“Why Do Management Practices Differ across Firms and Countries?”, 2010-12-01 (; backlinks; similar):
Economists have long puzzled over the astounding differences in productivity between firms and countries…For example, looking at disaggregated data on US manufacturing industries, 2004a found that plants at the 90th percentile produced 4× as much as the plant in the 10th percentile on a per-employee basis. Only half of this difference in labor productivity could be accounted for by differential inputs, such as capital intensity. Syverson looked at industries defined at the 4-digit level in the Standard Industrial Classification (SIC) system (now the North American Industry Classification System or NAICS) like “Bakeries and Tortilla Manufacturing” or “Plastics Product Manufacturing.” et al 2008 show large differences in total factor productivity even within very homogeneous goods industries such as boxes and block ice. Some of these productivity differences across firms and plants are temporary, but in large part they persist over time. At the country level, 1999 and 2010 show how the stark differences in productivity across countries account for a substantial fraction of the differences in average per capita income.
…In this paper, we present evidence on a possible explanation for persistent differences in productivity at the firm and the national level—namely, that such differences largely reflect variations in management practices.
We have, over the last decade, undertaken a large survey research program to systematically measure management practices across firms, industries, and countries. Our survey approach focuses on aspects of management like systematic performance monitoring, setting appropriate targets, and providing incentives for good performance. We explain how we measure management; identify some basic patterns in our data; then turn to the question of why management practices vary so much across firms and nations.
What we find is a combination of imperfectly competitive markets, family ownership of firms, regulations restricting management practices, and informational barriers allow bad management to persist.
…firms 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.
management practices vary tremendously across firms and countries. Most of the difference in the average management score of a country is due to the size of the “long tail” of very badly managed firms. For example, relatively few US firms are very badly managed, while Brazil and India have many firms in that category.
countries and firms specialize in different styles of management. For example, American firms score much higher than Swedish firms in incentives but are worse than Swedish firms in monitoring.
strong product market competition appears to boost average management practices through a combination of eliminating the tail of badly managed firms and pushing incumbents to improve their practices.
multinationals are generally well managed in every country. They also transplant their management styles abroad. For example, US multinationals located in the United Kingdom are better at incentives and worse at monitoring than Swedish multinationals in the United Kingdom.
firms that export (but do not produce) overseas are better-managed than domestic non-exporters, but are worse-managed than multinationals.
inherited family-owned fi rms who appoint a family member (especially the eldest son) as chief executive officer are very badly managed on average.
government-owned firms are typically managed extremely badly. Firms with publicly quoted share prices or owned by private-equity firms are typically well managed.
firms that more intensively use human capital, as measured by more educated workers, tend to have much better management practices.
at the country level, a relatively light touch in labor market regulation is associated with better use of incentives by management.
See Also:
“Americans Do IT Better: US Multinationals and the Productivity Miracle”
“People and process, suits and innovators: the role of individuals in firm performance”
“The Life Cycle of Businesses and their Internal Organization”
“People Management Skills, Employee Attrition, and Manager Rewards: An Empirical Analysis”