Teaching KAIZEN to Small Business Owners: An Experiment in a Metalworking Cluster in Nairobi

In recent years, managerial capital has received attention as one of the major determinants of enterprise productivity, growth, and longevity. This paper attempts to assess the impacts of a management training program on the business performance of small enterprises in a metalworking cluster in Nairobi, Kenya. A previous study of this cluster observed that while several enterprises had successfully expanded operation, the majority had been experiencing declining profits due to increasing competition with imported products and with new entrants in the cluster. Based on the observed differences in management between successful and less successful enterprises, we designed a management training program featuring the basics of KAIZEN, an inexpensive, commonsense approach to management emphasizing the reduction of wasted work and materials, for the less successful enterprises. Although our initial intention was to use this training program as a randomized experiment, we had to abandon randomization and allow every business owner interested in the program to participate in it, due to circumstances beyond our control. This paper finds that business owners operating smaller enterprises tended to be self-selected into training participation. The training effects combined with the self-selection effect, which we estimate with panel data, were statistically significant and particularly stronger on profits than on sales revenues, while other training programs that did not teach KAIZEN had positive effects on sales revenues, not profits. As a result, the participants caught up with and overtook the non-participants in terms of average sales revenues and average profits, respectively.