Does Management Matter? Evidence from India
Paper No' CEPDP1042:
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Keywords: management; organization, IT, productivity and India
JEL Classification: L2; M2; O14; O32; O33
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This Paper is published under the following series:
CEP Discussion Papers
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A long-standing question in social science is to what extent differences in management cause differences in firm
performance. To investigate this we ran a management field experiment on large Indian textile firms. We
provided free consulting on modern management practices to a randomly chosen set of treatment plants and
compared their performance to the control plants. We find that adopting these management practices had three
main effects. First, it raised average productivity by 11% through improved quality and efficiency and reduced
inventory. Second, it increased decentralization of decision making, as better information flow enabled owners
to delegate more decisions to middle managers. Third, it increased the use of computers, necessitated by the data
collection and analysis involved in modern management. Since these practices were profitable this raises the
question of why firms had not adopted these before. Our results suggest that informational barriers were a
primary factor in explaining this lack of adoption. Modern management is a technology that diffuses slowly
between firms, with many Indian firms initially unaware of its existence or impact. Since competition was
limited by constraints on firm entry and growth, badly managed firms were not rapidly driven from the market.