Mar 30, 2013

Does Management Matter? (India)

A long-standing question is whether differences in management practices across firms can explain differences in productivity, especially in developing countries where these spreads appear particularly large. To investigate this, we ran a management field experiment on large Indian textile firms. We provided free consulting on management practices to randomly chosen treatment plants and compared their performance to a set of control plants. We find that adopting these management practices raised productivity by 17% in the first year through improved quality and efficiency and reduced inventory, and within three years led to the opening of more production plants. Why had the firms not adopted these profitable practices previously? Our results suggest that informational barriers were the primary factor explaining this lack of adoption. Also, because reallocation across firms appeared to be constrained by limits on managerial time, competition had not forced badly managed firms to exit.
That is from a new published paper by Bloom, Eifert, Mahajan, McKenzie & Roberts (Quarterly Journal of Economics, 2013). The researchers used the services of an international consulting firm. The management "interventions:" factory operations, quality control, inventory, human resource management, and sales and order management.

They explain:
The first (and main) wave of the project ran from August 2008 to August 2010, with a total consulting cost of $1.3 million, approximately $75,000 per treatment plant and $20,000 per control plant. This is different from what the firms themselves would have to pay for this consulting, which the consultants indicated would be about $250,000.

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