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Management Practices, Working Conditions and
Productivity around the World
Renata Lemos
University of Cambridge
Centre for Economic Performance, LSE
Outline
• Motivation
• Measuring Management: The Data
• Management Practices and Firm Performance
• Describing Management across Firms and Countries
• Firm Characteristics Linked to Differences in Management
Practices
Motivation: Persistent productivity gap …
… between developing and
more developed countries
… within countries and
industries
• Within US SIC4, the plant at the 90th
percentile of the productivity
distribution makes almost twice as
much output with the same
measured inputs as the 10th
percentile plant (TFP ratio of 1.92)
• In India and China, larger
productivity differences (TFP ratio of
over 5). Larger productivity variation
outside US.
• Source: Syverson (2004, 2011) and Hsieh and
Klenow (2009).
Among several explanatory factors: MANAGEMENT PRACTICES
• Large income & TFP differences
between countries
• Source: Jones and Romer (2009). US=1
Motivation: But why focus on management practices?
• Origins: Early 30s and 40s - The Behavioural School of Management Thought
• Hawthorn Studies (Mayo 1933; Mayo 1949, Roethlisberger & Dickson 1939)
• Improving worker voice, empowerment and skills through participatory
management as a means to improve working conditions and to achieve
efficiency improvements
Management practices play an important role in improving
working conditions across firms and countries
Many management practices changes require low levels of
capital investment
• Management changes as business investment with long-term benefits and
contributing to productivity returns
• Win-win scenario without high costs as barriers to buy-in
Outline
• Motivation
• Measuring Management: The Data
• Management Practices and Firm Performance
• Describing Management across Firms and Countries
• Firm Characteristics Linked to Differences in Management
Practices
World Management Survey (www.worldmanagementsurvey.org)
First ever large-scale international management database with data from over
10,000 firms interviews collected since 2004 across 21 countries
How to measure management practices
1) Develop management practice scoring grid
• Scorecard for Operations Management & Performance Monitoring, Target Setting, and People
Management
• 45- minute phone interview with manufacturing plant managers
2) Obtain unbiased responses
• “Double-blind”
• Managers are not informed (in advance) they are scored
• Interviewers do not know company performance
• Open ended questions
• Minimum amount of interviews per interviewer plus noise controls
• Double-scoring
3) Get managers to participate in the interview
• Introduced as confidential conversation about management, no financials discussed
• Endorsement of Bundesbank, Banque de France, UK Treasury, World Bank, etc.
• Run by 100+ MBAs and postgraduates who are loud, pushy and have business experience
• Monitor interviewer’s performance in scheduling with managers
• Overall response rate of 50%, uncorrelated with performance measures
4) Sample of Companies
• Random selection of medium and large manufacturing firms (100-5000 employees) from population
databases across countries
Score (1) No process
improvements are
made when problems occur
(3) Improvements are
made in 1 week
workshops involving all
staff (to improve
performance in their area
of the plant)
(5) Exposing problems in a
structured way is integral to
individuals’ responsibilities and
resolution occurs as a part of
normal business processes
rather than by extraordinary
effort/teams
Operations & Performance - “How are problems typically exposed and fixed?”
Note: All 18 topics and over 50 examples in Bloom & Van Reenen (2007).
Target setting - “How are problems typically exposed and fixed?”
Score (1) Goals are based purely on
accounting figures (with no
clear connection to
shareholder value)
(3) Corporate goals are
based on shareholder
value but are not clearly
cascaded down to
individuals
(5) Corporate goals focus on
shareholder value. They
increase in specificity as they
cascade through business
units ultimately defining
individual performance
expectations
Score (1) People are promoted
primarily upon the basis of
tenure
(3) People are promoted
upon the basis of
performance
(5) We actively identify, develop
and promote our top
performers
Talent Management - “How does the promotion system work?”
Example questions from the scorecard show top management
practices value worker’s voice, empowerment and skills
Outline
• Motivation
• Measuring Management: The Data
• Management Practices and Firm Performance
• Describing Management across Firms and Countries
• Firm Characteristics Linked to Differences in Management
Practices
Higher management scores are significantly associated with better
performance (not a causal estimation)
Note: All columns estimated by ordinary least squares (OLS) with standard errors are in parentheses under coefficient estimates
clustered by firm. *** denotes 1% significance, ** denotes 5% significance, and * denotes 10% significance. Sample is all firm-years
with sales, employment, capital, ROCE, and 5-year sales growth data, except column 3, which also restricts to firms with two or more
surveys and drops the noise controls (which have little time series variation), and column 6 which just used the most recent year to
evaluate exit. Management is the organization-level management score. Profitability is ROCE, and 5-Year Sales Growth is the 5-year
growth of sales. Exit means the firm was liquidated or went bankrupt. Country controls are a full set of country dummies. Industry
controls are 162 SIC three-digit dummies. Controls: General controls comprise firm-level controls for average hours worked and the
proportion of employees with college degrees (from the survey), plus a set of survey noise controls that are interviewer dummies, the
seniority and tenure of the manager who responded, the day of the week the interview was conducted, the time of day the interview
was conducted, the duration of the interview, and an indicator of the reliability of the information as coded by the interviewer.
