Henry Ford onducted an unusual experiment that became part of management history. Photo Credit: .zmescience.com/Library of Congress

Henry Ford believed that a leader is effective when they can think creatively, guide their team, and delegate responsibilities. To test the competence of his management team, Ford conducted an unusual experiment that became part of management history. He gathered all his managers and took them on a cruise in the Caribbean. During this time, he assessed the departments left without their leaders. Upon returning from the vacation, some leaders, whose teams succeeded in their absence, were rewarded. Others were dismissed, as their departments failed to overcome challenges.

This unconventional approach helped the industrialist identify the strengths and weaknesses of his managers, their ability to make effective decisions, and their trust in their employees. But how is modern management effectiveness assessed?

The Importance of Assessing Management Efficiency

Effective management directly impacts business profitability, transparency in reporting, relationships with shareholders, and a healthy team environment. It helps address both current and strategic tasks. It’s important not only to undergo training in effective management but also to regularly assess the competencies of leaders. A timely audit of the management system can reveal the company’s real position in the market, identify shortcomings that hinder business growth, and uncover potential growth opportunities. Such an analysis can:

• Determine whether the project aligns with the company’s goals.
• Identify risks and emerging problems, allowing for prompt corrective action.
• Improve work quality and team motivation, as well as customer satisfaction.
• Assess interim results, gain valuable lessons, and adjust the strategy.

How to Evaluate Management System Quality

The modern market is changing even faster than the most frequently-bet athletes on 22Bet run. That’s why choosing a business management tactic depends on a variety of conditions — there is no single approach to assessing management efficiency. Each situation requires a tailored method and scope of analysis. For instance, when efficiency indicators decline, leadership changes, or a crisis arises, a comprehensive study is necessary. This allows for both qualitative and quantitative analyses to determine ways to optimize management.

Let’s examine the key methods for management evaluation:

Economic Evaluation

This method reflects effectiveness through the achievement of plans, cost reduction, market share growth, and more. Mathematical methods are used here to determine profitability levels, overall solvency, asset utilization efficiency, liquidity, and profitability.

Strategic Evaluation

This involves analyzing the leadership team’s actions in specific situations and making strategic decisions. A company’s position in the external environment is determined using: PEST analysis (study of external factors affecting the business), SWOT analysis (evaluation of the company’s strengths and weaknesses), SPACE analysis (study of strategic positioning and action evaluation), and competitor analysis (study of competitors and identification of critical factors).

Administrative Evaluation

This method determines the approach to team interaction, the hierarchy established, and the decision-making model chosen. It uses a top-down approach, where all decisions, methods for achieving goals, and performance evaluations are the sole responsibility of senior management. Alternatively, a bottom-up approach allows every employee to independently analyze their work, meaning they can manage and optimize processes alongside leadership.

Management Efficiency Evaluation Through Ratings

Lately, evaluating management quality through ESG ratings has become increasingly popular. These ratings are based on the principles of sustainable company development:

• E — Environment (responsible approach to the environment).
• S — Social (high level of social responsibility).
• G — Governance (strong corporate governance).

Corrective Measures in Management

Timely assessment of the management system’s effectiveness helps identify managerial, marketing, financial, and strategic mistakes. Failure to adapt to ongoing processes can lead to a slowdown in the company’s development, reduced productivity, product quality, customer loyalty, and eventual customer migration to competitors. Therefore, implementing necessary corrective measures can improve all significant business metrics and, as a result, strengthen the organization’s position in the market. For this, it’s recommended to:

• Build business development strategies.
• Forecast risks and develop crisis plans.
• Recruit top-notch personnel and motivate specialists.
• Take courses on effective management systems.
• Manage the company’s finances effectively.
• Create and implement unconventional ideas.

One can either accept or reject Henry Ford’s methods, but it was precisely his unconventional approaches to management and his desire to improve existing management practices that made him an iconic entrepreneur. The business he created became an automotive empire, with a net worth now exceeding $48 billion…