Management Practices, Working Conditions and Productivity around the - PowerPoint PPT Presentation

Management Practices, Working Conditions and Productivity around the World Renata Lemos University of Cambridge Centre for Economic Performance, LSE

Outline • Motivation • Measuring Management: The Data • Management Practices and Firm Performance • Describing Management across Firms and Countries • Firm Characteristics Linked to Differences in Management Practices

Motivation: Persistent productivity g ap … … between developing and … within countries and more developed countries industries • • Within US SIC4, the plant at the 90 th Large income & TFP differences between countries percentile of the productivity distribution makes almost twice as much output with the same measured inputs as the 10th percentile plant (TFP ratio of 1.92) • In India and China, larger productivity differences (TFP ratio of over 5). Larger productivity variation outside US. • Source: Syverson (2004, 2011) and Hsieh and Klenow (2009). • Source: Jones and Romer (2009). US=1 Among several explanatory factors: MANAGEMENT PRACTICES

Motivation: But why focus on management practices? Management practices play an important role in improving working conditions across firms and countries • Origins: Early 30s and 40s - The Behavioural School of Management Thought • Hawthorn Studies (Mayo 1933; Mayo 1949, Roethlisberger & Dickson 1939) • Improving worker voice, empowerment and skills through participatory management as a means to improve working conditions and to achieve efficiency improvements Many management practices changes require low levels of capital investment • Management changes as business investment with long-term benefits and contributing to productivity returns • Win-win scenario without high costs as barriers to buy-in

Outline • Motivation • Measuring Management: The Data • Management Practices and Firm Performance • Describing Management across Firms and Countries • Firm Characteristics Linked to Differences in Management Practices

World Management Survey (www.worldmanagementsurvey.org) First ever large-scale international management database with data from over 10,000 firms interviews collected since 2004 across 21 countries

How to measure management practices 1) Develop management practice scoring grid • Scorecard for Operations Management & Performance Monitoring, Target Setting, and People Management • 45- minute phone interview with manufacturing plant managers 2) Obtain unbiased responses • “Double - blind” • Managers are not informed (in advance) they are scored • Interviewers do not know company performance • Open ended questions • Minimum amount of interviews per interviewer plus noise controls • Double-scoring 3) Get managers to participate in the interview • Introduced as confidential conversation about management, no financials discussed • Endorsement of Bundesbank, Banque de France, UK Treasury, World Bank, etc. • Run by 100+ MBAs and postgraduates who are loud, pushy and have business experience • Monitor interviewer’s performance in scheduling with managers • Overall response rate of 50%, uncorrelated with performance measures 4) Sample of Companies • Random selection of medium and large manufacturing firms (100-5000 employees) from population databases across countries

Example questions from the scorecard show top management practices value worker’s voice, empowerment and skills Operations & Performance - “ How are problems typically exposed and fixed? ” Score (1) No process (3) Improvements are (5) Exposing problems in a improvements are made in 1 week structured way is integral to individuals’ responsibilities and made when problems occur workshops involving all staff (to improve resolution occurs as a part of performance in their area normal business processes of the plant) rather than by extraordinary effort/teams Target setting - “ How are problems typically exposed and fixed? ” Score (1) Goals are based purely on (3) Corporate goals are (5) Corporate goals focus on accounting figures (with no based on shareholder shareholder value. They clear connection to value but are not clearly increase in specificity as they shareholder value) cascaded down to cascade through business individuals units ultimately defining individual performance expectations Talent Management - “ How does the promotion system work? ” Score (1) People are promoted (3) People are promoted (5) We actively identify, develop primarily upon the basis of upon the basis of and promote our top tenure performance performers Note : All 18 topics and over 50 examples in Bloom & Van Reenen (2007).

Outline • Motivation • Measuring Management: The Data • Management Practices and Firm Performance • Describing Management across Firms and Countries • Firm Characteristics Linked to Differences in Management Practices

Higher management scores are significantly associated with better performance (not a causal estimation) Sample: (1) (2) (3) (4) (5) (6) All Firms All Firms All Firms All Firms All Firms All Firms Profitability 5-Year Sales Dependent variable: Log (Sales) Log (Sales) Log (Sales) (ROCE) Growth (%) Exit (%) Management 0.523*** 0.233*** 0.048** 1.952*** 6.738*** -1.138** (0.030) (0.024) (0.022) (0.444) (1.984) (0.498) Ln(Employees) 0.915*** 0.659*** 0.364*** (0.019) (0.026) (0.109) Ln(Capital) 0.289*** 0.244*** (0.020) (0.087) Country controls No Yes NA Yes Yes Yes Industry controls No Yes NA Yes Yes Yes General controls No Yes NA Yes Yes Yes Firm fixed effects No No Yes No No No Organizations 2,927 2,927 1,453 2,927 2,927 2,927 Observations 7,094 7,094 5,561 7,094 7,094 7,094 Source: Bloom, Genakos, Sadun, Van Reenen (2013) Note : All columns estimated by ordinary least squares (OLS) with standard errors are in parentheses under coefficient estimates clustered by firm. *** denotes 1% significance, ** denotes 5% significance, and * denotes 10% significance. Sample is all firm-years with sales, employment, capital, ROCE, and 5-year sales growth data, except column 3, which also restricts to firms with two or more surveys and drops the noise controls (which have little time series variation), and column 6 which just used the most recent year to evaluate exit. Management is the organization-level management score. Profitability is ROCE, and 5-Year Sales Growth is the 5-year growth of sales. Exit means the firm was liquidated or went bankrupt. Country controls are a full set of country dummies. Industry controls are 162 SIC three-digit dummies. Controls : General controls comprise firm-level controls for average hours worked and the proportion of employees with college degrees (from the survey), plus a set of survey noise controls that are interviewer dummies, the seniority and tenure of the manager who responded, the day of the week the interview was conducted, the time of day the interview was conducted, the duration of the interview, and an indicator of the reliability of the information as coded by the interviewer.

Performance improvements in randomized control trials on the adoption of improved management practices 140 (normalized to 100 prior to diagnostic) Total factor productivity 120 Treatment plants Control plants 100 80 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 Weeks after the start of the management changes Source: Bloom, Eifert, Mahajan, McKenzie, Roberts (2013) Note : Weekly average total factor productivity for the 14 treatment plants which adopted modern management practices for quality, inventory and production efficiency and the 6 control plants. All plants make cotton fabric near Mumbai, India, with between 100 and 1000 employees. Values normalized so both series have an average of 100 prior to the start of the intervention. Confidence intervals bootstrapped over firms.

Outline • Motivation • Measuring Management: The Data • Management Practices and Firm Performance • Describing Management across Firms and Countries • Firm Characteristics Linked to Differences in Management Practices

Management practices across countries: Lower- and upper-middle income countries are poor by international standards The median firm is privately owned and United States N=935 Japan N=176 around 38 years Sweden N=388 old. Canada N=385 Germany N=442 Italy N=284 Great Britain N=976 France N=462 Australia N=392 It employs around New Zealand N=106 Northern Ireland N=103 330 workers, Poland N=351 operates across two Mexico N=189 Portugal production plants, N=247 Rep. of Ireland N=106 and exports 20% of Chile N=275 Argentina its production. N=249 Greece N=251 High income countries Brazil N=569 Upper-middle income countries India N=720 China N=746 Lower-middle income countries 2.6 2.8 3 3.2 3.4 Average management score by country Note: Includes control for firm size Source : Data from 8352 firm interviews between 2006 and 2010.