Does management matter? Evidence from India

Abstract

A long standing question in social science is whether management matters. To investigate this we run a field experiment on 28 plants in large Indian textile firms to evaluate the causal impact of modernizing management practices. We do this by providing free management consulting to a set of randomly chosen treatment plants, and compare their performance to a set of control plants. We find that improving management practices had three main effects. First, it led to significantly higher efficiency and quality, and lower inventory levels. These changes increased productivity by 10.5 % and profitability by 16.8 % on average. Second, it increased the decentralization of decision making, as better production monitoring enabled the owners to delegate more decisions to their plant managers. Third, it increased the use of computers, necessitated by the extensive data collection, analysis and dissemination involved in modern management. Since these management practices were profitable, and firms were able to transfer them from their treatment plants to their other plants, this raises the question of why they had not adopted these practices before? Our results suggest that informational barriers were initially a primary factor in explaining this lack of adoption. Modern management practices are a type of technology that diffuse slowly between firms, with many Indian firms simply unaware of their impact or existence. A secondary factor constraining management appears to be the ability and behavior of the family firm CEOs.