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Does Management Matter?: Evidence from India

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Author Info

  • Bloom, Nicholas

    (Stanford Economics and SCID)

  • Eifert, Benn

    (Overland Advisors LLC)

  • Mahajan, Aprajit

    (Stanford Economics and SCID)

  • McKenzie, David

    (The World Bank)

  • Roberts, John

    (Stanford GSB)

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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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2074.

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Date of creation: Dec 2010
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Handle: RePEc:ecl:stabus:2074

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  1. Bloom, Nicholas & Van Reenen, John, 2010. "Human Resource Management and Productivity," CEPR Discussion Papers 7849, C.E.P.R. Discussion Papers.
  2. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," NBER Working Papers 12216, National Bureau of Economic Research, Inc.
  3. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, And The Demand For Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 339-376, February.
  4. 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.
  5. McKenzie, David, 2012. "Beyond baseline and follow-up: The case for more T in experiments," Journal of Development Economics, Elsevier, vol. 99(2), pages 210-221.
  6. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2008. "Bootstrap-Based Improvements for Inference with Clustered Errors," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 414-427, August.
  7. 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.
  8. Nick Bloom & Raffaella Sadun & John Van Reenen, 2009. "The Organization of Firms Across Countries," CEP Discussion Papers dp0937, Centre for Economic Performance, LSE.
  9. Dean Karlan & Martin Valdivia, 2006. "Teaching entrepreneurship: Impact of business training on microfinance clients and institutions," Natural Field Experiments 00282, The Field Experiments Website.
  10. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
  11. Timothy G. Conley & Christopher R. Udry, 2005. "Learning about a new technology: pineapple in Ghana," Proceedings, Federal Reserve Bank of San Francisco.
  12. 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.
  13. Bruhn, Miriam & Karlan, Dean & Schoar, Antoinette, 2013. "The impact of consulting services on small and medium enterprises: evidence from a randomized trial in Mexico," Policy Research Working Paper Series 6508, The World Bank.
  14. 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.
  15. 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.
  16. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers 01-06, Center for Economic Studies, U.S. Census Bureau.
  17. 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.
  18. Edward P. Lazear & Paul Oyer, 2007. "Personnel Economics," NBER Working Papers 13480, National Bureau of Economic Research, Inc.
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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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