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Management practices and productivity

As much as one third of total factor productivity differences across firms internationally is due to management. But until CEP's work on management practices there was little empirical evidence beyond case studies for the well-worn business school mantras proclaiming the importance of good management for productivity.

We discovered that these helped explain large and persistent differences in organisational performance which occur within detailed sectors. Our World Management Survey contains data covering 15 years of management practices conducted by teams of more than 300 interviewers in more than 20,000 firms in 35 countries. The survey measures modern management techniques such as setting goals, monitoring and rewarding performance and "lean" manufacturing operations. We found large cross-country differences in the adoption of management practices, with the US having the highest size-weighted average management score.

The impact of management practices goes beyond the individuals who work in the firm – they are embodied in the way these different people are knitted together within an effective organisation. For example, in a pioneering randomised control trial we found that free management consultancy offered to Indian textile firms could massively raise their managerial practices and increase profits.

If the solutions to better productivity are simple, why is there still such variation in performance? We found that incentives to promote better management practices were found in firms exposed to more product market competition, involved in exporting, and subsidiaries of multi-nationals which inherited superior management practice methods of corporate headquarters. Organisational form was also important in stimulating better management practices, with the CEO's of less hierarchical firms exercising greater trust in giving more autonomy to managers at local level for hiring, sales and people management.

We adapted our firm survey to investigate management practices in hospitals and schools and found that, for example, hospitals exposed to more competition adopt better management practices which have been linked to better clinical outcomes, including survival rates from heart attacks as well as considerably cheaper treatments than in less efficiently-run hospitals.

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