Management systems survey

Given the proliferation of management systems, it is clear that the time has come to ask just how well they are working, and what their future might hold. New research from Lloyd’s Register Quality Assurance (LRQA) has critically reappraised management systems not just as operational control systems or a mode of legal compliance, but as a strategic business discipline in their own right.

First and foremost, what are organizations expecting to achieve when they invest in management systems? The primary motivation, cited by 82 per cent of senior management, is a desire to improve customer satisfaction. Also scoring highly is reputation, reflecting organizations’ increasing dependence on stakeholder goodwill.

Despite this, only 48 per cent of respondents see systems as a tool to gain access to new markets, and only 60 per cent say they are investing in order to create value for shareholders. This is perhaps the greatest challenge facing management systems professionals: to carefully build senior management’s expectation and understanding of systems’ contribution to shareholder value.

In terms of the external social role management systems play, environmental and social management systems are both seen to be effective. However, only 53 per cent believe that existing governance systems, like non-executive boards and policies, actually protect shareholders’ interests. It is in this area of operational governance that management systems could make a great future contribution, and it is a territory that is largely unexplored. By embedding themselves in the fabric of the organizations in which they work, by making sure that values and principles are put into action consistently, management-systems professionals could make a dramatic difference to shareholder accountability and value.

In order to achieve this, it is vital that organizations adopt a rigorous and transparent reporting process. A third of organizations still lack this – treating reporting as a public relations tool, rather than a means of substantive engagement and honest disclosure. A third of organizations again admit that they do not report equally on good and bad news. It is apparent that organizations are highly uncertain about how broadly and how deeply to report.

Despite these shortcomings among organizations in developed markets, there is a widespread perception that ethical, environmental and quality standards are lower in emerging markets with 41 per cent believing that assessment in emerging markets is less rigorous than in the developed world. As a result, 65 per cent of companies now seek evidence of strong systems, typically through certification, when choosing companies to work within emerging markets.

Management systems outcomes are notoriously difficult to evaluate. A substantial majority of respondents are committed to measuring performance improvements.

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While just over half of the respondents claim they can measure the business impact of their systems, a desire remains for better and more strategic metrics. Two thirds said they would like to understand the effect of systems on risk. Seventy per cent said they would like to make an open comparison with their peers. The more strategic the metrics become, the more appealing they are to business leaders.

It is becoming increasingly difficult to tackle business risks on an individual basis. Employee safety, for example, can be directly affected by poor environmental practice and social and environmental impact can be intensified by poor governance. Seventy-six per cent of respondents believe that integrated management systems would help them manage their risks better with two thirds of senior management claiming to be implementing integration. While the drive to integration is an acknowledgement that having single processes targeting single risks is no longer a valid response to risk management, it is clear that problems still remain. Most alarmingly, 37 per cent of respondents say that they have no management processes in place to help deal with their key risks.

So ultimately, what motivates people to adhere to and contribute to management systems? Respondents were clear that the process of persuasion starts with leadership. Eighty-eight per cent said that if senior management emphasize the value of a system, then employees and partners will be more likely to use it. Other soft incentives also prove successful, with two thirds of respondents believing that prestigious brands motivate systems compliance. Systems need people, and the more organizations invest in the motivation and attitudes of people, the more effective they will be.

On the basis of the research results, LRQA identified a number of key lessons. Organizations should:

  • adopt a broader focus which includes the interests of shareholders and guides internal governance
  • adopt materiality processes to guide reporting and ensure that all risks, whether financial or non financial, are captured from management systems and reported to stakeholders
  • share their understanding of management systems with their business partners
  • evaluate performance of systems - what is its contribution to risk reduction and business impact
  • add value to assessments as a way of providing business assurance, helping organizations identify areas of future improvement and validate the impact of past improvements
  • ensure managers are on side - systems must receive both financial investment and personal commitment
  • develop a better understanding of management systems and link these to clear business outcomes

About the author

Ian Hodgskinson is MD of LRQA, and is responsible for managing the development and implementation of LRQA’s global strategy.

 

LRQA is a member of the Lloyd’s Register Group and provides verification, certification and training services to a wide range of organizations around the world. It has recently launched BusinessAssurance.com, the world’s first online management systems community. For more information visit www.lrqa.co.uk