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Impact of Plant Size and Focus on Productivity: An Empirical Study

Author

Listed:
  • Thomas Brush

    (Krannert Graduate School of Management, Purdue University, 1310 Krannert Building, West Lafayette, Indiana 47907-1310)

  • Aneel Karnani

    (School of Business Administration, The University of Michigan, Ann Arbor, Michigan 48109-1234)

Abstract

Recent popular business literature has suggested that there is a significant trend in the United States for firms to decrease the size and increase the focus of manufacturing plants they operate, and that this leads to higher productivity. This paper tests empirically the validity of these claims. We analyze data on virtually the entire population of manufacturing plants in the United States and find that, contrary to the popular business literature, the average size of plants increased during the period 1972--1984. However, consistent with the popular notion, the rate of growth in plant size slowed considerably, and even turned negative for a category of large plants. Plant focus did increase during this period. We then investigate the relationship between productivity and plant characteristics including plant size and plant focus. Overall, our results do not support the popular argument that reduction in plant size results in productivity gains. However, we do find support for this argument in some two-digit SIC industries; also, scale economies in the entire population decreased over the period 1972--1982. We also find only limited support for the popular argument that plant focus increases productivity.

Suggested Citation

  • Thomas Brush & Aneel Karnani, 1996. "Impact of Plant Size and Focus on Productivity: An Empirical Study," Management Science, INFORMS, vol. 42(7), pages 1065-1081, July.
  • Handle: RePEc:inm:ormnsc:v:42:y:1996:i:7:p:1065-1081
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    File URL: http://dx.doi.org/10.1287/mnsc.42.7.1065
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    Cited by:

    1. Jo H.M. Wijnands & Jos Bijman & Tanja Tramnitzke, 2017. "Analyses of the functioning of Milk Package provisions as regards producer organisations and collective negotiations," JRC Working Papers JRC107880, Joint Research Centre (Seville site).
    2. Paul Geroski & Tobias Kretschmer & Chris Walters, 2009. "Corporate Productivity Growth: Champions, Leaders, And Laggards," Economic Inquiry, Western Economic Association International, vol. 47(1), pages 1-17, January.
    3. Chen, Hsiu-Lang & Gao, Sheldon & Hu, Xiaoqing, 2012. "Closing and cloning in open-end mutual funds," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1210-1223.
    4. Hill, Alex, 2008. "How to organise operations: Focusing or splitting?," International Journal of Production Economics, Elsevier, vol. 112(2), pages 646-654, April.
    5. Jonathan R. Clark & Robert S. Huckman, 2012. "Broadening Focus: Spillovers, Complementarities, and Specialization in the Hospital Industry," Management Science, INFORMS, vol. 58(4), pages 708-722, April.
    6. Rudberg, Martin & Olhager, Jan, 2003. "Manufacturing networks and supply chains: an operations strategy perspective," Omega, Elsevier, vol. 31(1), pages 29-39, February.
    7. Han, Chaodong & Porterfield, Tobin & Li, Xiaolin, 2012. "Impact of industry competition on contract manufacturing: An empirical study of U.S. manufacturers," International Journal of Production Economics, Elsevier, vol. 138(1), pages 159-169.
    8. Marcelo Olivares & Christian Terwiesch & Lydia Cassorla, 2008. "Structural Estimation of the Newsvendor Model: An Application to Reserving Operating Room Time," Management Science, INFORMS, vol. 54(1), pages 41-55, January.
    9. Raymond Mataloni, Jr., 2011. "The Productivity Advantage and Global Scope of U.S. Multinational Firms," Working Papers 11-23, Center for Economic Studies, U.S. Census Bureau.
    10. Cheng, Liang-Chieh (Victor), 2011. "Assessing performance of utilizing organizational modularity to manage supply chains: Evidence in the US manufacturing sector," International Journal of Production Economics, Elsevier, vol. 131(2), pages 736-746, June.
    11. Hallgren, Mattias & Olhager, Jan, 2006. "Quantification in manufacturing strategy: A methodology and illustration," International Journal of Production Economics, Elsevier, vol. 104(1), pages 113-124, November.
    12. George Symeonidis, 2011. "Competition and the relative productivity of large and small firms," Applied Economics, Taylor & Francis Journals, vol. 43(24), pages 3253-3264.
    13. Diwas Singh KC & Christian Terwiesch, 2011. "The Effects of Focus on Performance: Evidence from California Hospitals," Management Science, INFORMS, vol. 57(11), pages 1897-1912, November.

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