Sample: (1) (2) (3) (4) (5) (6)
All Firms All Firms All Firms All Firms All Firms All Firms
Dependent variable: Log (Sales) Log (Sales) Log (Sales)
Profitability
(ROCE)
5-Year Sales
Growth (%) Exit (%)
Management 0.523*** 0.233*** 0.048** 1.952*** 6.738*** -1.138**
(0.030) (0.024) (0.022) (0.444) (1.984) (0.498)
Ln(Employees) 0.915*** 0.659*** 0.364***
(0.019) (0.026) (0.109)
Ln(Capital) 0.289*** 0.244***
(0.020) (0.087)
Country controls No Yes NA Yes Yes Yes
Industry controls No Yes NA Yes Yes Yes
General controls No Yes NA Yes Yes Yes
Firm fixed effects No No Yes No No No
Organizations 2,927 2,927 1,453 2,927 2,927 2,927
Observations 7,094 7,094 5,561 7,094 7,094 7,094
Source: Bloom, Genakos, Sadun, Van Reenen (2013)
80
100
120
140
-15 -10 -5 0 5 10 15 20 25 30 35 40 45
Note: Weekly average total factor productivity for the 14 treatment plants which adopted modern management practices for quality,
inventory and production efficiency and the 6 control plants. All plants make cotton fabric near Mumbai, India, with between 100 and
1000 employees. Values normalized so both series have an average of 100 prior to the start of the intervention. Confidence intervals
bootstrapped over firms.
Control plants
Treatment plants
To
tal fa
cto
r p
rod
uctivity
(no
rma
lize
d to
10
0 p
rio
r to
dia
gn
ostic)
Weeks after the start of the management changes
Performance improvements in randomized control trials on the
adoption of improved management practices
Source: Bloom, Eifert, Mahajan, McKenzie, Roberts (2013)
Outline
• Motivation
• Measuring Management: The Data
• Management Practices and Firm Performance
• Describing Management across Firms and Countries
• Firm Characteristics Linked to Differences in Management
Practices
Management practices across countries: Lower- and upper-middle
income countries are poor by international standards
The median firm is
privately owned and
around 38 years
old.
It employs around
330 workers,
operates across two
production plants,
and exports 20% of
its production.
N=746
N=720
N=569
N=251
N=249
N=275
N=106
N=247
N=189
N=351
N=103
N=106
N=392
N=462
N=976
N=284
N=442
N=385
N=388
N=176
N=935
2.6 2.8 3 3.2 3.4Average management score by country
ChinaIndia
BrazilGreece
ArgentinaChile
Rep. of IrelandPortugalMexicoPoland
Northern IrelandNew Zealand
AustraliaFrance
Great BritainItaly
GermanyCanadaSweden
JapanUnited States
Note: Includes control for firm size
High income countries
Upper-middle income countries
Lower-middle income countries
Source: Data from 8352 firm interviews between 2006 and 2010.
Source: Data from 8352 firm interviews between 2006 and 2010.
