Ray Fisman writes up two pieces of recent research looking at the impact of management practices in the developing world:
.. it remains murky to many of us what managers actually do and why we need them in the first place. A new World Bank-Stanford study titled “Does Management Matter?” provides an answer. Working in collaboration with the consulting firm Accenture, the researchers randomly selected a set of textile factories in India to receive a complimentary five-month management makeover and compared the profitability and efficiency of these revamped factories with a control group of factories that continued doing business as usual. It turns out management does matter: The consultants boosted productivity by around 10 percent by improving quality, managing inventory, and speeding up production.
And another, showing a correlation between management and national wealth:
In an earlier study, Bloom worked with a pair of London School of Economics researchers to conduct a worldwide survey of management practices, using metrics of management quality similar to those employed by Accenture. They hired MBA students to interview managers at corporations in 17 countries. India ranked third from the bottom—just behind Brazil and one position ahead of China. Together, these three terribly managed economies constitute nearly 40 percent of the world’s population.
I saw one of the authors of the first paper talk earlier this year at the LSE (MP3 / video). A few things struck me at the time:
1) that the question shouldn’t be “does management matter?” Of course it does. One look at any of the factories tells you how disorganised they were (see picture). It is not surprising that by focusing on things like inventory tracking and job responsibilities productivity improved. The better question is if we need to spend lots of money on consultants, academics, and MBAs to tell us basic things. The study itself cost a staggering $1.3m – of which $250,000 went to Accenture.
2) that a factory provides a convenient setting for a study about whether management “matters”. It is a place where inputs and outputs can be easily measured, and where practices can be straightforwardly introduced and assessed. Not every workplace is a factory, though. The inputs and outputs are much harder to define in other sorts of organisations, as is improving productivity. The study doesn’t mention this, as far as I can see.
3) would Accenture have wanted to be involved if the results were not so positive? It’s hard to imagine a consulting firm agreeing to participate if the research didn’t back up their main commercial claim. What assurances were given before they started? (I wanted to ask this in the Q&A but wimped out). Did Accenture have any choice about the factories they worked at? How representative were the factories identified?
I don’t disagree with Ezra Klein, Fisman, or the authors, who say the research points to the possible value of paying for business schools in places like India. This might provide better long-term economic gain than food hand-outs alone. Technical assistance and capacity building is a good idea. US management nous showed its use, for example, in post-war Europe and Japan.
What I disagree with is building up a large “management industry” to spread the gospel around the world. The trouble (or one trouble) with management consultants, business schools, and the like, is that, while they preach efficiency and productivity, they tend – pound-for-pound – to be horribly inefficient and unproductive themselves. There is also a tendency to try and take the simple lessons of the factory (see Taylorism) and apply them to all kinds of other organisations and processes – often with dubious results.
Finally, I have to wonder – despite generally seeing the value of management – what $1.3m could be used for, if it wasn’t for paying academics and consultants to conduct this sort of research. Food? Hospitals? Schools?
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