Key message 3 – Key employees such as plant managers and firm directors play a vital role in driving management practices.
The long-term results from Bloom et al. (2017) show that plant managers and firm directors play a critical role in improving management. In plants that received the original management intervention, manager turnover is the biggest reason for a plant dropping management practices.
Time spent managing by senior executives is another major factor – 3.6% of management practices were dropped when directors such as Chief Executive Officers (CEOs) and Chief Finance Officers (CFOs) spent less time managing the plant (as compared to when the original intervention took place), often because they were pulled into other business areas such as finance, marketing, and retail. Similarly, a study of over 1,000 CEOs in six of the world’s ten largest economies supports the finding that how CEOs spend their time affects firm performance (Bandiera et al., 2017).
Another study involving a large American service company with close to 24,000 workers and 2,000 supervisors shows that good managers significantly affect worker productivity. A very good supervisor – as measured by their effect on worker productivity – increases the output of their managed team over the output of a team managed by a very bad supervisor by about as much as having one additional member on the team (Lazear et al., 2015).
Conviction in a business practice’s benefits also plays a role in management practices sticking – 4.2% of practices from the original Bloom et al. (2013) intervention were dropped because firms decided the practices were not worth adopting.
Relatedly, more common practices, such as basic measurement systems, were more likely to be maintained. Uncommon practices, such as signs displaying plant procedures that very few firms were using before the intervention, were most likely to be dropped after the intervention ended. Here, training to explain and demonstrate the benefits of new practices could play a crucial role.
Measuring management practices in developing countries
Several IGC projects have examined the quality of management in firms in Asia and Africa by scoring basic management practices across industries and sectors, based on a Management and Organisational Practices Survey (MOPS) that builds on the work
of Bloom and Van Reenen (2007). The original survey was sent to about 50,000 US manufacturing plants in 2011 and 2016 through the US Census Bureau, the largest survey of management practices to date.
India: IGC research analysing the manufacturing, retail, healthcare, and education sectors found that India’s management practices were, on average, poorer than in Europe and North America. In the US, only 2% of firms have little or no modern management practices implemented – in India, it is 25% of firms (Lemos and Scur, 2012).
Pakistan: Examining almost 2,000 firms, researchers found Pakistani plants have lower average management scores than American plants and scores are more dispersed, suggesting that poorly managed firms close down more slowly in Pakistan. Data also suggest that a 10% increase in the management score is associated with a 12% increase in labour productivity, which is very similar to the US (Bloom et al., 2016).
Mozambique: Using data from Mozambique and 32 other developed and developing countries, IGC research finds Mozambique at the bottom of the global rank of management practices, along with other African countries. Although some firms in Mozambique have high quality management practices, there is a substantial number of badly-managed firms, dragging down the country’s average management score. In fact, 89% of Mozambican firms score within the range of the bottom 25% of US firms (Lemos and Scur, 2014).