the best stores, while leaving inherently lower-performing stores to lower-performing managers, total sales per employee in the two companies studied would have increased 3–6 percent.

A mismatch between managers and stores

The researchers’ analysis of two multibillion-dollar retail chains (one American, one British) finds that high-performing managers are typically assigned to low-performing stores and vice versa, even though placing strong managers at the best stores and weaker managers at struggling stores would increase sales.

The researchers don’t know why this would be the case, surmising that managers influence workers, who in turn become more productive. Or managers may positively affect efficiencies or other dynamics that help the bottom line.

But good managers often wound up at bad stores, and vice versa. Companies may have assigned strong managers to struggling stores while leaving a less talented manager at a productive store because higher-ups took an “if it ain’t broke, don’t fix it” posture, Syverson reasons. Companies may also have done this in an attempt to prevent store failures, which could be costly or reputation-damaging.

Female managers were less likely to be moved by a company, the researchers also find, pointing out that this wasn’t due to tenure, store quality, or features of the store where they started. Rather, various other research has established that women’s family responsibilities often limit their career paths to a single area. Indeed, Metcalfe, Sollaci, and Syverson find that women managers in large cities were more likely to rise through the ranks at the companies than those in smaller cities or towns, where career opportunities might require relocating.

In the end, the researchers admit, it’s hard to explain what makes someone high-performing. “The special sauce that makes a good manager probably has something to do with personality or the way the person interacts with employees or plans things out,” Syverson says. “We would love to see that kind of stuff. What is it about good managers or what they do that would help us understand that secret sauce?”

The researchers are still working on figuring this out. “Most observables in our data do not have a statistically significant association with manager quality, including the manager’s tenure, gender, distance to the nearest competing store, and even wages,” they write. With sales, labor relations, energy efficiency, and more on the line, retailers and companies would love to know the recipe.

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