On average, firms in middle income countries are worse than firms
in most high income countries across the major categories of
management practices
Overall Management Operations Management Performance Monitoring Target Setting Talent Management
United States 3.35 United States 3.30 Sweden 3.64 Japan 3.34 United States 3.23
Japan 3.23 Sweden 3.28 United States 3.61 Germany 3.25 Canada 2.94
Germany 3.22 Germany 3.25 Canada 3.55 United States 3.25 Japan 2.92
Sweden 3.21 Japan 3.17 Germany 3.54 Sweden 3.19 Germany 2.91
Canada 3.17 Australia 3.16 Japan 3.50 Italy 3.10 Northern Ireland 2.88
Great Britain 3.03 Canada 3.15 France 3.44 Canada 3.07 Great Britain 2.84
Italy 3.03 New Zealand 3.11 Great Britain 3.36 Australia 3.02 Sweden 2.83
Australia 3.02 Italy 3.06 Australia 3.29 France 3.00 Poland 2.83
France 3.02 France 2.96 Mexico 3.29 Great Britain 2.97 Rep. of Ireland 2.79
Northern Ireland 2.97 Great Britain 2.92 Portugal 3.27 New Zealand 2.96 Italy 2.77
New Zealand 2.93 Northern Ireland 2.87 Italy 3.26 Poland 2.94 Australia 2.74
Mexico 2.92 Portugal 2.81 New Zealand 3.18 Northern Ireland 2.90 Mexico 2.71
Poland 2.90 Greece 2.79 Northern Ireland 3.17 Mexico 2.88 China 2.69
Rep. of Ireland 2.89 Argentina 2.76 Rep. of Ireland 3.14 Portugal 2.83 France 2.69
Portugal 2.87 Rep. of Ireland 2.75 Chile 3.13 Rep. of Ireland 2.81 Chile 2.66
Chile 2.82 Chile 2.75 Poland 3.12 Chile 2.72 India 2.63
Argentina 2.76 Mexico 2.72 Argentina 3.08 Brazil 2.69 New Zealand 2.63
Greece 2.73 China 2.49 Brazil 3.06 Argentina 2.68 Portugal 2.59
China 2.71 Poland 2.43 Greece 2.97 India 2.66 Greece 2.58
Brazil 2.71 Brazil 2.33 India 2.91 Greece 2.66 Argentina 2.56
India 2.67 India 2.19 China 2.90 China 2.63 Brazil 2.55
0.2
.4.6
.81
Kern
el D
en
sity E
stim
atio
n
1 2 3 4 5Firm Average Management Score
Argentina
Brazil
Chile
Mexico
India
China
United States
Bottom 25% in US: 2.944
United States in comparison to Upper- and Lower-Middle Income countries
Management practices within countries: Despite having some well
managed firms, lower- and upper-middle income countries have
many badly managed firms in comparison to the United States
% of firms scoring score within
the range of the bottom quartile
of US firms:
• 63% of Argentinean firms
• 66% of Brazilian firms
• 62% of Chilean firms
• 47% of Mexican firms
• 69% of Indian firms
• 72% of Chinese firms
Source: Data from 249 AR, 569 BR, 275 CL, 189 MX, 720 IN, 746 CN, and 935 US firm interviews between 2006 and 2010.
SMEs are worse managed than larger firms within middle income
countries than SMEs are in comparison to larger firms in high
income countries across several dimensions of management
Note: All columns estimated by ordinary least squares (OLS) with standard errors are in parentheses under coefficient estimates
clustered by firm. *** denotes 1% significance, ** denotes 5% significance, and * denotes 10% significance. Sample is all firm-years
surveyed from 2006 to 2010. Firm-level operations & performance monitoring management practices is the average of questions 1 to
7, targets setting practices is the average of questions 8 to 12 and talent management practices is the average of questions 13 to
18. All sets of management practices are normalized to have a standard deviation to unity. Controls: Country controls are a full set of
country dummies. Industry controls are 155 SIC three-digit dummies. General controls comprise of firm-level controls for average
hours worked and the proportion of employees with college degrees (log), plus a set of survey noise controls that are interviewer
dummies, the seniority and company tenure of the manager who responded, the day of the week the interview was conducted, the
time of day the interview was conducted, the duration of the interview, and an indicator of the reliability of the information as coded by
the interviewer.
(1) (2) (3) (4) (5) (6) (7)
Dependent variable: All Countries All Countries
Latin
American
Countries
Asian
Countries (excludes Japan)
Anglo-Saxon
Countries
Southern &
Central
European
Countries
Scandinavian
& Western
European
Countries
Operations & Monitoring Z-Score
SMEs (<=200 employees) -0.388*** -0.358*** -0.397*** -0.419*** -0.338*** -0.369*** -0.394***
(0.025) (0.021) (0.053) (0.073) (0.037) (0.070) (0.050)
Targets Z-Score
SMEs (<=200 employees) -0.373*** -0.334*** -0.405*** -0.403*** -0.375*** -0.216*** -0.260***
(0.024) (0.022) (0.055) (0.074) (0.037) (0.075) (0.053)
People Z-Score
SMEs (<=200 employees) -0.309*** -0.265*** -0.285*** -0.270*** -0.257*** -0.264*** -0.286***
(0.024) (0.022) (0.057) (0.075) (0.036) (0.073) (0.049)
Country controls No Yes Yes Yes Yes Yes Yes
Industry controls No Yes Yes Yes Yes Yes Yes
General controls No Yes Yes Yes Yes Yes Yes
Observations 8352 8352 1282 1466 3003 849 1576
SMEs (N) 2618 2618 409 262 1059 341 513
Outline
• Motivation
• Measuring Management: The Data
• Management Practices and Firm Performance
• Describing Management across Firms and Countries
• Firm Characteristics Linked to Differences in Management
Practices
– Public sector, Government-owned
– Family and Founder Ownership
– Foreign Multinationals
– Product market competition
– Workforce Education
Public (government) ownership is associated with worse
management practices
Source: Data from 8352 firm interviews between 2006 and 2010.
