Management as a Technology?

81 Pages Posted: 3 Jun 2016 Last revised: 27 Oct 2017

See all articles by Nicholas Bloom

Nicholas Bloom

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

Raffaella Sadun

Harvard University - Strategy Unit; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 8, 2017

Abstract

Are some management practices akin to a technology that can explain firm and national productivity, or do they simply reflect contingent management styles? We collect data on core management practices from over 11,000 firms in 34 countries. We find large cross-country differences in the adoption of management practices, with the US having the highest size-weighted average management score. We present a formal model of “Management as a Technology", and structurally estimate it using panel data to recover parameters including the depreciation rate and adjustment costs of managerial capital (both found to be larger than for tangible non-managerial capital). Our model also predicts (i) a positive impact of management on firm performance; (ii) a positive relationship between product market competition and average management quality (part of which stems from the larger covariance between management with firm size as competition strengthens); and (iii) a rise in the level and a fall in the dispersion of management with firm age. We find strong empirical support for all of these predictions in our data. Finally, building on our model, we find that differences in management practices account for about 30% of total factor productivity differences both between countries and within countries across firms.

Keywords: Management Practices, Productivity, Competition

JEL Classification: L2, M2, O32, O33

Suggested Citation

Bloom, Nicholas and Sadun, Raffaella and Van Reenen, John Michael, Management as a Technology? (October 8, 2017). Harvard Business School Strategy Unit Working Paper No. 16-133, Stanford University Graduate School of Business Research Paper No. 16-27, Available at SSRN: https://ssrn.com/abstract=2788794 or http://dx.doi.org/10.2139/ssrn.2788794

Nicholas Bloom

Stanford University - Department of Economics ( email )

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HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

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Raffaella Sadun (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
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HOME PAGE: http://people.hbs.edu/rsadun

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

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HOME PAGE: http://cep.lse.ac.uk/_new/staff/person.asp?id=1758

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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Institute for Fiscal Studies (IFS) ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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