Management Practices

Question 1

Productivity: Introduction

Answer 1

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

Question 2

Measuring management: Obstacles

Answer 2

• No motivation

- Difficulty

Question 3

World Management Survey

Answer 3

• 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

Question 4

Management Practices in Mumbai

Question 5

An empirical study: Giorcelli (2019)

Answer 5

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

Question 6

An empirical study: Bloom, Sadun & Van Reenen (2016)

Answer 6

Key finding: management accounts for about 30% of across firms and
across-country differences

Question 7

Conclusions: Management practices

Answer 7

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

Question 8

Different managerial practices across firms

Answer 8

• Differences across and within countries

- Variation in basic practices is puzzling

Question 9

Four concerns: different Management practices

Answer 9

• Awareness (No link between self-scores and performance)
• Skills
• Incentives
• Organizational Frictions

Question 10

How to overcome the lack of awareness?

Answer 10

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

Question 11

Adressing Skills

Answer 11

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

Question 12

How to overcome the local skills gaps?

Answer 12

• 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

Question 13

Addressing Incentives:

Answer 13

Positive effect of competition on TFP

Positive relation between competition and management

Question 14

Some experiments on institutions and management

Answer 14

• 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.

Question 15

What is the impact of a family/founder CEO on the adoption of management practices?

Answer 15

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)

Question 16

Addressing Organizational Frictions

Answer 16

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

Question 17

Trust and history

Answer 17

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

Question 18

Trust and leadership behavior

Answer 18

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

Question 19

Conclusions

Answer 19

• 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

Question 20

Variations of performance in the public sector are imperfectly overcome

Answer 20

• 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

Question 21

Two aspects of Public Management: Measurement and variation of management across public sectors

Answer 21

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

Question 22

Two aspects of Public Management: Healthcare

Answer 22

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)

Question 23

How can the management gap be closed in healthcare?

Answer 23

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)

Question 24

How can the management gap be closed in healthcare? pt 2

Answer 24

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