A long-standing question is whether differences in management practices across ﬁrms can explain differences in productivity, especially in developing countries where these spreads appear particularly large. We ﬁnd that adopting these management practices raised productivity by 17% in the ﬁrst year through improved quality and efﬁciency and reduced inventory, and within three years led to the opening of more production plants. Why had the ﬁrms not adopted these proﬁtable practices previously? Our results suggest that informational barriers were the primary factor explaining this lack of adoption. Also, because reallocation across ﬁrms appeared to be constrained by limits on managerial time, competition had not forced badly managed ﬁrms to exit.
Does Management Matter? Evidence from India
The research does support some of the common recommendations to improve productivity, like increasing competition (both from domestic firms and multinationals) and improving the rule of law. The results also suggest that firms were not implementing best practices on their own because of lack of information and knowledge, therefore both training programs for basic operations management, like inventory and quality control and demonstration projects would help in increasing efficiency.
Bloom, N., Eifert, B., Mahajan, A., McKenzie, D., & Roberts, J., 2013. 'Does Management Matter? Evidence from India'. The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 1-51.