Between 2008 and 2010, we hired a multinational consulting firm to implement an intensive management intervention in Indian textile weaving plants. Both treatment and control firms received a one-month diagnostic, and then treatment firms received four months of intervention. We found (ungated) that poorly managed firms could have their management substantially improved, and that this improvement resulted in a reduction in quality defects, less excess inventory, and an improvement in productivity.
Should we expect this improvement in management to last? One view is the “Toyota way”, with systems put in place for measuring and monitoring operations and quality launch a continuous cycle of improvement. But an alternative is that of entropy, or a gradual decline back into disorder – one estimate by a prominent consulting firm is that two-thirds of transformation initiatives ultimately fail. In a new working paper, Nick Bloom, Aprajit Mahajan, John Roberts and I examine what happened to the firms in our Indian management experiment over the longer-term.
This is the twelfth in this years' job market series.
Family firms are the most prevalent type of firm in the world. This is especially true in emerging economies, where family firms account for over half of medium-sized firms in the manufacturing sector. In particular, dynastic family firms – that is, where the founding family owns a controlling share and have appointed a second-generation (or later) family member as the CEO – account for a quarter of these firms. Since supporting such firms as the “backbone of the economy” is very politically popular (as this skilfully edited video from Last Week Tonight with John Oliver shows), it is crucial to understand more about these firms. More specifically, we need to understand how they operate and what their impact is on the economy and labour markets. Although there is mixed evidence on whether family ownership is a good thing, the weight of the evidence is that dynastic family CEOs are usually bad news for productivity. But why is that the case?
This is an edited excerpt from a chapter, “Quality of Firm Management in Turkey,” from the upcoming report, “Creating Good Jobs in Turkey.”
How well firms are managed, and whether their management quality (or lack thereof) affects firm performance, are questions that policymakers and researchers everywhere – especially in emerging economies – are very interested in answering.
This area of inquiry is important because much of the evidence shows that the quality of management techniques that are used to run a firm – how it manages its capital and human resources, and how it monitors inventory, among other important areas in the production process – affect firm productivity, adaptability to change, and potential for growth. These factors are especially important in competitive and challenging environments.
Despite the potential effect of management practices on firm performance, it is a relatively understudied area in the economics literature. Survey-data limitations have made it difficult for economists to analyze the relationship between firm management practices and firm performance.
But that pattern is changing: The World Management Survey (WMS) team designed a new interview-based evaluation tool to quantify the quality of management practices in firms across countries and sectors, and across 18 basic practices in four categories: operations, target-setting, performance monitoring, and talent or human-resource management. (The WMS was started by researchers at the London School of Economics and Stanford University, and it has been conducting management surveys worldwide for more than 10 years.)
In the last decade, many countries interested in benchmarking their firms’ performance have participated in the surveys. Turkey joined this effort in 2014. The new data allows us to measure how Turkish firms perform across the four benchmark dimensions of management. and it allows us to measure how they compare with competing firms across the globe. The results help the private sector and the public sector offer suitable support to improve firm performance and productivity as a whole.
In this analysis, we’ll share some of the early results from Tukey’s first quality-of-management survey, including how Turkey compares to other countries; we'll highlight the importance of measurement; and we'll try to motivate Turkish researchers and policymakers to use the results to help firms in Turkey.
Average scores for firms in Turkey are low relative to the country’s development level (Figure 1). Firms in comparator countries like Mexico and Poland have higher absolute scores, and relatively higher scores for their development level. (The average scores combine sub-scores for each of the four categories: operations, targeting, monitoring and human resources.)
Figure 1: Per Capita Income and Average Management Score
Note: On this chart, Turkey's position is just above the position of Malaysia.
Source: World Management Survey and authors’ calculations.
Relatively poor performance in Turkey, and key comparator countries, is mostly driven by a large “left tail” of poorly managed firms – a factor that is not uncommon across developing countries (Figure 2). In particular, the fraction of firms performing below the lowest quartile of U.S. firms ranges between 55 percent and 70 percent in such countries as Turkey, Brazil, Poland, Chile, but also China and India. Although there is a large variation in management scores across firms, the distribution of scores in these countries, compared to the distribution in the United States, is either narrow or flat, bimodal and/or nonsymmetrical.
Figure 2: Smooth distribution of total management scores
Note: The vertical red dashed line represents the lowest quartile of the US distribution.
Source: World Management Survey and authors’ calculations.
I have two main points in this blog. The first is a public service announcement in the guise of history. Not so long ago, I heard someone credit the Hawthorne effect to an elusive, eponymous Dr. Hawthorne, of which, in this case, there is not one directly tied to these studies. The second is a call to expand our conception of Hawthorne effects – or really, observer or evaluator effects – in the practice of social science monitoring and evaluation.
The Hawthorne effect earned its name from the factory in which the study was sited: the Western Electric Company’s Hawthorne plant, near Chicago. These mid-1920s studies, carried out by MIT, Harvard, and the US National Research Council researchers were predicated on in-vogue ideas related to scientific management. Specifically, the researchers examined the effect of artificial illumination on worker productivity, raising and lowering the artificial light available to the women assembling electric relays (winding coils of wire) in a factory until the artificial light available was equivalent to moonlight.
The finding that made social science history (first in the nascent fields of industrial and organizational psychology and slowly trickling out from there) was that worker productivity increased when the amount of light was changed, and productivity decreased when the study ended. It was then suggested that the workers’ productivity increased because of the attention paid to them via the study, not because the light was altered.
Thus, the “Hawthorne effect” was named and acknowledged: the change in an outcome that can be attributed to behavioral responses among subjects/respondents/beneficiaries simply by virtue of being observed as part of an experiment or evaluation.
"People who don't take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year."
- Peter Drucker, university professor, writer and business guru. He has written numerous books on management and business and is considered to be the "father of modern management".
The highlands of Ethiopia, especially Tigray, were notorious for their severely degraded land. High population density, unchanged agricultural practices, climate change, the steep topography and intermittent and extreme rainfalls are the main causes of land degradation in the area.
As I was glancing through my twitter feed the other day I run into a Ted Talk on “Why work doesn't happen at work.” Sort of intriguing, I thought, and probably full of good tips for most of us at the Bank Group.
Jason Fried, the talk protagonist, does a lot of thinking about collaboration, productivity and the nature of work. He's the co-founder of 37signals, and co-author of the New York Times-best seller "Rework."
A software entrepreneur, Jason offers some practical suggestions on how we could turn the office into a more productive place. After all, increasing productivity seems crucial to meet the twin goals of reducing poverty and boosting shared prosperity.
So, where do you really go when you need to get work done? That’s the question that Jason has been asking people for about 10 years.
"Management is not an intellectually satisfying occupation. It consists of telling people things that you’re not sure about and they don’t want to hear.”
- Andrew Smithers, Chairman and Founder of Smithers & Co., a leading advisor to investment managers on international asset allocation. He has contributed regularly to London Evening Standard, Sentaku Magazine and Nikkei Veritas, and he is the author of several books concerning investment, including his most recent, The Road to Recovery: How and Why Economic Policy Must Change (2013).
NGOs must strive for scale if they want to fulfil their roles as enablers and incubators in striving for development