Streamline Training & Documentation: Impact of Quality of Management Practices on Firm Performance

Wednesday, February 03, 2010

Impact of Quality of Management Practices on Firm Performance

As a follow-on to my last two posts, I want to call attention to a piece of experimental research (pdf) conducted by Nicholas Bloom and several colleagues that provides evidence in support of the hypothesis that the quality of management practices significantly influences firm performance.

Bloom et al. summarize their work (which is due to continue through April) as follows:

We run a field experiment on large Indian textile firms to evaluate the causal impact of management on performance. To generate changes in management we provide management consulting to a set of randomly chosen treatment plants, and compare their performance to a set of control plants. We find that improved management practices led to significantly higher efficiency and quality, and lower inventory levels, substantially increasing plants’ productivity and profitability. Firms also transferred these improved management practices from their treated plants to other plants within their group. Since firms adopted and replicated these apparently profitable management practices this raises the question of why these were not adopted previously? Our results suggest that informational barriers are important in explaining this lack of adoption, with modern management practices a type of technology that diffuses slowly between firms. These Indian firms were either unaware of many modern management practices, or did not have the know how to implement them.

The photo below, one of several included in the preliminary draft (pdf) of the authors' paper currently available on the internet, illustrates quite concretely the degree of operational slack crying out for systematic management attention.

The parts store at one of the Indian textile plants included in the sample Bloom et al. are studying
("Management Matters: Evidence from India" [pdf])
Takeaway: This research supports the proposition that it is effective to teach managers specific lean manufacturing practices that help optimize factory operations, inventory control, quality control, human resources, planning, and sales and order management.

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Labels: Coaching, India, Management practices, Productivity, Quality

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