Key message 2 – Management practices spread within and across large firms. These spillovers improve management in the long-run.
Evidence shows that policy interventions, rather than small ones, can be cost-effective and have large benefits. In large firms, practices introduced in one part of a firm are likely to spread internally and benefit other parts of the firm – this spreading of practices is important for ensuring that management improvements last. Eight years after the original Bloom et al. (2013) experiment on Indian textile firms ended, researchers found that management practice improvements in plants that received the intervention spilled over to plants that did not.
Figure 2 shows how management practices changed over time in plants within the same firm. The treatment plants adopted a multitude of management practices during the original experiment in 2008–2010, and therefore had substantially higher management scores by 2011. Their scores then declined as they dropped practices.
Other plants within the same firms that did not receive the intervention adopted fewer of these management practices in 2008–2010 but continued to adopt practices so that their management scores eventually caught up to the intervention plants in 2017.
Spillovers from other plants within the same treatment firm were the most important driver of management improvements over the eight years after the experiment, contributing to more than one-third of the total improvement rate. As seen in Figure 2, despite treatment firms dropping some practices, their overall management score is still higher than that of control firms eight years later.
Given the important role of spillovers in improving management over the long run, more research is needed to examine in detail how and why this occurs across firms.
Management practices in small firms
A number of IGC projects have examined the impact of management practices on micro, small, and medium-sized enterprises (MSMEs). A key difference is that MSMEs may be structured simply enough to work without formal systems for monitoring and evaluation as their owners can directly observe the full production process (McKenzie and Woodruff, 2012).
While traditional training programmes for entrepreneurs seem to not have the desired effects on business practices and productivity, more individualistic and diffuse approaches, such as mentoring programmes and horizontal (peer-to-peer) communication, are more promising (McKenzie and Woodruff, 2013).
Looking at the long-term effects of changes to management practices in MSMEs, the evidence is ambiguous. For example, an experimental study in Ghana shows that over time, firms largely reverted to their prior business practices (Karlan et al., 2015). On the other hand, a study in Mexico provides evidence that firms that received management consulting support increased their scale of business during a five-year period after the intervention, with a 57% increase in the number of employees (Bruhn et al., 2010).