Does Management Matter? Evidence from India
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.
Financial support was provided by the Alfred Sloan Foundation; the Freeman Spogli Institute, the International Initiative and the Graduate School of Business at Stanford; the International Growth Centre; IRISS; the Kauffman Foundation; the Murthy Family; the Knowledge for Change Trust Fund; the National Science Foundation; the Toulouse Network for Information Technology; and the World Bank. This research would not have been possible without our partnership with Kay Adams, James Benton and Breck Marshall, the dedicated work of the consulting team of Asif Abbas, Saurabh Bhatnagar, Shaleen Chavda, Karl Gheewalla, Kusha Goyal, Shruti Rangarajan, Jitendra Satpute, Shreyan Sarkar, and Ashutosh Tyagi, and the research support of Troy Smith. We thank our formal discussants Susantu Basu, Ray Fisman, Naushad Forbes, Vojislov Maksimovic, Ramada Nada, Paul Romer, and Steve Tadelis, as well as seminar audiences at the AEA, Barcelona GSE, Berkeley, BREAD, Boston University, Chicago, Columbia, Cornell, the EBRD, Harvard Business School, IESE, Katholieke Universiteit Leuven, Kellogg, the LSE, Maryland, the NBER, NYU, PACDEV, Stanford, TNIT, Toronto, UBC, UCL, UCLA, UCSC, Wharton, and the World Bank for comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Nicholas Bloom & Benn Eifert & Aprajit Mahajan & David McKenzie & John Roberts, 2013. "Does Management Matter? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 1-51. citation courtesy of