Randomized Experimental Management Evaluations
RCTReview
Observational studies linking good management practices to higher firm profitability suffer from reverse causality, making it difficult to prove whether better management actually causes productivity gains in large enterprises.
Picture this
Think of testing whether a new fertilizer increases crop yield. If you only look at rich farms using the fertilizer, you cannot tell if the high yield comes from the fertilizer or from better soil and wealthier owners. By randomly picking half the fields to receive fertilizer while leaving the other half untreated, any difference in harvest can be attributed directly to the fertilizer.
What the evidence says
Randomized assignment isolated the direct causal impact of management practices, proving an estimated annual profit increase of US$325,000 per treatment plant.
- Who was studied
- N = 17 large manufacturing textile firms (28 factory sites) around Mumbai, India, randomly divided into 11 treatment firms and comparison firms.
- How
- Randomized Controlled Trial (RCT) featuring diagnostic, 4-month intensive implementation, and light maintenance consulting phases.
What to do
Deploy randomized evaluation designs with control groups when piloting major operational or managerial changes across multi-site corporate operations.
From the source
"Researchers tested the effect of management practices by randomly assigning some Indian textile firms to receive free consulting advice. Firms that received this advice significantly raised their productivity within a year..."
Increasing_Firm_Productivity_through_Management_Consulting_Services.pdf