How do managers influence productivity?

7 Min Read
management meeting

Productive, loyal employees are every micro-business owner’s dream. And research has found that how you act as a leader can make or break your employee’s productivity levels.

In this article, we analyse how managers influence productivity, look at the costs that bad management practices incur and end with actionable steps you can implement to foster more productivity at your business. 

The lasting effects of good managers

Numerous studies have found that good management practices can foster employee wellbeing and productivity, which in turn positively affect ROI. In other words, it comes as no surprise that companies with good managers tend to perform better.

For example, McKinsey’s analysis of 700 firms found that advanced management techniques are linked to both a solid return for investors and a positive work-life balance for employees. 

They discovered that improvement in the quality of management practices saw an increase in productivity equivalent to the output of 11% more staff.

What’s more, Gallup studied the performance of millions of employees and found that managers account for 70% of variance in employee engagement. And lower engagement harms productivity levels, as we pointed out in our article on keeping employees engaged.

It was even calculated that if a company hired more talented managers and consequentially doubled the rate of engaged employees, they could achieve 147% higher earnings per share than their competitors.

A Stanford Business study found a direct link between management practices and employee output, noting that managers account for 20% of variation in productivity among firms. 

But what about good managers makes employees more productive?

An Environmental Research and Public Health study notes that leaders who listen to their employees’ concerns, respect them as people and foster a good work environment positively influence their staff’s contribution to organisational performance. 

Everything points to the management style of an individual, which has a huge effect on the motivation of those they oversee. 

leaders who listen to their employees’ concerns, respect them as people and foster a good work environment positively influence their staff’s contribution”

Why cut-throat leaders are no good for business

But what about businesses with high-pressure, cut-throat cultures – aren’t they enjoying more employee productivity?

In demanding, fast-moving industries, such as consulting or investment banking, there’s an assumption that stress and pressure push employees to work harder. 

The reality can be quite the opposite. 

Bad management affects employee productivity and incurs hidden costs that often trump revenue gained from the increased output.

They make their employees sick

The Karolinska Institute found that workplace stress caused by poor leadership results in an increased risk of employees getting seriously ill. The longer a person has a poor manager for, the higher their risk of suffering a heart attack within ten years. 

But that’s not all. Workplace stress is linked to a number of health problems including metabolic syndrome, cardiovascular disease and mortality.

So what does this mean for a business? They found a drastic increase in the number of sick leave taken at workplaces with bad management practices, with 75% of all doctor visits being due to job stress-related problems.

In the US, this results in 550 million annual workdays lost, costing companies $68 billion and reducing their profits by 10%

And in the UK, work-related stress and anxiety due to ‘a lack of managerial support’ accounts for 54% of working days lost.

They cause disengagement

Managers that encourage high-pressure environments are also making their employees less engaged. In the UK, stress results in 25% of employees struggling to be as productive as they normally would, while 22% feel disengaged with their work as a result.

And disengaged employees affect profitability, as a study of 82,000 businesses found. Companies with high employee engagement are 21% more profitable than those with low engagement.

A disengaged workforce is also very costly for business. 

Disengaged employees tend to have 37% higher absenteeism, 49% more accidents, and make 60% more errors. This, in turn, leads to 37% lower job growth, and 65% lower share price over time.

The UK actually has one of the lowest employee engagement figures on the continent: on average, a UK employee is 15% less productive than anywhere else in Europe. 

Gallup estimates that disengaged employees can cost their employers up to £10,000 of ‘wasted salary’, contributing towards a total £52-£70 billion per year in lost productivity.

They induce a lack of loyalty

Not surprisingly then, workplace stress leads to an increase of 50% in voluntary turnover.

And replacing an employee can be very costly: in the UK, the cost of hiring a replacement employee can be up to £30,000, a staggering figure for small companies.

This figure includes the cost of finding a substitute, conducting an exit interview, terminating the contract as well as the lost costs of the leaving employee’s training. 

What’s more, a study by Oxford Economics found that new staff don’t reach peak productivity for 28 weeks.

So what’s the solution? According to UK-wide National Employee Research, businesses that develop employee strengths can reduce turnover by up to 72% – bringing us to our next point.

New staff don’t reach peak productivity for 28 weeks.”

How to work smarter

While UK employee productivity levels are low, the CBI found that 72% of employees would work harder if they felt appreciated by their managers. 

So what does that mean for managers? Good management is about methods, style and skill, rather than hours clocked on the job. It’s about working smarter, not harder. 

And while different management practices exist, Harvard Business Review found the key quality that sets great managers apart: they capitalise on what’s unique about each employee. 

For micro-businesses, that means identifying how each employee is different and then tailoring both learning and working styles to help them excel in their own way.

There are three key benefits to capitalising on employee uniqueness. For one, it saves valuable time and money otherwise invested in training.

Say you have an employee that excels at analytical tasks but struggles at communication. As a manager, you’ll invest far more into training them to improve their communication skills than you will see results.

And you might end up becoming frustrated and thinking that the employee is ‘no good’ at the job. But the reality is that no employee is perfectly well-rounded, and your time is better spent giving them tasks that require the employee’s analytical skills. 

Not only will they perform the tasks much better and faster, they’ll also lessen the workload of other employees that can then turn their attention to communication instead. 

The second benefit of capitalising uniqueness is that it builds interdependency, resulting in a stronger sense of team.

It helps your team appreciate each other’s strengths, and learn how coworkers can fill in where they might be lacking. This, in turn, encourages a positive work culture amongst team members, which has been proven to make employees more productive

Finally, capitalising on uniqueness introduces a healthy amount of disruption that keeps companies moving forward.

By making employees responsible for strength-based tasks, you reshuffle existing hierarchies and assumptions of who should be working on what.

You also reshuffle employee beliefs about where their expertise lies, motivating them to help the business thrive with their unique strengths.

These changes will help your business become more intelligent and flexible to grow in the long-term.

Advice for micro-businesses: go out of your way to help

A UK survey found that 45% of micro business employees reported job-related stress, a significant enough number considering the cost of hiring. As teams in small businesses have close working relationships, managers should go out of their way to help.

Research by New York University showed that self-sacrificing leaders inspire their employees to be loyal and committed. They’re also more likely to mirror their manager’s actions by going out of their way to help their fellow co-workers. 

Similarly, Rotterdam School of Management found that the staff of self-sacrificing leaders trust them more, which helps employees be more cooperative and productive. 

In short, if you’re a manager that goes to a lot of trouble to help, chances are you won’t just inspire your team to work more productively, you’ll also enjoy more loyalty.

Three changes you can implement today

  • Set a good example: Employee productivity levels are directly linked to manager productivity levels. So if you want to make your team more productive, you’re 4x more likely to succeed if you role-model the desired changes.  
  • Give regular strengths-based feedback: Feedback that focuses on unique employee strengths can improve performance by up to 90%. Schedule regular one-to-one meetings to feedback on their personal strengths and set goals of how to improve their skills even more.  
  • Provide a flexible working environment: Just as each employee has their unique strengths, they also have unique ‘internal clocks’ – meaning they’re more productive at different hours of the day. Research analysing the influence of the work environment on workers productivity found that matching work schedules to internal clocks will improve employee productivity and health. If your work allows for it, introduce flexible hours to see the effect it has on output.

Good people management leads to more productivity

Coming back to the McKinsey study, good management practices increase both ROI and work-life balance. It’s all about creating win-win situations. 

People management is a priority, and managers that put good people practices into action day-to-day by supporting uniqueness, enjoy higher productivity levels in the long-run. 

For more on employee engagement, read how to keep staff motivated and subscribe to our newsletter below.