Firms with structured management practices fare better

Highly structured management practices are correlated with better productivity and profitability outcomes for companies and countries, an international consortium of researchers has found through a novel quantification method.

Research teams in 14 countries administered a multiple-choice questionnaire - originally developed and administered by the U.S. Census Bureau - to managers of manufacturing firms in their respective countries. They then coded the answers with a value between 0 and 1 to generate a "management score" that quantifies the amount of structure in each firm's management practices.

For every firm surveyed across all countries - including the U.S., Russia and China - a better management score corresponded to higher productivity, profitability, export sales and company size.

"I wouldn't say it's a surprise, but it's always striking when you see something be so consistent across different contexts," said Daniela Scur, assistant professor in the Charles H. Dyson School of Applied Economics and Management, in the Cornell SC Johnson College of Business.

"A lot of these practices are quite simple," Scur said. "It's not rocket science - it's things like, do you actually track your production regularly? How regularly do you do it? Do people know what you're tracking and why you're tracking it? It's fairly simple, intuitive stuff."

Scur is lead author of "The International Empirics of Management," which publishes Nov. 1 in Proceedings of the National Academy of Sciences. Co-authors included Scott Ohlmacher, senior economist at the U.S. Federal Reserve; and John Van Reenen, professor at the London School of Economics.

Other co-authors - representing nearly two dozen universities and institutions, including the U.S. Census Bureau, the World Bank, Harvard University and the German Institute for Employment Research - contributed data and analysis for each of their countries based on their own Management and Organizational Practices Survey (MOPS) data collection.

MOPS was developed in 2017 as a scalable, self-respondent version of the World Management Survey (WMS), a labor-intensive and costly but highly effective method for quantifying business management practices. For the WMS, a trained interviewer would conduct a 45-minute interview with a firm's senior manager, covering 18 different topics of management practices.

Scur said MOPS - a 16-question, multiple-choice survey, administered either as part of a larger survey or as a standalone questionnaire, depending on the country - is a generally less expensive and more scalable way to obtain the basic information regarding structured management practices firms are using. The questionnaire is publicly available.

The average management score from each of the 14 countries clearly shows that the greater the structure in management practices, the greater a company's productivity. The strength of the correlation varied from country to country - it was weakest in Russia, Pakistan and Croatia, and strongest in Denmark, Italy and the U.S. - but the correlation was positive throughout.

Questions are related to monitoring practices, performance targets and human resource practices. Monitoring questions included, "How frequently were performance indicators tracked at the establishment?" with response options ranging from "never" (lowest score) to "hourly or more frequently" (highest score).

Targets questions included, "What was the time-frame of production targets?" with answers ranging from "no production targets" (lowest score) to "combination of short-term and long-term targets (highest). Human resources-related questions included "How were managers promoted at the establishment?" with answers ranging from "mainly on factors other than performance and ability" (lowest score) to "solely on performance and ability" (highest).

The authors note that the positive relationship between firm size and structured management practices is stronger in countries with more open and free markets. This suggests that stronger competition may allow firms with more structured management practices to grow larger, potentially raising aggregate national income.

Scur said that while the WMS methodology - including more precise translation of survey tools and common training of analysts - made comparison across countries more achievable, the MOPS has the advantage of greater accessibility.

"MOPS has this much cheaper price tag," she said. "So if there is a Ph.D. student who is doing a survey of firms in country 'X,' here's an example of questions they can include in their survey. That's the part I'm most excited about: I hope that this becomes more accessible to people doing work in this area."

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