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Does Management Matter? Evidence from India

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Author Info

  • Nicholas Bloom
  • Benn Eifert
  • Aprajit Mahajan
  • David McKenzie
  • John Roberts

Abstract

A long-standing question in social science is to what extent differences in management cause differences in firm performance. To investigate this we ran a management field experiment on large Indian textile firms. We provided free consulting on modern management practices to a randomly chosen set of treatment plants and compared their performance to the control plants. We find that adopting these management practices had three main effects. First, it raised average productivity by 11% through improved quality and efficiency and reduced inventory. Second, it increased decentralization of decision making, as better information flow enabled owners to delegate more decisions to middle managers. Third, it increased the use of computers, necessitated by the data collection and analysis involved in modern management. Since these practices were profitable this raises the question of why firms had not adopted these before. Our results suggest that informational barriers were a primary factor in explaining this lack of adoption. Modern management is a technology that diffuses slowly between firms, with many Indian firms initially unaware of its existence or impact. Since competition was limited by constraints on firm entry and growth, badly managed firms were not rapidly driven from the market.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1042.

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Date of creation: Jan 2011
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Handle: RePEc:cep:cepdps:dp1042

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: management; organization; IT; productivity and India;

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References

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  1. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," NBER Working Papers 10501, National Bureau of Economic Research, Inc.
  2. David McKenzie, 2010. "Impact Assessments in Finance and Private Sector Development: What Have We Learned and What Should We Learn?," World Bank Research Observer, World Bank Group, vol. 25(2), pages 209-233, August.
  3. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2012. "Americans Do IT Better: US Multinationals and the Productivity Miracle," American Economic Review, American Economic Association, vol. 102(1), pages 167-201, February.
  4. Martin Valdivia & Dean Karlan, 2006. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," Working Papers 941, Economic Growth Center, Yale University.
  5. Lucia Foster & John Haltiwanger & Chad Syverson, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," Working Papers 05-11, Center for Economic Studies, U.S. Census Bureau.
  6. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 1999. "Information Technology, Workplace Organization and the Demand for Skilled Labor: Firm-Level Evidence," NBER Working Papers 7136, National Bureau of Economic Research, Inc.
  7. Abhijit Banerjee & Esther Duflo, 1999. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," Working papers 99-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. McKenzie, David, 2011. "Beyond baseline and follow-up : the case for more t in experiments," Policy Research Working Paper Series 5639, The World Bank.
  9. Mariam Bruhn & Dean Karlan & Antoinette Schoar, 2012. "The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico," Working Papers 1010, Economic Growth Center, Yale University.
  10. Nick Bloom & John Van Reenen, 2006. "Measuring and explaining management practices across firms and countries," LSE Research Online Documents on Economics 733, London School of Economics and Political Science, LSE Library.
  11. Donald W.K. Andrews & Vadim Marmer, 2005. "Exactly Distribution-free Inference in Instrumental Variables Regression with Possibly Weak Instruments," Cowles Foundation Discussion Papers 1501, Cowles Foundation for Research in Economics, Yale University.
  12. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to capital in microenterprises : evidence from a field experiment," Policy Research Working Paper Series 4230, The World Bank.
  13. Edward P. Lazear & Paul Oyer, 2007. "Personnel Economics," NBER Working Papers 13480, National Bureau of Economic Research, Inc.
  14. Paul Osterman, 1994. "How common is workplace transformation and who adopts it?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(2), pages 173-188, January.
  15. Bertrand, Marianne & Schoar, Antoinette, 2003. "Managing With Style: The Effect of Managers on Firm Policies," Working papers 4280-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  16. Esther Duflo & Michael Kremer & Jonathan Robinson, 2011. "Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya," American Economic Review, American Economic Association, vol. 101(6), pages 2350-90, October.
  17. Bloom, Nicholas & Sadun, Raffaella & Van Reenen, John, 2009. "The Organization of Firms Across Countries," CEPR Discussion Papers 7338, C.E.P.R. Discussion Papers.
  18. Timothy G. Conley & Christopher R. Udry, 2005. "Learning about a new technology: pineapple in Ghana," Proceedings, Federal Reserve Bank of San Francisco.
  19. Nicholas Bloom & John Van Reenen, 2010. "Human Resource Management and Productivity," NBER Working Papers 16019, National Bureau of Economic Research, Inc.
  20. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2007. "Bootstrap-Based Improvements for Inference with Clustered Errors," NBER Technical Working Papers 0344, National Bureau of Economic Research, Inc.
  21. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Aid? Or a subsidy to New Zealand business?
    by Terence Wood in Development Policy Blog on 2012-03-04 19:00:38
  2. Annals of technology diffusion
    by Chris Blattman in Chris Blattman on 2011-06-20 09:20:46
  3. Does Management Matter?
    by Tim Worstall in Tim Worstall (Forbes) on 2011-06-20 13:16:39
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