Management and the Wealth of Nations
Nick Bloom (Stanford)

based on work with Renata Lemos (World Bank),
Raffaella Sadun (Harvard), Daniela Scur (Oxford)& John Van Reenen (LSE/MIT)
Stanford June 2nd 2017

Management research has a bad reputationof being airport books and case studies…
“No potential driving factor
of productivity has seen ahigher ratio of speculation
to empirical study”- Chad Syversson (2011,
Journal of Economic
Literature)

Part of a research group looking scientifically atmanagement, and summarize 15+ years research
1) Measuring management

2) Impact of management on performance- Regression results- Field experiments
3) Drivers and policy

World Management Survey has covered morethan 20,000 firms since 2002

Carried out by survey teams of about 30people about every three years (London 2006)

Survey methodology (Bloom & Van Reenen, 2007, QJE)

1) Developing management questions• Scorecard for 18 monitoring, targets & people management
practices ≈45 minute phone interview of plant managers
2) Getting firms to participate in the interview• Introduced as “Lean-manufacturing” interview, no financials• Official Endorsement: Bundesbank, RBI, World Bank etc.

Some typical endorsement letters

Survey methodology (Bloom & Van Reenen, 2007, QJE)

1) Developing management questions• Scorecard for 18 monitoring, targets & people management
practices ≈45 minute phone interview of plant managers
2) Getting firms to participate in the interview• Introduced as “Lean-manufacturing” interview, no financials• Official Endorsement: Bundesbank, RBI, World Bank etc.
3) Obtaining unbiased comparable responses, “Double-blind”• Interviewers do not know the company’s performance• Managers are not informed (in advance) they are scoredExample monitoring question, scored based on a number ofquestions starting with “How is performance tracked?”
Score (1): Measures
tracked do notindicate directly
if overallbusiness
objectives arebeing met. Many
processes aren’t
tracked at all(3): Most key
performanceindicators
are tracked
formally.
Tracking isoverseen bysenior
management(5): Performance iscontinuously
tracked andcommunicated,both formally andinformally, to all
staff using a rangeof visualmanagement tools

Note: All 18 questions & 50+ examples in http://worldmanagementsurvey.org/

Examples of performance metrics – Car PlantExample incentives question, scored based on questions
starting with “How does the promotion system work?”
Score (1) People arepromotedprimarily upon
the basis oftenure,irrespective ofperformance(ability & effort)(3) People(5) We actively
are promoted identify, develop
primarilyand promote ourupon thetop performers
basis ofperformance

Note: All 18 questions & 50+ examples in http://worldmanagementsurvey.org/

Wide spread of management in manufacturing
United StatesJapan
Germany
SwedenCanada
Great Britain
FranceAustralia
Italy
MexicoPolandSingapore
New ZealandNorthern Ireland
Portugal
Republic of Ireland
Chile
Spain
GreeceChina
TurkeyArgentina
BrazilIndia
Vietnam
Colombia
Kenya
Nigeria
Nicaragua
MyanmarZambiaTanzania
Ghana
Ethiopia
Mozambique
1.5

2.027
2

3.308
3.230
3.210
3.188
3.142
3.033
3.015
2.997
2.978
2.899
2.887
2.861
2.851
2.839
2.826
2.762
2.752
2.748
2.720
2.712
2.706
2.699
2.684
Africa
2.611
2.608
Asia
2.578
2.549
Oceania
2.516
2.397
2.372
Europe2.316
2.254
Latin America
2.225
2.221
North America
2.5

3

Average Management Scores, Manufacturing Firms

3.5

0 .5 1 1.5

Total

Argentina

Australia

BrazilCanadaChile

0 .5 1 1.5

China

Colombia

Ethiopia

FranceGermany

Ghana

0 .5 1 1.5

Great Britain

GreeceIndia

Italy

JapanKenya

0 .5 1 1.5

MexicoMozambique

Myanmar

New Zealand

Nicaragua

Nigeria

0 .5 1 1.5

Northern Ireland

PolandPortugal

Republic of Ireland

SingaporeSpain

0 .5 1 1.5

Fraction of Firms

Management also varies heavily within countries

SwedenTanzania

TurkeyUnited States

Vietnam

Zambia123451234512345123451234512345Firm level average management scores, 1 (worst practice) to 5 (best practice)So we find a huge spread in management
practices across firms and countries….

