Does Management Matter? Evidence from India

52 Pages Posted: 10 Jan 2011 Last revised: 29 Oct 2014

See all articles by Nicholas Bloom

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Benjamin Eifert

University of California, Berkeley

Aprajit Mahajan

Stanford University; University of California, Berkeley - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER)

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Donald John Roberts

Stanford Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 2011

Abstract

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.

Suggested Citation

Bloom, Nicholas and Eifert, Benjamin and Mahajan, Aprajit and McKenzie, David John and Roberts, Donald John, Does Management Matter? Evidence from India (January 2011). NBER Working Paper No. w16658, Available at SSRN: https://ssrn.com/abstract=1736403

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Benjamin Eifert

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Aprajit Mahajan

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David John McKenzie

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IZA Institute of Labor Economics ( email )

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Donald John Roberts

Stanford Graduate School of Business ( email )

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