Don't overlook local skills: Effective policies to improve business practices

Small businesses face significant challenges and constraints. Managerial and business skills are crucial elements that affect whether a firm survives and increases their profits. Given this, many business training programmes have been developed and implemented across the globe. But how successful are these programmes?  

Observational studies on business training are very informative, but when assessing the impact of these programmes, they often prove to be not so useful. Firms selected for these programmes may be structurally different from those that decided not to participate, and these differences are often difficult to observe. These firms may be more motivated, for instance, or we may confuse their intrinsic desire for success with the direct programme benefits. In other words, evaluating these training programmes using observational methods would produce biased results, letting us believe that the programmes produced positive results when they actually did not.

Results show that not all training programmes provide positive results, particularly in regards to business practices adoption.

Thanks to the growing popularity of Randomised Controlled Trials (RCTs) and field experiments in entrepreneurship and growth, we are now able to rigorously assess the impacts of many of these programmes. Results show that not all training programmes provide positive results, particularly in regards to business practices adoption. In fact, some implementation and delivery details of those training programmes have proven to be essential to their success.

A key research question is how firms are learning new business practices. Some training programmes offer formal and standardised courses on marketing and finance developed by external consultants, without considering the complexities and idiosyncrasies of their local context. But what would happen if these courses were based on insights from local businesses? Would providing locally relevant information encourage the adoption of successful business practices? This is what Dalton et al. (2018) have recently assessed in their paper: “Learning Business Practices from Peers: Experimental Evidence from Small-scale Retailers in an Emerging Market”.

But what would happen if these courses were based on insights from local businesses? Would providing locally relevant information encourage the adoption of successful business practices?

The study measures if helping businesses learn profitable practices from their successful peers rather than from formal, standardised courses has a positive impact on business profit and the adoption of beneficial business practices. They argue that by similarity, locally successful business practices could be more helpful to micro and small enterprises. By using detailed qualitative analysis, they identify local best practices among 1,301 small-scale retailers in urban Jakarta, Indonesia. They estimate the returns for each business practice alongside implementation guidelines and combine all of this knowledge into a professionally developed handbook.

Researchers randomised the provision of the handbook, using different delivery strategies. Interestingly, all treated firms showed a significant improvement in the adoption of business practices. However, only those receiving additional support presented an improvement in sales and profitability. Specifically, those receiving local counselling assistance alongside the handbook increased profits by 40%. In essence, thanks to this experiment we can observe that business growth can be achieved through innovative and simple channels that are cost-effective and scalable, although socialising peer information alone is not always enough to achieve social learning, at least for Indonesian businesses. Social learning is possible when retailers are able to either observe successful peers implementing these practices, or are able to implement these practices with personalised assistance.

This lesson provides a great example of how experimentation can help us design more effective policies for business growth. But it is not the only one. At the Innovation Growth Lab (IGL), we have been looking for interesting and policy-relevant field experiments, which we are looking forward to sharing at the IGL2019 Global Conference.

This lesson provides a great example of how experimentation can help us design more effective policies for business growth. But it is not the only one. At the Innovation Growth Lab (IGL), we have been looking for interesting and policy-relevant field experiments, which we are looking forward to sharing at the IGL2019 Global Conference. The conference will be held in Berlin on May 21-23, and will bring together senior policymakers, practitioners, and researchers to explore the latest trends in innovation, entrepreneurship and growth, and discuss crucial policy challenges in these areas.

The IGL2018 Research Meeting in Boston

The conference will provide a unique opportunity to discuss some of the most recent experiments and their policy implications with the authors themselves. For instance, Patricio Dalton, one of the authors of this research will be speaking at the conference. He will share the stage with speakers explaining other exciting experiments that will potentially influence policymaking in the years to come. All of them use successful strategies of existing resources to improve entrepreneurship and growth policy: Caio Piza from The World Bank Group will present his  ongoing trial on the effect of online services to improve business performance, and Chloé Le Coq from the Stockholm School of Economics will present her paper ‘How Do Nascent Social Entrepreneurs Respond to Rewards? A Field Experiment on Motivations in a Grant Competition’. Don’t miss the opportunity to learn from real case studies and learn how new evidence from experimentation can improve policy today!