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Measuring practices across firms and countries

Measuring practices across firms and countries. Nick Bloom (Stanford and NBER) www.stanford.edu/~nbloom AOM, August 4 th 2012. There is a long history of interest in management in economics.

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Measuring practices across firms and countries

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  1. Measuring practices acrossfirms and countries Nick Bloom (Stanford and NBER) www.stanford.edu/~nbloom AOM, August 4th 2012

  2. There is a long history of interest in management in economics Walker’s (1887, QJE) paper “On the Source of Business Profits” claims management drives the differences in profits across firms Walker ran the 1880 US Census and from what he saw concluded that management really mattered But since then many economists have been skeptical

  3. 1) Does management vary across firms & countries?(Bloom, Genakos, Sadun and Van Reenen, 2012)2) What accounts for this variation?(Bloom, Eifert, Mahajan, McKenzie and Roberts, 2012)3) Does this matter for firm and national performance?berts and Ying, 2012) So part of a large team working over the last 10 years to address three questions

  4. 1) Does management vary across firms & countries?(Bloom, Genakos, Sadun and Van Reenen, 2012)2) What accounts for this variation?(Bloom, Eifert, Mahajan, McKenzie and Roberts, 2012)3) Does this matter for firm and national performance?berts and Ying, 2012) So part of a large team working over the last 10 years to address three questions

  5. Measuring management (in manufacturing) • 1) Scoring management practices • Scorecard for 18 monitoring, targets and incentives practices • ≈45 minute phone interview of manufacturing plant managers

  6. Measuring management (in manufacturing) • 1) Scoring management practices • Scorecard for 18 monitoring, targets and incentives practices • ≈45 minute phone interview of manufacturing plant managers • 2) Obtaining unbiased comparable responses (“Double-blind”) • Interviewers do not know the company’s performance • Managers are not informed they are scored

  7. Dimension (4): Performance tracking Opening question: “How do you track performance in your plant?”Follow-up questions: “Who gets to see that information?”, “If I walked around your factory what performance info. could I see?”

  8. Examples of performance metrics – Car Plant

  9. Examples of a performance metrics – Hospital

  10. Examples of performance metrics – Retail

  11. Examples of performance metrics – Heathrow T5

  12. Dimension 15: Removing poor performers • Opening question: “If you had a manager who could not do their job adequately, what would you do?” • Follow-up: “How long would underperformance be tolerated?” “Do some individuals always manage to avoid being “fixed”?”

  13. Examples of performance reviews – Retail Bank

  14. Measuring management (in manufacturing) • 1) Scoring management practices • Scorecard for 18 monitoring, targets and incentives practices • ≈45 minute phone interview of manufacturing plant managers • 2) Obtaining unbiased comparable responses (“Double-blind”) • Interviewers do not know the company’s performance • Managers are not informed they are scored • 3) Getting firms to participate in the interview • Introduced as “Lean-manufacturing interview”, no financials • Official Endorsement: Bundesbank, PBC, CII & RBI, etc. • Run by 90 MBAs types (loud, assertive & business experience) operating from London

  15. Manufacturing survey sample • Interviewed 10,000 firms across Asia, Europe and Americas • Obtained 45% coverage rate from sampling frame (with response rates uncorrelated with performance measures) • Medium & large firms: (100 - 10,000 employees, median ≈ 250)

  16. 1st, find a spread of management across countries (which is clearly correlated to GDP per capita) U.S. Japan Germany Sweden Canada Australia Great Britain Italy France New Zealand Mexico Poland Republic of Ireland Portugal Chile Argentina Greece Brazil China India 2.6 2.8 3 3.2 3.4 Average management practice scores (Manufacturing) Source: www.worldmanagementsurvey.com

  17. 2nd, the spread across firms is about 3 times greater than the spread across countries Firm-Level Management Scores (ave. over 18 questions) Source: www.worldmanagementsurvey.com

  18. How much should you trust our management data? Shown large variations in management across firms and countries, but could this all be spurious measurement error? To try and check we do internal and external validation

  19. Internal validation: survey re-rater analysis Re-interviewed 222 firms with different interviewers & managers Firm average scores (over 18 question) Firm-level correlation of 0.627 2nd interview 1st interview

  20. External validation: better performance is correlated with better management Includes controls for country, industry, year, firm-size, firm-age, skills etc. All firms (public and private) for which accounts data is available Significance levels: *** 1%, ** 5%, * 10% (clustered by firm) Source: www.worldmanagementsurvey.com

  21. Hospital Management Scores, by Country US 3.00 UK 2.82 Sweden 2.68 Germany 2.64 Canada 2.52 Italy 2.48 France 2.41 India 1.90 1 1.5 2 2.5 3 3.5 Management Score Also been looking at other sectors: hospitals N 327 184 56 130 175 166 158 491 Hospital Management Scores Source: www.worldmanagementsurvey.com

  22. Again see a very wide spread: hospitals Source: www.worldmanagementsurvey.com

  23. Also been looking at other sectors: (high) schools School Management Scores, by Country n 91 UK 2.94 77 Sweden 2.82 232 US 2.80 138 Canada 2.78 127 Germany 2.55 323 Italy 1.99 287 India 1.72 1 1.5 2 2.5 3 3.5 Management Score Source: www.worldmanagementsurvey.com

