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How much does management matter? Evidence from India (19th BSE Lecture)
On Thursday evening, Prof. John Roberts (Stanford GSB) presented the 19th BSE Lecture at Banc Sabadell Auditorium. In his presentation, "How much does management matter? Evidence from India," he outlined the case of large, multi-plant textile firms in India, where he and his coauthors found that a lack of training in management "best practices" has resulting in lost productivity and profits.
"This paper seeks to provide the first experimental estimates of the importance of management practices in large firms," Prof. Roberts and his coauthors write in the paper's introduction.
In order to meet this research objective, the team conducted a field experiment involving 17 textile firms. Textile production is the largest manufacturing industry in India, accounting for 22% of manufacturing employment or about 30 million jobs.
One group of participating firms was subjected to a "management intervention" involving a complete diagnosis of management practices by a professional consulting firm, followed by the implementation of suggested changes and follow-up measurements of the impact of those changes. A control group of firms received diagnosis but very limited consulting.
The results of the experiment demonstrate that management really does have an important economic impact on firms. The textile plants that implemented the techniques suggested by the consulting firm increased their productivity by more than 10% on average and profitability by about 17% over the course of the experiment.
Prof. Roberts emphasized that a lack of knowledge was the primary cause of poor management practices. He suggested that government encouragement and support for high quality business schools and local consulting firms, as well as the attraction of multinational corporations to the region, would give Indian managers access to state-of-the-art practices and maximize productivity and profits for their companies.
About Prof. John Roberts
Prof. John Roberts holds the John H. and Irene S. Scully Professorship in Economics, Strategic Management and International Business in the Graduate School of Business at Stanford University. He directs the Executive Program in Strategy and Organization, the Global Management Program, and the Center for Global Business and the Economy at Stanford.
A Fellow and former Council Member of the Econometric Society and a fellow of the American Academy of Arts and Sciences, he has served on the editorial boards of The American Economic Review, Econometrica, and The Journal of Economic Theory, among others. He has consulted on competitive strategy and organizational design for major corporations and on regulatory issues for the United States Government. He is also a member of the BSE Scientific Council, the external academic body that evaluates the School's educational and research activities.
Prof. Roberts' 2004 book, The Modern Firm: Organizational Design for Performance and Growth, published by Oxford University press, was named the best business book of the year by The Economist. In recent years his research has centered on the design, governance and management of organizations and with the fit between strategy and structure, with special reference to multinational businesses.
Textile firms employ one fifth of India's manufacturing workers.
Workers in an Indian textile plant check for product defects, which are repaired by hand. Consultants found that 19% of manpower was spent on manual repairs.
After the "intervention," a team now collates and analyzes quality data during its new daily production meetings.