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, the authors ran a management field experiment on large Indian textile firms, providing free consultin...
| Main Authors: | , , , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110223131540 http://hdl.handle.net/10986/3340 |
| Summary: | 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. |
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