The Capacity to Manage Index

Review - Institute of Public Affairs, December 2002 | Go to article overview

The Capacity to Manage Index


IPA WORK REFORM UNIT SPECIAL REPORT

A business tool to address risk

Many factors determine whether a business succeeds or fails, but the `people factor' is the most important. People are a business. Everything a business does, from product and service development, production and delivery, investment, expansion and use of technology, to marketing, sales and account control is people-dependent. How people are managed in a business is critical to its success. If managers do not have a capacity to manage, either through poor skills or externally imposed restrictions, the businesses they attempt to manage are at risk of underperformance. But if an incapacity to manage is unknown, it is hard to fix. The unknown constitutes a serious risk in itself.

Rarely has the capacity of Australian managers to manage staff been assessed using objective and publicly verifiable data. Plenty of studies have focused on other aspects of management-Total Quality Management, information technology, strategic planning, levels of research and planning-but labour studies have tended to overlook assessments of managerial decision-making capacity. In the absence of such assessments, the ability to judge a firm's current and future performance is patchy and constrained. For investors, analysts, managers themselves, shareholders, consumers, employees, governments and other interested parties, this gap in knowledge increases risk.

The Institute of Public Affairs' Capacity to Manage Index seeks to flesh out and measure how firms' formal labour relations agreements impact on performance. The Index provides a path-breaking window into the internal functioning of businesses. Through the use of the Capacity to Manage Rating of businesses listed in the Index, stakeholders can obtain an independent and objective measure which gives an insight into the extent to which business performance is a function of workforce management.

The simple question being addressed is: to what extent do managers in any given business have a capacity to manage the staff of the business? The analysis is based on the Enterprise Bargaining Agreement (EBA) into which a business has entered.

HOW THE CAPACITY TO MANAGE INDEX WORKS

Enterprise Bargaining Agreements-industrial relations agreements between a business and its employees-were introduced into the Australian industrial relations setting as part of the attempt to modernize the system of regulating labour. EBAs were introduced to enable employees and managers to construct formal working arrangements suited to the specific needs and demands of each business. EBAs are underpinned by the industry 'awards', which set minimum labour standards that apply across all businesses in any industry. EBAs are supposed to build on awards to improve the capacity of a business to compete in its markets and to deliver improved incomes to employees. The idea behind EBAs is that of win-win. They are to enable businesses to be run better, and to enable employees in the business to share in the benefits.

EBAs are often examined from the perspective of the increased remuneration they deliver to employees. The IPA examination is from a different perspective: whether or not they deliver in enabling a business to better manage itself and compete in its markets. Looked at from this angle, EBAs are valuable windows into the internal management of businesses, indicating whether those responsible for signing off on the agreement have enhanced or restricted the capacity of the firm's managers to manage the enterprise.

The process of establishing the Capacity to Manage Index has involved careful study of specific clauses in large numbers of EBAs. A pattern emerged which showed that EBA clauses could be divided into two broad categories: those that relate entirely to employee remuneration and those that relate to managerial issues. Only those clauses not dealing exclusively with the employees' remuneration form part of our analysis. …

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