Productivity: Introduction
Large productivity variation also within countries:
- In average US 4 digit industry plant at 90th percentile has ~4x labor productivity of 10th percentile
- Controlling for other inputs, TFP difference is about 2:1
- In India this gap is about 5:1
Difference between most and least productive firms larger in service rather than manufacturing
Measuring management: Obstacles
- No motivation
- Difficulty
World Management Survey
- 18 management practices
- Conditional correlations show a positive relationship - not necessarily a causal relationship
- Management score strongly predictive for firm performance, including long-run growth
Management Practices in Mumbai
An empirical study: Giorcelli (2019)
Evaluation of long term effects of the Technical Assistance Program in Italy
using micro firm level data:
Sustained effects in the long run in:
- Survival, productivity
- Investments, human capital, markups, exporting
Management productivity and Technology increase but Management more
An empirical study: Bloom, Sadun & Van Reenen (2016)
Key finding: management accounts for about 30% of across firms and
across-country differences
Conclusions: Management practices
Measuring management is possible
- Correlational and causal effect that management matters
- 1std change in management →10% productivity
- 30% of productivity gaps across countries
- Contrary to standard assumption that firms live on the
productivity frontier
- Implementation matters and can make a difference
Different managerial practices across firms
- Differences across and within countries
- Variation in basic practices is puzzling
Four concerns: different Management practices
- Awareness (No link between self-scores and performance)
- Skills
- Incentives
- Organizational Frictions
How to overcome the lack of awareness?
Run an RCT in which information on benefits of quality management is randomized.
Key findings:
• Large variance in estimated benefits of QM across managers
• Smaller mistakes among educated managers
• Sizeable effects of information debriefing with government officials
• Treated companies more likely to adjust their beliefs on benefits
of QM, adopt QM, and improve performance
Adressing Skills
Education for Non-Managers and Managers Appear Linked
to Better Management (in manufacturing and retail)
Related research on 10,000 small (entrepreneurial)
firms in LDCs finds a similar importance for education
How to overcome the local skills gaps?
- Supply of universities within regions linked to management
and skill premia (Feng and Valero, 2019) - Through formal management training courses (Bruhn et al,
2018), but effectiveness linked to delivery methods (Maloney
and Iacovone, 2019) - Acquisitions as direct transmission mechanisms
-> Better managed firms more likely to M&A and improve
management of target firm (Bai et al 2018)
-> A way through which MNEs may improve productivity
across countries
Addressing Incentives:
Positive effect of competition on TFP
Positive relation between competition and management
Some experiments on institutions and management
- China WTO: Growth of Chinese exports by industry using
accession natural experiment find significant rises in
management (Bloom, Draca and Van Reenen, 2015) - Political marginals: Hospital competition in UK under mid-2000s
reforms (Bloom, Propper, Seiler & Van Reenen, 2015), find
positive impact of management - Labor Regulation: effect of right to work law implemented in
Indiana and Michigan in 2012. They compare with Kentucky,
Ohio, Wisconsin and Illinois and found incentives practices were
statistically lower in the last.
What is the impact of a family/founder CEO on the adoption of management practices?
Family/Founder CEOs: Tend to be chosen based on gender/order of birth, not managerial competence
Preferences:
• May prefer direct control vs. standardized management practices that make them replaceable (Rajan, 2011)
• Consistent with systematic differences in delegation and quality of
middle managers employed in these firms (Bandiera, Guiso, Prat and
Sadun, 2015)
Addressing Organizational Frictions
Implementation of these practices is crucially depending on context:
- The state-dependent actions necessary to meet these expectations cannot be the subject of a formal contract
- Adoption is based on relational contracts, roughly, understandings that the parties share about their roles in and rewards from cooperating together, which cannot be enforced by a court
Trust and history
Trust between workers and supervisors enables adoption Historical factors shape trust in and within each country
- > Education (enrollment in 1920s)
- > Ethnic fractionalization
- > Exposure to efficient autocratic regimes
- > Regional differences in trust correlated with more decentralized decision making and practices
Trust and leadership behavior
Leader as culture maker (Schein, 1992)
- Implies a view of corporate culture as endogenous to firm choices
- Some evidence on endogeneity of culture
- CEO behavior as an input to culture
- What CEOs do employees perceptions of what matters and payoffs of different types of behavior
- Behavior shapes credibility and clarity of the relational contract between managers and employees
Conclusions
- Management practices vary across firms and countries
- Awareness, Skills, Incentives and Organizational frictions can explain these differences
- Diffusion of practices is not frictionless
- From basic to complex
- Direct and visible leadership commitment may facilitate adoption
Variations of performance in the public sector are imperfectly overcome
- Multi-tasking. When tying rewards to objectively measured outcomes, agents reduce effort on non-targeted outcomes
- Influence activities if use subjective performance measurement
- Multiple principals. Goals unclear
- Preferences. Risk aversity limits high powered incentives. Performance pay can de-motivates agents
Two aspects of Public Management: Measurement and variation of management across public sectors
McCormack, Propper & Smith (2013)
-> Performance is measured through perceptions on teaching, research
and good university guides in 112 Universities.
-> Results: Older research intensive universities score better than
newer teacher focused universities and huge heterogeneity within
universities
Fryer (2012)
-> RCT on introducing Charter teaching & management practices in
Houston public schools.
-> Result: Increased math score by 0.28 SD & reading by 0.08 SD
Rasul & Rogger (2013).
Case of Nigerian Civil Service.
-> Results: increases in management score reduced
performance (successful project completion) and
increases in autonomy increased performance
Two aspects of Public Management: Healthcare
Positive correlation between management and health outcomes around the world (however cross country and within country measurement variation)
- Significant variation in managerial pay across hospitals,
uncorrelated with hospital performance (Joynt et al, 2016)
- Considerable variation in pricing across and within hospitals,
and higher prices in less competitive areas (Craig et al 2019)
- Heterogeneity in adoption of a revenue generating practice
(Sacarny, 2018)
How can the management gap be closed in healthcare?
1 The role of managerial training
- Selection to managerial roles often based on seniority, not
skills (and typically dreaded by clinicians) - No systematic managerial training available once promoted
- Clinical leaders with management training associated with
significantly higher management scores and better clinical
outcomes ( WMS)
How can the management gap be closed in healthcare? pt 2
2 The role of CEOs
- CEOs with clinical training more effective in academic hospitals and
CEOs with private sector background more effective in highly competitive environments - Although, there is no evidence of systematic and persistent differences in hospital outcomes across CEOs
- Ongoing work on this area. There is already evidence on the influence
of the CEOs’ management style in the private sector1and in the public
sector for the case of schools