  24. Again see a very wide spread: schools Source: www.worldmanagementsurvey.com

  25. 1) Does management vary across firms & countries?(Bloom, Genakos, Sadun and Van Reenen, 2012)2) What accounts for this variation?(Bloom, Eifert, Mahajan, McKenzie and Roberts, 2012)3) Does this matter for firm performance?berts and Ying, 2012) Working over the last 10 years as part of a large research team to address three questions

  26. Four factors seem particularly important • Ownership • Multinational status • Competition • Education

  27. Ownership seems to be one major factor accounting for differences in management Dispersed Shareholders Private Equity Family owned, non-family CEO Managers Private Individuals Government Family owned, family CEO Founder owned, founder CEO Management score 2.7 2.8 2.9 3 3.1 3.2 Source: www.worldmanagementsurvey.com

  28. Multinational status seems to be a second factor in accounting for management Domestic firms Foreign multinationals United States Sweden Germany Japan Italy France UK Canada Australia Poland Mexico China New Zealand Portugal India Chile Brazil Argentina Republic of Ireland Greece 2.4 2.6 2.8 3 3.2 3.4 3.6 Management score Source: www.worldmanagementsurvey.com

  29. Competition appears to be a third major factor Hospitals and Schools (the public sector) Manufacturing and Retail (the private sector) 3 2.8 2.95 2.75 2.7 Management score 2.9 2.65 2.85 2.6 2.55 2.8 0 1 2 to 4 5+ 0 1 2 to 4 5+ Number of Reported Competitors Source: www.worldmanagementsurvey.com

  30. Education seems to be a fourth factor accounting for differences in management Managers Non-managers 3.3 3.1 3.2 3 3.1 2.9 3 Management score 2.9 2.8 2.8 2.7 2.7 2.6 2.6 0 1 to 10 11 to 25 26 to 50 50+ 2.5 0 1 to 10 11 to 25 26 to 50 50+ Percentage of employees with a college degree (%) Source: www.worldmanagementsurvey.com

  31. 1) Does management vary across firms & countries?(Bloom, Genakos, Sadun and Van Reenen, 2012)2) What accounts for this variation?(Bloom, Eifert, Mahajan, McKenzie and Roberts, 2012)3) Does this matter for firm and national performance?berts and Ying, 2012) So part of a large team working over the last 10 years to address three questions

  32. Does management matter?Evidence from India Nick Bloom (Stanford)Benn Eifert (Berkeley)Aprajit Mahajan (Stanford)David McKenzie (World Bank)John Roberts (Stanford GSB) http://www.stanford.edu/~nbloom/DMM.pdf

  33. We ran an experiment on large firms to investigate the impact of modern management practices on TFP • Experiment on 20 plants in large multi-plant firms (average 300 employees and $7m sales) near Mumbai making cotton fabric • Randomized treatment plants got 5 months of management consulting intervention, controls got 1 month • Consulting was on 38 specific practices tied to factory operations, quality and inventory control • Collect weekly performance data from 2008 to August 2010, and long-run size and management data from 2008 to 2011

  34. TFP rose in treatment plants vs controls Treatment plants Total factor productivity Control plants Weeks after the start of the experiment Note: solid lines are point estimates, dashed lines are 95% confidence intervals

  35. All this data is freely available to download here

  36. MY FAVOURITE QUOTES: The traditional British Chat-Up [Male manager speaking to an Australian female interviewer] Production Manager: “Your accent is really cute and I love the way you talk. Do you fancy meeting up near the factory?” Interviewer “Sorry, but I’m washing my hair every night for the next month….”

  37. MY FAVOURITE QUOTES: The difficulties of defining ownership in Europe Production Manager: “We’re owned by the Mafia” Interviewer: “I think that’s the “Other” category……..although I guess I could put you down as an “Italian multinational” ?” Americans on geography Interviewer: “How many production sites do you have abroad? Manager in Indiana, US: “Well…we have one in Texas…”

  38. MY FAVOURITE QUOTES: Don’t get sick in Britian Interviewer : “Do staff sometimes end up doing the wrong sort of work for their skills? NHS Manager: “You mean like doctors doing nurses jobs, and nurses doing porter jobs? Yeah, all the time. Last week, we had to get the healthier patients to push around the beds for the sicker patients” Don’t do Business in Indian hospitals Interviewer: “Is this hospital for profit or not for profit” Hospital Manager: “Oh no, this hospital is only for loss making”

  39. MY FAVOURITE QUOTES: The bizarre Interviewer: “[long silence]……hello, hello….are you still there….hello” Production Manager: “…….I’m sorry, I just got distracted by a submarine surfacing in front of my window” The unbelievable [Male manager speaking to a female interviewer] Production Manager: “I would like you to call me “Daddy” when we talk” [End of interview…]

  40. Measuring practices acrossfirms and countries Nick Bloom (Stanford and NBER) www.stanford.edu/~nbloom AOM, August 4th 2012

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