1. How much does management matter?
Nick Bloom (Stanford)
working with Raffaella Sadun (HBS) & John Van Reenen (LSE)
OECD-NBER, September 26th 2014

2. Long debate over the importance of
management for growth and development
Francis Walker wrote a paper
called in 1887 in the
Quarterly Journal of
Economics called “The
Sources of Business Profits”
Walker argued that
management was the key
driver of differences in firm
performance

3. But there is still a wide debate – many people
claim management is all “hot air” or “BS”
“No potential driving factor of
productivity has seen a higher ratio
of speculation to empirical study”
- Chad Syversson (2011, Journal
of Economic Literature)

4. I will try to summarize 10+ years research in 2 areas
1) Measuring management
2) Impact of management on performance
- Regression results
- Field experiments

5. World Management Survey has covered about
20,000 manufacturing firms globally since 2004

6. Basic survey methodology – 3 key steps
1) Developing management questions
• Scorecard for 18 monitoring and incentives practices in ≈45
minute phone interview of manufacturing plant managers
2) Getting firms to participate in the interview
• Introduced as “Lean-manufacturing” interview, no financials
• Official Endorsement: Bundesbank, RBI, PBC, World Bank etc.
3) Obtaining unbiased comparable responses, “Double-blind”
• Interviewers do not know the company’s performance
• Managers are not informed (in advance) they are scored

7. Example monitoring question, scored based on a number of
questions starting with “How is performance tracked?”
Score (1): Measures
tracked do not
indicate directly
if overall
business
objectives are
being met.
Certain
processes aren’t
tracked at all
(3): Most key
performance
indicators
are tracked
formally.
Tracking is
overseen by
senior
management
(5): Performance is
continuously
tracked and
communicated,
both formally and
informally, to all
staff using a range
of visual
management tools

8. Examples of performance metrics – Car Plant

9. Examples of a performance metrics – Hospital
9

10. Examples of performance metrics – Retail (Ctrip)

11. Examples of performance metrics – Heathrow T5

12. Example of no performance metrics: Textile Plant

13. Example incentives question, scored based on questions
starting with “How does the promotion system work?”
Score (1) People are
promoted
primarily upon
the basis of
tenure,
irrespective of
performance
(ability & effort)
(3) People
are promoted
primarily
upon the
basis of
performance
(5) We actively
identify, develop
and promote our
top performers

14. Examples of performance reviews – Retail Bank
14

16. 16

17. Wide spread of management in manufacturing
N=84
N=130
N=108
N=58
N=100
N=1289
N=176
N=403
N=412
N=632
N=313
N=455
N=523
N=323
N=150
N=136
N=307
N=160
N=611
N=107
N=322
N=755
N=569
N=1150
N=840
N=152
N=102
N=180
N=269
N=364
N=1208
N=658
2 2.5 3 3.5
Average Management Scores, Manufacturing
United States
Japan
Germany
Sweden
Canada
Great Britain
France
Italy
Australia
Mexico
Poland
Singapore
New Zealand
Northern Ireland
Portugal
Republic of Ireland
Chile
Spain
Turkey
Greece
China
Argentina
Brazil
India
Colombia
Kenya
Nicaragua
Ethiopia
Ghana
Zambia
Tanzania
Mozambique
Africa
Asia
Australasia
Europe
Latin America
North America

18. Average manufacturing management scores across
countries are strongly correlated with GDP
Africa
Australasia
Asia
Europe
Latin America
North America
management x log of GDP PPP per capita
Ethiopia
Ghana
Kenya
Zambia
Tanzania
Mozambique
United States
Germany
Sweden
Australia
Italy
New Zealand
China
India
Japan
Singapore
France
Greece
Poland
Portugal
Spain Republic of Ireland
Chile
TurkAergyentina Brazil
Colombia
Mexico
Canada
2 2.5 3 3.5
Average management practices
7 8 9 10 11
Log of 10-yr average GDP based on PPP per capita GDP(Current int'l $ - Billions)
Note: April 2013, World Economic Outlook (IMF) indicator

19. Management also varies heavily within countries
0 .5 1 1.5 0 .5 1 1.5 0 .5 1 1.5 0 .5 1 1.5
Argentina Australia Brazil Canada Chile
China France Germany Greece India
Italy Japan Mexico New Zealand Poland
Portugal Republic of Ireland Sweden United Kingdom United States
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

20. Also been looking at other sectors: hospitals
1.9
2.2
2.4
2.5
2.5
2.7
2.6
2.8
3.0
US
UK
Sweden
Germany
Canada
Italy
France
Brazil
India
1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1
Average Management Score
Randomly surveyed population of hospitals in each country that offer acute care (take
emergencies), and have an orthopaedics and/or cardiology department. Total of 1687 hospitals.

