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Does Management Matter? Evidence from India
Journal article · The Quarterly Journal of Economics · 128(1), 1–51 · Version date: February 2013
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Tangible Capital Surplus versus Intangible Asset Financing Frictions
"So investments on the scale of $3,000 (the first-year costs of these management changes excluding the consultants' fees) are unlikely to be directly impeded by financial constraints. Of course, financial constraints could impede hiring international consultants. The estimated market cost of our free consulting would be $250,000, and, as an intangible investment, it would be difficult to collateralize."
Selective Attention and Cognitive Barriers to Experiential Learning
"Recent work by Schwartzstein (2012) and Hanna, Mullainathan, and Schwartzstein (2012) highlights, however, that cognitive limitations could prevent directors and managers from noting the impact of such variables that they had not thought important, so the information would be ignored."
Asymmetric Information and Lemons Market Failure in Advisory Services
"Indian firms are bombarded with solicitations from businesses offering to save them money on everything from telephone bills to yarn supplies, and thus are unlikely to be receptive."
Cross-Country Productivity Dispersion and Management Gap
"The results reveal a thick tail of badly run Indian firms, leading to a lower average management score (2.69 for India versus 3.33 for U.S. firms)."
Design-Wise Costing Accuracy and Order Prioritization
"Using design-wise efficiency analysis so pricing can be based on actual (rather than average) production costs."
Double-Blind Management Scoring Methodology (BVR Framework)
"The BVR methodology scores firms from 1 (worst practice) to 5 (best practice) on management practices related to monitoring, targets, and incentives. Aggregating these scores yields a basic measure of the use of modern management practices that is strongly correlated with a wide range of firm performance measures..."
Experimental Self-Selection Verification and External Validity
"We found the 17 project firms were not significantly different in terms of preintervention observables from the 96 nonproject firms that responded to this survey."
Frictional Market Survival of Inefficient Firms
"Because spans of control are constrained, productive firms are limited from expanding, so reallocation does not drive out badly run firms. Because entry is limited, new firms do not enter rapidly."
Hawthorne Effect Control via Diagnostic-Only Counterfactual Design
"Both sets of plants got the initial diagnostic period and the follow-up measurement period, with the only difference being the treatment plants also got an intensive consulting during the intermediate implementation stage... Hence, it cannot be simply the presence of the consultants or the measurement of performance that generated the relative improvement in performance of treatment firms."
Informational Barriers to Management Practice Adoption
Informational Barriers to Management Practice Adoption
"Our results suggest that informational barriers were the primary factor explaining this lack of adoption."
Intra-Firm Knowledge Spillovers vs. Inter-Firm Spillover Friction
"As a result, although spillovers across plants within firms occurred rapidly as shown in Figure V, spillovers between firms were very limited."
Systematic Inventory Control and Dead Stock Elimination
"After cataloging, the firms sold or used up the surplus yarn (by incorporation into new designs), and then introduced restocking norms for future purchases and monitored against these weekly."
Productivity and Profitability Payoffs of Lean Operations
"We find that adopting these management practices raised productivity by 17% in the first year through improved quality and efficiency and reduced inventory, and within three years led to the opening of more production plants."
Instrumental Variables Correction for Management Measurement Error
"We find that the fixed-effects estimates tend to understate the gain in performance from better management, which is consistent with changes in management being more likely to be implemented when outcomes are declining."
Management Practices as Complementary Intangible Capital
"So given the $250,000 that the consultancy reported it would have charged an individual firm for comparable services if it paid directly, this implies about a 130% one-year rate of return."
Management Practice Complementarities
"Implementing these practices to monitor and electronically record data without implementing the complementary practices to use and act on these data is intuitively likely to have more limited effects."
Persistence of Management Practices Post-Intervention
"These improvements in management practices were also persistent. The management practice adoption rates dropped by only 3 percentage points, on average, between the end of the first wave in August 2010 (when the consultants left) and the start of the second wave in August 2011."
Market Reallocation Barriers and Bad Management Persistence
"Because spans of control are constrained, productive firms are limited from expanding, so reallocation does not drive out badly run firms."
Non-Family Manager Career Lockout and Incentive Deficits
"They had both limited control over factory management and also limited incentives to improve performance because promotion is not possible (only family members can become directors) and there were no bonus systems..."
Owner Time Constraints and Procrastination in Process Adoption
"Although initially owners' time accounted for only 3.7% of nonadoption in treatment plants, by nine months it accounted for 14.0% as a backlog of management changes built up that the owners struggled to implement."
Structured Worker Performance and Attendance Incentive Systems
"Visual displays around the factory floor together with the incentive schemes also encouraged workers to improve operating efficiency and attendance levels."
Preventive Maintenance versus Run-to-Failure Operational Bias
"Regular maintenance of machines and recording the reasons for breakdowns to learn from failures."
Regulatory and Union Evasion via Plant Splitting
"Expansion occurred through increasing the number of plants (as opposed to expanding current plants) as this apparently reduced the risk of unionization and regulatory problems."
Legal Enforcement Deficits and Decentralization Barriers
"Even if directors found managers stealing, their ability to successfully prosecute them and recover the assets is likely minimal because of the inefficiency of Indian courts."
Small-Sample Large-T Econometric Experimental Design
"To address concerns over statistical inference in small samples, we implemented permutation tests whose properties are independent of sample size. We also exploited our large time series of around 100 weeks of data per plant by using estimators that rely on large T (rather than large N) asymptotics."
Capital-Technology and Management Practice Complementarity
"The firm directors began replacing older Sulzer and Rapier looms with Jacquard looms, which produce higher mark-up fabric but require more advanced quality control and maintenance practices."