Does Management Matter? Evidence from India

53 Pages Posted: 20 Apr 2016

See all articles by Nicholas Bloom

Nicholas Bloom

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

Benn Eifert

World Bank

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

John Roberts

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2011

Abstract

A long-standing question in social science is to what extent differences in management cause differences in firm performance. To investigate this, the authors ran a management field experiment on large Indian textile firms, providing free consulting on modern management practices to a randomly chosen set of treatment plants and compared their performance to the control plants. They find that adopting these management practices had three main effects. First, it raised average productivity by 11 percent 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. Their 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.

Keywords: Labor Policies, E-Business, Agricultural Knowledge and Information Systems, Rural Development Knowledge & Information Systems, Labor Markets

Suggested Citation

Bloom, Nicholas and Eifert, Benn and Mahajan, Aprajit and McKenzie, David John and Roberts, John, Does Management Matter? Evidence from India (February 1, 2011). World Bank Policy Research Working Paper No. 5573, Available at SSRN: https://ssrn.com/abstract=1774420

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Benn Eifert

World Bank

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Aprajit Mahajan

Stanford University ( email )

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University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

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David John McKenzie

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IZA Institute of Labor Economics ( email )

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John Roberts

International Monetary Fund (IMF)

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