….but does this matter?

ProfitOutput growth

R&D per employee

Patents per employee

Exporters

Productivity

These management scores are positively correlatedwith firm performance

Management score decile (worst=1, best=10)

Of course this correlation may not be causal.
So I’ve also been working with the World Bankon management randomized control trial

Pulling all our data together we estimate
management accounts 1/3 cross-country TFP gaps

Source: Management as a Technology by Bloom, Sadun and van Reenen (2015)

1) Measuring management and its impact on GDP

2) Impact of management on performance- Regression results- Field experiments
3) Drivers and policy – how can we raise growth?

PROMOTE FDI: MULTINATIONALS ACHIEVE GOOD
MANAGEMENT PRACTICES WHEREVER THEY LOCATE
United StatesJapan
Germany
SwedenCanadaGreat Britain
FranceItaly
Australia
Singapore
MexicoPolandPortugal
New ZealandTurkeyChina
Chile
GreeceSpain
India
BrazilColombia
VietnamArgentina
Northern Ireland
MyanmarRepublic of Ireland
Nicaragua

Domestic firms
Foreign multinationals

22.2

2.4

2.6

2.8

Management score

33.2

3.4

PROMOTE PROFESSIONAL OWNERSHIP: FAMILY-RUN AND
GOVERNMENT FIRMS OFTEN HAVE POOR MANAGEMENT
Dispersed Shareholders

Private Equity
Family owned, non-family CEO
Managers
Private Individuals
Government
Family owned, family CEO
Founder owned, founder CEO

2.7

2.8
2.9
3
3.1
3.2
Management score (by ownership type)Management scores after controlling for country, industry and number of employees. Data from 9085 manufacturers and 658 retailers. “Founderowned , founder CEO” firms are those still owned and managed by their founders. “Family firms” are those owned by descendants of the founder“Dispersed shareholder” firms are those with no shareholder with more than 25% of equity, such as widely held public firms.

RAISE EDUCATION FOR NON-MANAGERS AND MANAGERS
APPEAR LINKED TO BETTER MANAGEMENTManagers

3

2.9

3.1

2.8

3

2.7

2.9

2.6

2.8
2.6

2.5

2.7

Management score

3.2

3.3

3.1

Non-managers

01 to 10 11 to 25 26 to 5050+01 to 10 11 to 25 26 to 50

Percentage of employees with a college degree (%)
Sample of 8,032 manufacturing and 647 retail firms.

50+

3.5

MINIMIZE REGULATIONS: THESE ARE CORRELATED WITH
LESS EFFECTIVE MANAGEMENT PRACTICESJapan
Germany
SwedenCanada3

Great Britain
Australia France
MexicoPolandSingapore
New
ZealandIreland
Northern
Portugal
Republic ofIreland
ChileSpain
Colombia

2.5

Management practices

United States

Italy

GreeceTurkeyChina
VietnamArgentina
BrazilIndia
Kenya
Nicaragua

Nigeria

MyanmarZambiaTanzania
Ethiopia
Mozambique

2Ghana050100150200World Bank Doing Business Rank (1=easiest)
Note: Management scores for the 15,454 interviews in the WMS survey plotted against the World Bank’s 2014 doing business“Ease of Doing Business” rank, where 1 is best and 189 is worst. See http://www.doingbusiness.org/rankings. Smaller and larger
firms in China, Nigeria and Mozambique have been re-stratified in order to balance the sampling frame.

Conclusions
Management appears to be a major driver of growth
Policies to follow in particular in Japan would be:- Encouraging multinationals- Less regulation
Policies to follow in particular in the US would be:- Improved education- Less regulation

More research, policy briefs & media available here
www.worldmanagementsurvey.com