The ability of universities to foster innovation is something I’ve touched upon a few times previously.  Indeed, the University of Michigan’s Jason Owen-Smith argues in his latest book Research Universities and the Public Good, high quality universities offer three unique components to a community:

• They are sources of knowledge and talent who converge in great diversity and scale on every university campus.
• They are community anchors who act as contributing institutional citizens for a region, with the longevity and stability of universities highly valuable.
• They are connecting hubs who funnel people and ideas from the local community and then back out into the wider world in a similar way to hub airports do.

These factors have prompted many firms to locate themselves in close proximity to world leading universities, both so they can attract their brightest graduates, and also partner with their leading minds.

Research from the Singapore Ministry of Trade and Industry suggests that locating close to a leading university not only helps to attract the best talent, but also helps to raise the performance of managers.

Improving management

The importance of management has been long established, with studies suggesting it can account for up to 30% of the performance differentials between firms.  The research compares data on management practices across small and medium-sized manufacturing firms with data from 19 countries on skill availability across both regions and specific plants.

The researchers find clear evidence that when skills are both cheaper to acquire and more abundant, that higher management scores tend to result.  It’s a finding they belies the fact that a skilled workforce is complementary to strong management practices.

This data was then cross-referenced with proximity to universities, along with wage data for both skilled and unskilled labor.  The researchers hypothesized that the increase in supply of skills provided by the university would lower the price of those skills, which would in turn raise the human capital within firms, and subsequently their managerial capability.

Their analysis reveals that areas with a high density of universities have a lower skill premium, which underlines how the relative abundance of skills plays a crucial role in the cost of acquiring those skills for employers.

Proximity matters

What’s more, the proximity to the university matters greatly in terms of the human capital and management practices of the firm.  Every mile further from the university means that the firm has fewer skilled workers and managers, which tends to result in them being managed poorly.

This phenomenon is especially pronounced where skills are at a premium in a region.  When this was the case, firms employ significantly fewer skilled workers, and are typically much more poorly managed.  This was especially so when firms were independent and not part of a larger multinational that they could use to help attract the best talent.  Similarly, multinationals may mandate that managerial approaches are set centrally rather than locally, which can help to raise standards.

“Firms closer to universities have both higher degree share and management scores,” the researchers say. “These results can help us to understand one of the channels through which universities affect regional economic performance.”

The likes of Owen-Smith have long trumpeted the virtues of universities to the local and national economy, and the Singapore team believe their findings provide further evidence as to the importance of good universities to the success of local firms.

As such, they believe that policy makers should focus their efforts not just on the direct transfer of skills between academia and industry, but also the indirect benefit academia appears to have on the managerial competencies of firms.

“Policies to raise human capital do not only raise productivity via a direct impact on worker skills, but also via an indirect effect as firms with a skilled workforce are more likely to adopt better management practices,” the researchers explain. “It also implies that the payoffs from implementing polices to raise general human capital and policies specifically aimed at improving management practices (such as managerial training) are higher when such polices are implemented together.”