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Does management matter ? evidence from India

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Author Info

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

Abstract

A long-standing question in social science is to what extent differences in management cause differences in firm performance. To investigate this, the authors ran a management field experiment on large Indian textile firms, providing free consulting on modern management practices to a randomly chosen set of treatment plants and compared their performance to the control plants. They find that adopting these management practices had three main effects. First, it raised average productivity by 11 percent 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. Their 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 The World Bank in its series Policy Research Working Paper Series with number 5573.

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Date of creation: 01 Feb 2011
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Handle: RePEc:wbk:wbrwps:5573

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Keywords: Labor Policies; E-Business; Agricultural Knowledge&Information Systems; Rural Development Knowledge&Information Systems; Labor Markets;

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References

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  1. 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.
  2. 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.
  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. Nicholas Bloom & Raffaella Sadun, 2012. "The Organization of Firms Across Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1663-1705.
  5. 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.
  6. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEP Discussion Papers dp0716, Centre for Economic Performance, LSE.
  7. Dean Karlan & Martin Valdivia, 2011. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 510-527, May.
  8. Bloom, Nicholas & Van Reenen, John, 2010. "Human Resource Management and Productivity," CEPR Discussion Papers 7849, C.E.P.R. Discussion Papers.
  9. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883.
  10. 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.
  11. 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.
  12. Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1329-1372, November.
  13. 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. Annals of technology diffusion
    by Chris Blattman in Chris Blattman on 2011-06-20 09:20:46
  2. Does Management Matter?
    by Tim Worstall in Tim Worstall (Forbes) on 2011-06-20 13:16:39
  3. Aid? Or a subsidy to New Zealand business?
    by Terence Wood in Development Policy Blog on 2012-03-04 19:00:38
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