Nick Bloom, Labor Topics, Spring 2009 LABOR TOPICS Nick Bloom Management and organizations.
1 MANUFACTURING MANAGEMENT PRACTICES Nick Bloom Denver, November 2 nd 2009.
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Transcript of 1 MANUFACTURING MANAGEMENT PRACTICES Nick Bloom Denver, November 2 nd 2009.
1
MANUFACTURING MANAGEMENT PRACTICES
Nick Bloom
Denver, November 2nd 2009
1. “Measuring” management practices
2. Evaluating the reliability of this measure
3. Describing management across firms & countries
4. Accounting for management across firms & countries
OUTLINE
2
1) Developing management questions
•Scorecard for 18 monitoring, targets and incentives practices
•≈45 minute phone interview of manufacturing plant managers
2) Obtaining unbiased comparable responses (“Double-blind”)•Interviewers do not know the company’s performance
•Managers are not informed (in advance) they are scored
3) Getting firms to participate in the interview
•Introduced as “Lean-manufacturing” interview, no financials
•Official Endorsement: Bundesbank, PBC, CII & RBI, etc.
•Run by 75 MBAs types (loud, assertive & business experience)
THE SURVEY METHODOLOGY
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Score (1): Measures tracked do not indicate directly if overall business objectives are being met. Certain processes aren’t tracked at all
(3): Most key performance indicators are tracked formally. Tracking is overseen by senior management
(5): Performance is continuously tracked and communicated, both formally and informally, to all staff using a range of visual management tools
MONITORING - i.e. “HOW IS PERFORMANCE TRACKED?”
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MANAGEMENT SURVEY SAMPLE
• Interviewed 6188 firms across Asia, Europe and the Americas
• Obtained 45% coverage rate from sampling frame (with response rates uncorrelated with performance measures)
Medium sized manufacturing firms:
• Medium sized (100 - 5,000 employees, median ≈ 250) because firm practices more homogeneous
• Focus on manufacturing as easier to measure productivity(but currently extending to Schools, Hospitals and Retail)
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1. “Measuring” management practices
2. Evaluating the reliability of this measure
a) Internal/External validation
b) Measurement error/bias
3. Describing management across firms & countries
4. Accounting for management across firms & countries
OUTLINE
6
12
34
5m
anag
eme
nt_1
1 2 3 4 5management_2
INTERVAL VALIDATION: RE-SURVEY ANALYSIS
1st interview
2nd in
terv
iew
Re-interviewed 222 firms with different interviewers & managers
Firm average scores (over 18 question)
Firm-level correlation of 0.627
7
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EXTERNAL VALIDATION OF THE SCORING
Performance measure
ln(capital)
ln(materials)
management(average z-scores) ln(labor)
other controls
• Use most recent cross-section of data (typically 2006)
country c
• Note – not a causal estimation, only an association
8
Dependentvariable
Productivity(% increase)
Profits (ROCE)
5yr Salesgrowth
Share Price (Tobin Q)
Exit
Estimation OLS OLS OLS OLS Probit
Firm sample All All All Quoted All
Management 28.7*** 2.018*** 0.047*** 0.250*** -0.262**
Firms 3469 1994 1883 374 3161
EXTERNAL VALIDATION: BETTER PERFORMANCE IS CORRELATED WITH BETTER MANAGEMENT
Includes controls for country, with results robust to controls for industry, year, firm-size, firm-age, skills etc.
Significance levels: *** 1%, ** 5%, * 10%.