21. Again see a very wide spread in hospitals
1 US 2 UK 3 Sweden
4 Germany 5 Canada 6 Italy
7 France 8 Brazil 9 India
Source: www.worldmanagementsurvey.com
0 .5 1 1.5 0 .5 1 1.5 0 .5 1 1.5
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Graphs by Country

22. Also been looking at other sectors: high-schools
2.94
2.82
2.80
2.78
2.55
1.99
1.72
n
232
127
323
1 1.5 2 2.5 3 3.5
Management Score
UK
Sweden
US
Canada
Germany
Italy
India
School Management Scores, by Country
91
77
138
287
Randomly surveyed population of high schools in each country with 100+ pupils aged 15.

23. So we find a huge spread in management
practices across firms and countries….
….but does this matter?

24. I will try to summarize 10+ years research in 2 areas
1) Measuring management
2) Impact of management on performance
- Regression results
- Field experiments

25. Management score decile
Productivity
Profit
Output growth
Exporters
R&D per employee
Patents per employee
These management scores are positively correlated
with firm performance

26. These management scores are positively correlated
with firm performance – even with many controls

27. This positive correlation with performance has been
pretty much true in every sector examined
For example, higher management scores correlated with:
• Hospitals: Higher case-mix survival from heart-attack & surgery
• Schools: Better test scores
• Retail: Great profits and sales
• Universities: Higher research rankings

28. Of course this correlation may not be causal.
So I’ve also been working with the World Bank
on management randomized control trial

29. I will try to summarize 10+ years research in 2 areas
1) Measuring management
2) Impact of management on firm and national performance
- Regression results
- Field experiments

30. Took 28 large textile plants near Mumbai
and randomized into treatment (improved
management) & control (same as before)

31. Inventory Control: Before

32. Inventory Control: After

33. Factory operations: Before

34. Factory operations: After

35. Spare parts: Before

36. Stores: After

37. Stores: After

38. Factory information: Before

39. Factory information: After

40. These simple management improvements
increased productivity by 20% within 1 year alone
80 100 120 140
Treatment plants
Control plants
-15 -10 -5 0 5 10 15 20 25 30 35 40 45 50 55 60
Weeks after the start of the management experiment
Productivity (output per worker)
Source: Bloom, Eifert, Mahajan, McKenzie & Roberts, forthcoming Quarterly Journal of Economics

41. Combining this data we estimate management
accounts for about 25% of the differences in
productivity across firms & countries
Country Share of TFP gap with the US
due to Management
US baseline
Sweden 7.8%
Japan 10.4%
Canada 22.4%
Great Britain 36.5%
Italy 47.7%
France 38.7%
Brazil 16.9%
China 14.9%
Argentina 20.6%
Portugal 48.2%
Greece 32.4%
Unweighted av. 25%
Source: Bloom, Sadun & Van Reenen (2014), “Management as a technology”

42. So why don’t firms just improve their management
practices – one reason is they cannot self assess

43. In fact we formally investigated if firms can self-assess
their management practices….
We asked at the end of the survey:
“Excluding yourself, how well managed would you say
your firm is on a scale of 1 to 10, where 1 is worst
practice, 5 is average and 10 is best practice”

44. …and found firms are too optimistic on management
0 .1 .2 .3 .4
Density
“Average”
1 2 3 4 5 6 7 8 9 10
Self scored management

45. …and self-scores show no link to performance
-20 0 20 40 60
Profits (ROCE)
0 2 4 6 8 10
Self scored management

46. So how can we work to improve management – in
our research we find four key factors:
1) Education (of both managers and non-managers)
2) Free markets (competition and strong legal systems)
3) Professional management (not family-firm CEOs)
4) Light government regulation (notably labor regulations)

47. Further reading – good recent summary

48. More research, policy briefs & media available here
www.worldmanagementsurvey.com

49. MY FAVOURITE QUOTES:
The difficulties of defining ownership in Europe
Production Manager: “We’re owned by the Mafia”
Interviewer: “I think that’s the “Other” category……..although I
guess I could put you down as an “Italian multinational” ?”
Americans on geography
Interviewer: “How many production sites do you have abroad?
Manager in Indiana, US: “Well…we have one in Texas…”

50. MY FAVOURITE QUOTES:
German Sex Toy Manufacturer
Interviewer : “Do you export any of your products?”
Factory Manager: “No, our products only cater for tastes in our
local market”

51. MY FAVOURITE QUOTES:
Don’t get sick in Britian
Interviewer : “Do staff sometimes end up doing the wrong sort
of work for their skills?
NHS Manager: “You mean like doctors doing nurses jobs, and
nurses doing porter jobs? Yeah, all the time. Last week, we had
to get the healthier patients to push around the beds for the
sicker patients”
Don’t do Business in Indian hospitals
Interviewer: “Is this hospital for profit or not for profit”
Hospital Manager: “Oh no, this hospital is only for loss making”