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Does Management Matter?: Evidence from India

  • 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)

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
Date of revision:
Handle: RePEc:ecl:stabus:2074
Contact details of provider: Postal: Stanford University, Stanford, CA 94305-5015
Phone: (650) 723-2146
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  1. Bloom, Nicholas & Van Reenen, John, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEPR Discussion Papers 5581, C.E.P.R. Discussion Papers.
  2. Bloom, Nicholas & Sadun, Raffaella & Van Reenen, John, 2009. "The Organization of Firms Across Countries," CEPR Discussion Papers 7338, C.E.P.R. Discussion Papers.
  3. repec:oup:qjecon:v:122:y:2007:i:4:p:1351-1408 is not listed on IDEAS
  4. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, Elsevier.
  5. 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, Oxford University Press, vol. 117(1), pages 339-376.
  6. 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.
  7. Timothy G. Conley & Christopher R. Udry, 2010. "Learning about a New Technology: Pineapple in Ghana," American Economic Review, American Economic Association, vol. 100(1), pages 35-69, March.
  8. Ann Bartel & Casey Ichniowski & Kathryn Shaw, 2007. "How Does Information Technology Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement, and Worker Skills," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1721-1758.
  9. 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.
  10. Suresh de Mel & David McKenzie & Christopher Woodruff, 2009. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 423.
  11. repec:oup:qjecon:v:115:y:2000:i:3:p:989-1017 is not listed on IDEAS
  12. Edward P. Lazear & Paul Oyer, 2007. "Personnel Economics," NBER Working Papers 13480, National Bureau of Economic Research, Inc.
  13. McKenzie, David, 2011. "Beyond baseline and follow-up : the case for more t in experiments," Policy Research Working Paper Series 5639, The World Bank.
  14. Martin Valdivia & Dean Karlan, 2006. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," Working Papers 941, Economic Growth Center, Yale University.
  15. repec:oup:qjecon:v:123:y:2008:i:4:p:1329-1372 is not listed on IDEAS
  16. 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.
  17. 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.
  18. Sandra E. Black & Lisa M. Lynch, 2001. "What's driving the new economy? The benefits of workplace innovation," Staff Reports 118, Federal Reserve Bank of New York.
  19. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
  20. 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.
  21. Andrews, Donald W.K. & Marmer, Vadim, 2008. "Exactly distribution-free inference in instrumental variables regression with possibly weak instruments," Journal of Econometrics, Elsevier, vol. 142(1), pages 183-200, January.
  22. repec:oup:qjecon:v:118:y:2003:i:4:p:1169-1208 is not listed on IDEAS
  23. 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.
  24. McKenzie, David, 2009. "Impact assessments in finance and private sector development : what have we learned and what should we learn ?," Policy Research Working Paper Series 4944, The World Bank.
  25. repec:oup:qjecon:v:117:y:2002:i:1:p:339-376 is not listed on IDEAS
  26. 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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