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Management Practices in Europe, the US and Emerging Markets

Management Practices in Europe, the US and Emerging Markets. Nick Bloom (Stanford Economics) John Van Reenen (Stanford GSB/LSE) Lecture 2. 1. Background to the management research The basics Some extensions Talent management. 2. THE SURVEY METHODOLOGY.

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Management Practices in Europe, the US and Emerging Markets

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  1. Management Practices in Europe, the US and Emerging Markets Nick Bloom (Stanford Economics) John Van Reenen (Stanford GSB/LSE) Lecture 2 1

  2. Background to the management research • The basics • Some extensions • Talent management 2

  3. THE SURVEY METHODOLOGY • 1) Developing management questions • Scorecard for 18 monitoring, targets and incentives practices • ≈45 minute phone interview of manufacturing plant managers • 2) Obtaining unbiased comparable responses (“Double-blind”) • Interviewers do not know the company’s performance • Managers are not informed (in advance) they are scored • Run from London, with same training and country rotation • 3) Getting firms to participate in the interview • Introduced as “Lean-manufacturing” interview, no financials • Official Endorsement: Bundesbank, PBC, CII & RBI, etc. • Run by 78 MBAs types (assertive with business experience) 3

  4. MONITORING - i.e. “HOW IS PERFORMANCE TRACKED?” 4

  5. THIS SURVEY TECHNIQUE ALSO HAS A WIDER USE • Collecting data from people in firms • In many situations people do not want to provide data • So as a consultant I had to use “blind-interview” techniques • Interviewing candidates • Some consulting firms also use this “blind interviews” for recruitment • Reason is they want to get to the truth from candidates 5

  6. MANAGEMENT SURVEY SAMPLE • Interviewed about 6000 firms across Asia, Europe, US & South America • Obtained 44% coverage rate from sampling frame (with response rates uncorrelated with performance measures) • Have run 3 waves to date (2004, 2006, 2009) • Medium sized manufacturing firms: • Medium sized (100 - 5,000 employees, median ≈ 250) because firm practices more homogeneous • Manufacturing as easier to measure productivity(also analyzed Hospitals, Schools, Retail and Law Firms) 6

  7. Video of Data Collection http://www.youtube.com/watch?v=HgJXt8KwhA8 7

  8. INTERNAL VALIDATION: RE-RATER ANALYSIS Re-interviewed 222 firms with different interviewers & managers Firm average scores (over 18 question) Firm-level correlation of 0.627 2nd interview 1st interview 8

  9. EXTERNAL VALIDATION: FIRM PERFORMANCE Performance measure management (average z-scores) ln(capital) other controls ln(labor) ln(materials) • Use most recent cross-section of data • Note – not a causal estimation, only an association (e.g. correlation of management with TFP) 9

  10. EXTERNAL VALIDATION: BETTER PERFORMANCE IS CORRELATED WITH BETTER MANAGEMENT Includes controls for country, with results robust to controls for industry, year, firm-size, firm-age, skills etc. Significance levels: *** 1%, ** 5%, * 10%. Sample of all firms where accounting data is available 10

  11. EXTERNAL VALIDATION: PERFORMANCE RESULTS ROBUSTNESS ACROSS COUNTRIES • Performance results robust in all main regions: • Anglo-Saxon (US, UK, Ireland and Canada) • Northern Europe (France, Germany, Sweden & Poland) • Southern Europe (Portugal, Greece and Italy) • East Asia (China and Japan) • South America (Brazil) 11

  12. THE LINK BETWEEN PRODUCTIVITY AND MANAGEMENT HOLDS TRUE ACROSS DIFFERENT COUNTRIES JP PT U.S. U.K. CN FR DE IT GR SE PL * Log scale (sales per worker) ** Firms are grouped in 0.5 increments of assessed management score

  13. EXERNAL VALIDATION: WELL MANAGED FIRMS ARE ALSO MORE LIKELY TO EXPORT Share of firms exporting Management score (rounded to nearest 0.5) 13

  14. Background to the management research • The basics • Some extensions • Talent management 14

  15. EXTENSION 1: WELL MANAGED FIRMS ALSO APPEAR TO TREAT WORKERS BETTER Firm level work-life balance score Management score (rounded to nearest 0.5) Source: Bloom, Kretschmer and Van Reenen, “Work life balance, management practices and productivity”, (2009, NBER). Notes: Data for 468 firms from UK, US, Germany and France surveyed in 2004, when we included WLB questions.

  16. EXTENSION 2: WELL MANAGED FIRMS ALSO APPEAR TO BE MORE ENERGY EFFICIENT 1 point higher management score associated with about 20% less energy use Energy use, log( KWH/$ sales) Management Source: Bloom, Genakos, martin and Sadun, NBER WP14394. Analysis uses Census of production data for UK firms

  17. FINALLY, OUR LARGE SAMPLE ILLUSTRATES THE RISKS OF RELYING ONLY ON CASE STUDIES Case studies provide rich firm-level details, but the variation in management practices means these can easily be misleading(e.g. Enron, was a case-study favorite with many HBS cases) Log of Sales/employee ($’000) Management score

  18. Examples of management as a technology? Waves of management technologies have arisen over time • American System of Manufacturing (1850s) • Taylor’s Scientific management (1900s) • Mass production (1920s) • Alfred Sloan’s M-form firm (1930s) • Demming’s quality movements (1950s) • Toyota production system (1970s) 18

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