Management as a Technology

Wednesday, 30 November, 2016
Abstract: 
Are some management practices akin to a technology that can explain company and national productivity, or do they simply reflect contingent management styles? In this working paper Bloom, Sadun and Van Reenen (2016) collect data on core management practices from over 11,000 firms in 34 countries. They find large cross-country differences in the adoption of basic management practices, with the US having the highest size-weighted average management score. They present a formal model of “Management as a Technology”, and structurally estimate it using panel data to recover parameters including the depreciation rate and adjustment costs of managerial capital (both found to be larger than for tangible non-managerial capital). Their model also predicts (i) a positive effect of management on firm performance; (ii) a positive relationship between product market competition and average management quality (part of which stems from the larger covariance between management with firm size as competition strengthens); and (iii) a rise (fall) in the level (dispersion) of management with firm age. They find strong empirical support for all of these predictions in our data. Finally, building on our model, they find that differences in management practices account for about 30% of cross-country total factor productivity differences.