A long-standing question is whether differences in management practices across ﬁrms can explain differences in productivity, especially in developing countries where these spreads appear particularly large. We ﬁnd that adopting these management practices raised productivity by 17% in the ﬁrst year through improved quality and efﬁciency and reduced inventory, and within three years led to the opening of more production plants. Why had the ﬁrms not adopted these proﬁtable practices previously? Our results suggest that informational barriers were the primary factor explaining this lack of adoption. Also, because reallocation across ﬁrms appeared to be constrained by limits on managerial time, competition had not forced badly managed ﬁrms to exit.
Practice adoption rates. Key performance metrics: Quality, inventory, output, total productivity. Long-run effects of management intervention: Number of plants, number of employees, number of looms per plant.
Management Practices: On average, treatment group increased use of the 38 predefined management practises by 25.6% to 63.4%. Firms appeared to adopt practices that were easier to implement and/or that had the largest perceived short-run payoffs. Control firms increased adoption of such practices (following initial diagnostic consulting phase) by 12 percentage points. Key Performance Metrics: Improvements in quality, inventory, and output. First year productivity from improved quality and efficiency and reduced inventory increased by estimated 17% ($325,000 in profitability) and followed with longer-run increase in firm size. Long-run Effects of Management Intervention: Treatment firms have increasing numbers of plants in comparison to the whole industry, as well as the control firms. No impact of management practices found on number of employees per plant or number of looms per plant.