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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
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Handle: RePEc:sip:dpaper:10-014
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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.
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  4. Bloom, Nicholas & Van Reenen, John, 2010. "Human Resource Management and Productivity," CEPR Discussion Papers 7849, C.E.P.R. Discussion Papers.
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  8. 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.
  9. 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.
  10. 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.
  11. Timothy G. Conley & Christopher R. Udry, 2000. "Learning About a New Technology: Pineapple in Ghana," Working Papers 817, Economic Growth Center, Yale University, revised May 2004.
  12. 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.
  13. Bruhn, Miriam & Karlan, Dean S. & Schoar, Antoinette S, 2012. "The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico," CEPR Discussion Papers 8887, C.E.P.R. Discussion Papers.
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  18. 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.
  19. 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.
  20. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers 01-06, Center for Economic Studies, U.S. Census Bureau.
  21. Paul Osterman, 1994. "How Common is Workplace Transformation and Who Adopts it?," ILR Review, Cornell University, ILR School, vol. 47(2), pages 173-188, January.
  22. 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.
  23. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics
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  24. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 989-1017.
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