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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

Measuring practices acrossfirms and countries

Nick Bloom (Stanford and NBER)

www.stanford.edu/~nbloom

AOM, August 4th 2012

there is a long history of interest in management in economics
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

slide4

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

slide5

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

slide6

Measuring management (in manufacturing)

  • 1) Scoring management practices
    • Scorecard for 18 monitoring, targets and incentives practices
    • ≈45 minute phone interview of manufacturing plant managers
slide7

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
slide8

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?”

slide13

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”?”
slide15

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
slide16

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)
slide17

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

slide18

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

slide19

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

slide20

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

slide21

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

also been looking at other sectors hospitals

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

again see a very wide spread hospitals
Again see a very wide spread: hospitals

Source: www.worldmanagementsurvey.com

also been looking at other sectors high schools
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

again see a very wide spread schools
Again see a very wide spread: schools

Source: www.worldmanagementsurvey.com

slide26

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

four factors seem particularly important
Four factors seem particularly important
  • Ownership
  • Multinational status
  • Competition
  • Education
slide28

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

slide29

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

slide30

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

slide31

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

slide32

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

does management matter evidence from india

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

we ran an experiment on large firms to investigate the impact of modern management practices on tfp
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
slide35

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

slide37

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….”

slide38

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…”

slide39

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”

slide40

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…]

measuring practices across firms and countries1

Measuring practices acrossfirms and countries

Nick Bloom (Stanford and NBER)

www.stanford.edu/~nbloom

AOM, August 4th 2012