N=231
N=8121
2.8 2.9 3Average management scores
Public
Private
Note: Includes control for firm size and country
Public ownership is associated with particularly poor people
management (hiring, firing, pay, and promotions)
Gap between public and private ownership by subcomponents of management
-.25 -.2 -.15 -.1 -.05 0Difference in management score between public and private firms
Note: Includes control for firm size and country
Operations & Performance Monitoring
Target Setting
People Management
Source: Data from 8352 firm interviews between 2006 and 2010. Note: Operations and Performance Monitoring is adopting modern
techniques, collecting and using data, Target Setting are the setting, balance, time horizon and effectiveness of targets, and People
Management are performance-related hiring, promotions, bonus, and exit.
Firms owned and controlled by the founder or by the founding
family are typically badly managed in comparison to firms of other
ownership types
Source: Data from 8352 firm interviews between 2006 and 2010. Note: Founder owned , founder CEO” firms are those still owned
and managed by their founders. “Family firms” are those owned by descendents of the founder. “Dispersed shareholder” firms are
those with no shareholder with more than 25% of equity, such as widely held public firms.
N=1255
N=1300
N=231
N=1429
N=220
N=443
N=318
N=2505
2.6 2.7 2.8 2.9 3 3.1 3.2Average management score by ownership
Founder owned, founder CEO
Family owned, family CEO
Government
Private Individuals
Managers
Founder/Family owned, external CEO
Private Equity
Dispersed Shareholders
Note: Includes controls for country and firm size
Ownership structure across countries
.
0 .2 .4 .6Percentage of firms managed by founder or founding family
Sweden
Poland
France
United States
Australia
Canada
Germany
Great Britain
China
Rep. of Ireland
Chile
New Zealand
Northern Ireland
Japan
Mexico
Portugal
Argentina
Greece
Italy
Brazil
India
Founder, Founder CEO
Family, Family CEO
Firms owned and managed by founder/ family members are most common in India and
Latin American countries as well as Southern European countries
Ownership can
account for up to
38% of cross-
country
differences in
management
Some leading
explanations: • Shareholder
protection
regulation
• Underdevelopment
of financial markets
• Weak legal system
• Labour relations
Source: Data from 8352 firm interviews between 2006 and 2010. Note: Frequencies of ownership taken across all firms within each
country.
Multinationals appear to achieve good management practices
wherever they locate
Source: Data from 6726 firm interviews between 2006 and 2010, of which 4,327 are purely domestic and 2,399 are foreign
multinationals. Domestic multinationals are excluded—that is, the domestic subsidiaries of multinational firms (like a Toyota
subsidiary in Japan).
2.4 2.6 2.8 3 3.2 3.4 3.6 3.8Average management score by country
United StatesSweden
JapanGermany
CanadaItaly
Great BritainAustralia
PolandFranceMexico
ChinaNew Zealand
PortugalIndiaChile
Northern IrelandBrazil
ArgentinaRep. of Ireland
Greece
Foreign Multinationals
Domestic Firms
Competition appears linked to better management
Source: Data from 8205 firm interviews between 2006 and 2010. Note: Reported competitors defined from the response to the
question “How many competitors does your firm face?”.
2.8
2.9
3
Avera
ge
ma
na
ge
ment sco
re
0 1 2 to 4 5+
Number of reported competitors
Workforce education appears linked to better management
2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 3.3Average management score
0%
1% to 10%
11% to 25%
26% to 50%
+50%
Percentage of managerswith a college degree
2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 3.3Average management score
0%
1% to 10%
11% to 25%
26% to 50%
+50%
Percentage of non-managerswith a college degree
Source: Data from 8352 firm interviews between 2006 and 2010.
Conclusion, 5 broad results:
• Middle income countries in Latin America and Asia are towards the bottom of the
international rank of management practices.
• There is a large tail of badly managed firms in middle income countries in Latin
America and Asia.
• The substantial gap in management practices presented by small firms in
comparison to larger firms is larger within middle income countries in Latin
America and Asia than in high income countries.
• Management quality is positively and significantly correlated with better firm
performance measures.
• Several firm characteristics appear to be linked to the variation in management
practices across firms and countries: 1) Public sector, Government-owned, 2)
Family and founder ownership, 3) Foreign multinationals, 4) Product market
competition, and 5) Workforce education.