How Management Practices Differ Across Firms and Countries
By Bryan Caplan
I recommend Bloom and van Reenen’s 2010 JEP piece on “Why Do Management Practices Differ Across Firms and Countries?” The paper is mis-titled, but excellent nonetheless. Its main mission is to measure management practices, then describe how they vary – and they get a lot further than you’d expect.
Measurement. Bloom and van Reenen ran a massive “double-blind” survey of thousands of firms in 17 countries. As they explain:
One part of this double-blind technique is that managers are not told they are being scored or shown the scoring grid. They are only told they are being “interviewed about management practices.” To do this, we used open questions in the survey. For example, on the first monitoring dimension, we start by asking the open question “tell me how you monitor your production process,” rather than closed questions such as “do you monitor your production daily [yes/no].” We continue with open questions focusing on actual practices and examples until the interviewer can make an accurate assessment of the firm’s practices…
The other side of our “double-blind” approach is that our interviewers are not told in advance anything about the firm’s performance… We randomly sample medium-sized firms, employing between 100 to 5,000 workers. These firms are large enough that the type of systematic management practices chosen are likely to matter. However, these firms are generally small enough that they are not usually reported in the business press, so the interviewers generally have not heard of these firms before and so should have no preconceptions.
They explain their 18 criteria in detail in the article, and highlight evidence of their external validity: “[F]irms with ‘better’ management practices tend to have better performance on a wide range of dimensions: they are larger, more productive, grow faster, and have higher survival rates.” Not bad.
Results. Besides their evidence on external validity, Bloom and van Reenen have nine additional big findings. The most interesting to me:
1. The richer the countries, the better the management.
2. Key exception: Multi-nationals are managed at First World levels almost everywhere.
3. Overall, corporations’ separation of ownership and control looks like a
non-problem, or even a plus. Firms run by founders – and family firms
run by family CEOs (typically by primogeniture) – are well below average.
4. Government firms are the worst-managed of all.
Survey skeptics will presumably dismiss this entire paper. Since their dogmatic objections are mere words, however, I suggest we follow the skeptics’ own advice and ignore them. There’s a lot more work on management left to do, but I for one salute Bloom and van Reenen for getting as far as they have.