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Does Management Matter? Evidence From India

  • Nicholas Bloom


    (Economics Department, Stanford University)

  • David McKenzie

    (Economics Research, World Bank Group
    Bureau for Research in Economic Analysis of Development, Kennedy School of Government, Harvard University)

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 Institute for Economic Policy Research in its series Discussion Papers with number 10-014.

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Date of creation: Dec 2010
Date of revision:
Handle: RePEc:sip:dpaper:10-014
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  4. Nicholas Bloom & John Van Reenen, 2010. "Human Resource Management and Productivity," NBER Working Papers 16019, National Bureau of Economic Research, Inc.
  5. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," NBER Working Papers 10501, National Bureau of Economic Research, Inc.
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  18. Bertrand, Marianne & Schoar, Antoinette, 2003. "Managing With Style: The Effect of Managers on Firm Policies," Working papers 4280-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
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