Sample of all firms where accounting data is available
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EXTERNAL VALIDATION – ROBUSTNESS
Performance results robust in all main regions:
• Anglo-Saxon (US, UK, Ireland and Canada)
• Northern Europe (France, Germany, Sweden & Poland)
• Southern Europe (Portugal, Greece and Italy)
• East Asia (China and Japan)
• South America (Brazil)
10
02
46
mea
n o
f p
ate
ntt
ot
1 1.5 2 2.5 3 3.5 4 4.5
EXTERNAL VALIDATION: WELL MANAGED FIRMS ALSO APPEAR MORE INNOVATIVE
Tot
al p
aten
ts19
96-2
004
Management score (rounded to nearest 0.5)Note: European firms only as uses the European Patent Office database 11
01
02
03
04
05
0m
ean
of
exp
ort
1 1.5 2 2.5 3 3.5 4 4.5
EXTERNAL VALIDATION: WELL MANAGED FIRMS ARE ALSO MORE LIKELY TO EXPORT
Sha
re o
f fir
ms
expo
rtin
g
Management score (rounded to nearest 0.5)12
EXTERNAL VALIDATION: WELL MANAGED FIRMS ALSO APPEAR TO BE MORE ENERGY EFFICIENT
Ene
rgy
use,
log(
KW
H/$
sal
es)
Management
1 point higher management score associated with about 20% less energy use
13Source: Bloom, Genakos, martin and Sadun, NBER WP14394. Analysis uses Census of production data for UK firms
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1. “Measuring” management practices
2. Evaluating the reliability of this measure
3. Describing management across firms & countries
4. Accounting for management across firms & countries
OUTLINE
14
2.6 2.8 3 3.2 3.4mean of management
USGermanySweden
JapanCanadaFrance
ItalyGreat Britain
AustraliaNorthern Ireland
PolandRepublic of Ireland
PortugalBrazilIndia
ChinaGreece
MANAGEMENT PRACTICES ACROSS COUNTRIES
Notes:1)Uses firms with 100 to 5000 employees2)Australian data from MGSM/UTS
survey
Average Country Management Score
Not statistically different from Canada
15
16
0.5
10
.51
0.5
10
.51
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Australia Brazil Canada China
France Germany Great Britain Greece
India Ireland Italy Japan
Poland Portugal Sweden US
De
nsi
ty
managementGraphs by country1
DISTRIBUTIONS BY FIRM ACROSS COUNTRIES
Firm-Level Management Scores 16
1. “Measuring” management practices
2. Evaluating the reliability of this measure
3. Describing management across firms & countries
4. Accounting for management across firms & countries
•Competition
•Family firms
•Multinationals
•Labor market regulations
•Education
OUTLINE
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TOUGH COMPETITION IS STRONGLY LINKED TO BETTER MANAGEMENT PRACTICES
Competition proxiesDependent variable:
Management
Import penetration(SIC-3 industry, 1995-99)
0.066**(0.033)
“1-Rents” measure1
(SIC-3 except firm itself, 1995-99)1.964**(0.721)
# of competitors(Firm level, 2004)
0.158***(0.023)
Observations 2499 2980 3589
Full controls2,3 Yes Yes Yes
1 1-Rents = 1- (operating profit – capital costs)/sales2 Includes 108 SIC-3 industry, country, firm-size, public and interview noise (analyst, time, date, and manager characteristic) controls3 S.E.s in ( ) below, robust to heteroskedasticity, clustered by country-industry
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0.5
10
.51
0.5
1
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Dispersed Shareholders Family, external CEO Family, family CEO
Founder Government Managers
Other Private Equity Private Individuals
Density PEy
Graphs by Who owns the firm?
