Management Practices in Europe,

the US and Emerging Markets

Nick Bloom (Stanford Economics)

John Van Reenen (Stanford GSB/LSE)

Lecture 2

Nick Bloom and John Van Reenen, Management Practices, 2010 1

Background to the management research

• The basics

• Some extensions

Talent management

Nick Bloom and John Van Reenen, Management Practices, 2010 2

THE SURVEY METHODOLOGY
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
•Run from London, with same training and country rotation

3) Getting firms to participate in the interview

•Introduced as “Lean-manufacturing” interview, no financials
•Official Endorsement: Bundesbank, PBC, CII & RBI, etc.
•Run by 78 MBAs types (assertive with business experience)

Nick Bloom and John Van Reenen, Management Practices, 2010 3

MONITORING - i.e. “HOW IS PERFORMANCE TRACKED?”

Score (1): Measures (3): Most key (5): Performance is

tracked do not performance continuously tracked
indicate directly if indicators are and communicated,
overall business tracked both formally and
objectives are formally. informally, to all staff
being met. Certain Tracking is using a range of visual
processes aren’t overseen by management tools
tracked at all senior
management

Nick Bloom and John Van Reenen, Management Practices, 2010 4

THIS SURVEY TECHNIQUE ALSO HAS A WIDER USE

• Collecting data from people in firms

•In many situations people do not want to provide data
•So as a consultant I had to use “blind-interview” techniques

• Interviewing candidates
•Some consulting firms also use this “blind interviews” for
recruitment
•Reason is they want to get to the truth from candidates

Nick Bloom and John Van Reenen, Management Practices, 2010 5

MANAGEMENT SURVEY SAMPLE

• Interviewed about 6000 firms across Asia, Europe, US &

South America
• Obtained 44% coverage rate from sampling frame (with
response rates uncorrelated with performance measures)
• Have run 3 waves to date (2004, 2006, 2009)

Medium sized manufacturing firms:

• Medium sized (100 - 5,000 employees, median ≈ 250)
because firm practices more homogeneous
• Manufacturing as easier to measure productivity
(also analyzed Hospitals, Schools, Retail and Law Firms)

Nick Bloom and John Van Reenen, Management Practices, 2010 6

 Video of Data Collection

[Link]

Nick Bloom and John Van Reenen, Management Practices, 2010 7

INTERNAL VALIDATION: RE-RATER ANALYSIS
Re-interviewed 222 firms with different interviewers & managers
Firm average scores (over 18 question)
5
4
interview

Firm-level
2nd management_1

correlation
3

of 0.627
2
1

1 2 3 4 5
1 interview
st management_2
Nick Bloom and John Van Reenen, Management Practices, 2010 8
EXTERNAL VALIDATION: FIRM PERFORMANCE
Performance
measure
yi = β MNGi + α l li + α k ki + α m hi + γ xi + ui
management ln(capital) other controls
(average z-scores) ln(labor) ln(materials)

• Use most recent cross-section of data

• Note – not a causal estimation, only an association (e.g.

correlation of management with TFP)

Nick Bloom and John Van Reenen, Management Practices, 2010 9

EXTERNAL VALIDATION: BETTER PERFORMANCE IS
CORRELATED WITH BETTER MANAGEMENT
Dependent Productivity Profits 5yr Sales Share Price Exit
variable (% increase) (ROCE) growth (Tobin Q)
Estimation OLS OLS OLS OLS Probit
Firm sample All All All Quoted All
Management 28.7*** 2.02*** 4.70*** 25.0*** -26.2**
Firms 3469 1994 1883 374 3161

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

Nick Bloom and John Van Reenen, Management Practices, 2010 10

EXTERNAL VALIDATION: PERFORMANCE RESULTS
ROBUSTNESS ACROSS COUNTRIES
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)

Nick Bloom and John Van Reenen, Management Practices, 2010 11

 THE LINK BETWEEN PRODUCTIVITY AND MANAGEMENT
HOLDS TRUE ACROSS DIFFERENT COUNTRIES

6.5 7
U.S. U.K. CN JP
6.0 6

5.5 5

5.0 4

4.5 3
7 6.5

4.0 FR DE 2 IT PT
1 SE PL
2 3 6.0
4 1 GR 5 2 3
6

5.5

5
* Log scale (sales per worker) 5.0
Nickare
** Firms Bloom and Johnin
grouped Van Reenen,
0.5 Management
increments Practices, 2010
of assessed management score
EXERNAL VALIDATION: WELL MANAGED FIRMS
ARE ALSO MORE LIKELY TO EXPORT
Share of firms exporting

Management score (rounded to nearest 0.5)

Nick Bloom and John Van Reenen, Management Practices, 2010 13
Background to the management research

• The basics

• Some extensions

Talent management

Nick Bloom and John Van Reenen, Management Practices, 2010 14

EXTENSION 1: WELL MANAGED FIRMS ALSO
APPEAR TO TREAT WORKERS BETTER
.6
Firm level work-life balance score

.4
mean of _zzwlb
0 -.2 .2

Management score (rounded to nearest 0.5)

Nick Bloom and John Van Reenen, Management Practices, 2010 15
Source: Bloom, Kretschmer and Van Reenen, “Work life balance, management practices and productivity”, (2009, NBER).
.4

Notes: Data for 468 firms from UK, US, Germany and France surveyed in 2004, when we included WLB questions.
EXTENSION 2: WELL MANAGED FIRMS ALSO
APPEAR TO BE MORE ENERGY EFFICIENT
1 point higher
management score
Energy use, log( KWH/$ sales)

associated with about

20% less energy use

Management
Nick Bloom and John Van Reenen, Management Practices, 2010 16
Source: Bloom, Genakos, martin and Sadun, NBER WP14394. Analysis uses Census of production data for UK firms
FINALLY, OUR LARGE SAMPLE ILLUSTRATES THE
RISKS OF RELYING ONLY ON CASE STUDIES
($’000)

Case studies
4

provide rich firm-

level details, but
the variation in
Log of Sales/employee
2

management
practices means
these can easily
0

be misleading
(e.g. Enron, was
labp

a case-study
favorite with
-2

many HBS
cases)
-4

Management score
Nick Bloom and John Van Reenen, Management Practices, 2010 17
-6
Examples of management as a technology?
Waves of management technologies have arisen over time
• American System of Manufacturing (1850s)
• Taylor’s Scientific management (1900s)
• Mass production (1920s)
• Alfred Sloan’s M-form firm (1930s)
• Demming’s quality movements (1950s)
• Toyota production system (1970s)

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