A blueprint for India’s potential for growth through improved management practices
For more than two decades, Stanford University Professor Nicholas Bloom has led some of the most comprehensive and large-scale data collection on management practices and their impact on firm performance in countries around the world.
The insights he and other collaborators have gleaned from surveys in 14 countries—which they are distilling in a forthcoming paper called “The Natural Laws of Management”—are a blueprint for business leaders and policy officials who want to increase the productivity of their company or country. Higher productivity, in turn, can improve a country’s wealth distribution and help lift people out of poverty.
Now, supported by the Stanford King Center on Global Development and the Centre for Technology, Innovation and Economic Research, Bloom and other researchers, including Professor Pete Klenow and Megha Patnaik, PhD ’17, have turned their attention to India, the world’s most populous country, with the India Management and Growth Survey (IMGS). According to International Monetary Fund data, India’s contribution to global growth is projected to grow by over 12 percent within the next five years.
“India has incredible potential, but, apart from a few gems, it is not seen as a manufacturing powerhouse,” Bloom says. “It has plenty of business acumen that just doesn’t seem to have spread far and wide. We think that’s a positive. There are lots of moderately low-hanging fruit to be had by improving management practices.”
Management practices have long been a focus of inquiry—business schools rely on case studies to teach their students and the management consulting industry is booming. But large-scale, quantitative data on management practices is relatively new, recently pioneered in part by Bloom. He is part of a team of researchers who created the World Management Survey (WMS), an in-depth, interview-based survey consisting of open-ended questions that was first implemented more than 20 years ago and has grown to include 35 countries and more than 20,000 interviews.
Since then, Bloom and others around the world have created condensed, closed-ended questionnaire versions of the survey that can be deployed at much less cost as part of national surveys in various countries. In the United States, the Management and Organizational Practices Survey (MOPS) has been conducted in collaboration with the U.S. Census Bureau.
Over the course of the WMS and the more condensed, country-specific national surveys, researchers have found that better management practices—specifically monitoring of production information; setting and meeting production targets; and merit-based pay, promotion, hiring, and firing—are correlated with improved firm performance as measured by a wide array of factors, including: profit, research and development intensity, and exports.
“These management practices are associated with better performance across every dimension,” Bloom says. “We can’t find any downsides to them. It’s a win-win-win.”
Patnaik, who is now an assistant professor at LUISS Guido Carli in Rome, participated in the first MOPS; she also worked on the equivalent version in Italy and the India survey, which is ongoing (when the Indian survey is complete, Bloom and Patnaik predict they will have gathered data from between 2,000 and 3,000 manufacturing firms). In India, the findings are in line with the results from other surveys, but, because of the country’s size and importance to the global economy, they have huge implications for the nation and the world.
Bloom has also led experimental research to test whether the implications from the WMS and country-specific surveys can lead to improved management practices and higher productivity. In 2013, he published a study showing that, within a year, large Indian textile firms that received extensive management consulting and related support increased productivity by 17 percent compared to firms that did not receive the intervention. Eight years later, even when some of the management practices were no longer in place, those firms had significantly better performance.
“You can totally change management practices,” Bloom says. “It’s definitely feasible.”
However, to fully realize the gains from improved management practices, these changes at the firm level also need to be accompanied by policy changes at the country level. The collective data on management practices has found that better management practices are associated with open markets. In India, Patnaik points out, that would mean reducing or eliminating tariffs and offering incentives to attract firm and foreign investment.
Patnaik points out that much of the existing research on India’s productivity has focused on small firms, which—as they do in the United States and other countries—employ most people. Even though India is now an emerging economy, the focus has remained on small firms. But, with the King Center’s support, the IMGS was able to target relatively larger firms, which, despite employing less people, are responsible for most of the country’s output and are increasingly interesting, especially to investors.
The researchers have found that developing countries, including India, have a large share of poorly managed firms that are impeding growth. But the researchers also found that the country has a cohort of firms with world-class management practices similar to those in the United States and Europe; those firms, the researchers believe, will drive growth in the country.
The Indian survey would not have been possible without the King Center’s support, Patnaik says, adding that the center’s intellectual community has also been helpful in disseminating the research. In May, Patnaik and Bloom led a Speaker Series event on the “Future of the Indian Economy.” The panel discussion featured the pair’s research plus commentary by Rohini Chakravarthy, managing partner at NewBuild Venture Capital, and Naushad Forbes, Stanford PhD, co-chair of multinational engineering company Forbes Marshall and chair of the Centre for Technology, Innovation and Economic Research.
“If you want to get people out of poverty, you have to have higher average firm productivity,” Patnaik concludes.