FIRMS WITH PROFESSIONAL CEOS ARE TYPICALLY WELL RUN. GOVERNMENT, FOUNDER FAMILY CEO MANAGED FIRMS ARE NOTDistribution of firm management scores by ownership. Overlaid dashed line is approximate density for dispersed shareholders, the most common US and Canadian ownership type
Average Management Score 19
2.4 2.6 2.8 3 3.2 3.4
USJapan
SwedenGermany
CanadaAustralia
ItalyGreat Britain
FrancePoland
Northern IrelandRepublic of Ireland
IndiaChina
PortugalBrazil
Greece
MULTINATIONALS APPEAR ABLE TO TRANSPORT GOOD MANAGEMENT AROUND THE WORLD
Average Management Score
Foreign multinationalsDomestic firms
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Australia
Brazil
Canada
China
France
Great Britain
Germany
Greece
India
Republic of Ireland
Italy
JapanNorthern Ireland Poland
Portugal
Sweden
US
2.4
2.6
2.8
33
.23
.4pe
op_
me
an
0 20 40 60WB_RigidityEmployment
LIGHT LABOR MARKET REGULATIONS ALSO FACILITIATES GOOD CANADIAN MANAGEMENT
World Bank Employment Rigidity Index
Ave
rage
peo
ple
man
agem
ent
(hiri
ng,
firin
g, p
ay a
nd p
rom
otio
ns)
21
0
2040
6080
1 1.5 2 2.5 3 3.5 4 4.5
mean of degree_nm mean of degree_m
EDUCATION IS ALSO STRONGLY LINKED WITH BETTER MANAGEMENT PRACTICES
Management score (rounded to nearest 0.5)
Per
cent
with
a d
egre
e
Non-managers
Managers
22
-6-4
-20
24
labp
1 2 3 4 5management
WE USE LARGE SAMPLES BECAUSE THE WIDE VARIATION IN MANAGEMENT MEANS SMALL SAMPLES CAN BE POTENTIALLY MISLEADING
Case studies provide rich firm-level details, but the variation in management practices means these can easily be misleading(e.g. Enron, was a case-study favorite with many HBS Enron cases)
Management score
Log
of S
ales
/em
ploy
ee (
$’00
0)
23
WE ALSO GOT MANAGERS TO SELFSCORE THEMSELVES AT THE END OF THE INTERVIEW
We asked:
“Excluding yourself, how well managed would you say your firm is on a scale of 1 to 10, where 1 is worst practice, 5 is average and 10 is best practice”
We also asked them to give themselves scores on operations and people management separately
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0.1
.2.3
.4D
en
sity
0 2 4 6 8 10Their self-score: 1 (worst practice), 5 (average) to 10 (best practice)
MANAGERS GENERALLY OVER-SCORED THEIR FIRM’S MANAGEMENT
“Average”“Worst Practice”
“Best Practice”
25
-6-4
-20
2la
bp
0 2 4 6 8 10Their self-score: 1 (worst practice), 5 (average) to 10 (best practice)
bandwidth = .8
Lowess smoother
SELF-SCORES ARE ALSO UNINFORMATIVE ABOUT FIRM PERFORMANCE
Labo
r P
rodu
ctiv
ity
Self scored management* In comparison the management score has a 0.295 correlation with labor productivity
Correlation0.032*
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MY FAVOURITE QUOTES:
[Male manager speaking to an Australian female interviewer]
Production Manager: “Your accent is really cute and I love the way you talk. Do you fancy meeting up near the factory?”
Interviewer “Sorry, but I’m washing my hair every night for the next month….”
The traditional British Chat-Up
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Production Manager: “Are you a Brahmin?’
Interviewer “Yes, why do you ask?”
Production manager “And are you married?”
Interviewer “No?”
Production manager “Excellent, excellent, my son is looking for a bride and I think you could be perfect. I must contact your parents to discuss this”
The traditional Indian Chat-Up
MY FAVOURITE QUOTES:
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Interviewer: “How many production sites do you have abroad?
Manager in Indiana, US: “Well…we have one in Texas…”
Americans on geography
Production Manager: “We’re owned by the Mafia”
Interviewer: “I think that’s the “Other” category……..although I guess I could put you down as an “Italian multinational” ?”
The difficulties of defining ownership in Europe
MY FAVOURITE QUOTES:
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The bizarre
Interviewer: “[long silence]……hello, hello….are you still there….hello”
Production Manager: “…….I’m sorry, I just got distracted by a submarine surfacing in front of my window”
The unbelievable
[Male manager speaking to a female interviewer]
Production Manager: “I would like you to call me “Daddy” when we talk”
[End of interview…]
MY FAVOURITE QUOTES:
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