1. Management Practices in Europe, the US and Emerging Markets
Nick Bloom (Stanford Economics)
John Van Reenen (LSE and Stanford GSB)
Lecture 1

2. Course Objectives
This course is built on 10 years of research by LSE, McKinsey & Stanford, with recent extensions with Accenture, Harvard Business School, the World Bank and the European Bank for Reconstruction & Development
This course aims to provide to do three things:
Provide a “management 101” overview of basic practices
Explain how management practices vary around the world (and why)
Introduce you to some management research techniques

3. Course Timing We will have 9 classes as follows:
Core Management Practices:
Jan 7th Research overview; basic concepts in productivity & management; measuring management;
Jan 12th & 14th talent management grid; cross-country management; self-scores; performance management grid
Jan 19th & 21st Drivers of management (e.g. competition, governance, regulation); target management grid; policy
Extensions:
Jan 26th Management experiments in India
Jan 28th Healthcare, retail and education
Feb 2nd Firm Organization: understanding decentralization;
Feb 18th Management practices and the US productivity miracle

4. Course Organization
Nick Bloom (Stanford Economics) and John Van Reenen (Stanford GSB/LSE) will co-teach the course.
There will be no take home work or exams
Passing the class for credit simply requires:
Class attendance
Class participation
Individual presentations
Questions, experiences and response
All slides will be put up within 24 hours of class on website

5. Class Presentations
From Lecture 2 (Jan 12th) onwards there will be a presentation by someone from the class. There will be 8 presentations
We will be asking for volunteers half-way through this lecture!

6. Class Presentations Structure (1/2)
Present 6 slides on a firm you know, covering:
What the firm does: e.g. products, size, location, competitors
Your relationship to the firm (an employee, family firm etc)
Talent management practices: score and some examples
Targets management practices: score and some examples
Performance management practices: score and some examples
Your three tips to improve management in the firm
Suggested guides:
All slides in 24 point font or greater
At least one picture per presentation
Be creative – make it interesting and engaging
We will meet the presenters in advance if requested! 6 6

7. Class Presentations Structure (2/2)
The presentations should last about 10 minutes without questions, so about 20 minutes given we expect discussion.
The preparation of the slides should take about an hour, certainly no more than 2 hours.
In advance of presenting in class you are advised to have a practice run through with either of us ( to set up time to do this). We can give you some feedback and suggestions.
This is supposed to be fun, helpful and a way to get excellent class involvement grades.
We will meet the presenters in advance if requested! 7 7

8. Course Timing Classes run from 8:15 to 9:45, Tuesday and Thursday
John and Nick will also be around for as long as necessary after class to answer questions, and are happy to meet up at other times as well (again, just us).
INTRODUCTIONS & QUESTIONS
Get them to introduce themselves

9. Introduction
Why care about management and productivity?

10. Productivity
GDP per capita (Income per person) basic indicator of economic wellbeing
GDP per capita increases by growth of inputs (e.g. more capital or labor) or higher Total Factor Productivity (TFP)
Problems with GDP – diff capital stocks, inequality, doesnt measure important things like crime, environment, etc.

11. Some basic Productivity Concepts
Output = Inputs + Total Factor Productivity (TFP)
e.g. Labor, capital, materials
This illustrates
TFP important for GDP per capita
Huge differences in GDP per capita and TFP between countries
Labor Productivity=
Output per employee = Inputs per employee + TFP

12. Productivity “Facts”
Macro: Productivity varies hugely across nations and over time
Robert Solow: TFP growth at least as important as growth of inputs in explaining economic growth
Cross country GDP/capita differences largely due to TFP differences
Productivity slowdown and “miracle” post 1995
Micro: Productivity varies hugely across firms

13. In long-run most countries have enjoyed catch up
Growth with the GDP/head leader (US) but not all
“Rising Sun” Catch up growth by technology transfer – but which technologies?
Source: Maddison (2008) Data is smoothed by decade

14. Large Income & TFP Differences between countries
This illustrates
TFP important for GDP per capita; ii) Huge differences in GDP per capita and TFP between countries; iii) TFP accounts for about ½ of GDP per capita differences
Source: Jones and Romer (2009). US=1

15. Why it matters for policy
Increasing TFP means that the economic pie is bigger so more room for
Consumption
Tax cuts
Increases in public goods (e.g. Environmental quality)
Harder to achieve if productivity stagnant
But what can be done to increase productivity?

16. Factors increasing productivity
Proximate factors:
Hard technology (e.g. R&D)
Skills (e.g. Expansion of college education)
Management (a technology & a skill?).
Some deeper factors “driving” the above
Competition
Globalization
Regulations/policies
Culture

17. Productivity Differences across firms within countries is huge
Census data on population of plants
US: plant at the 90th percentile produced 4x higher labor productivity as plant at the 10th percentile (Syverson, 2004)
Controlling for other inputs
TFP difference 1.9 in US
Not just mismeasured prices: in detailed industries (e.g. Boxes, bread, carbon black, block ice, concrete, plywood, etc.) productivity differences get bigger (Foster et al, 2008)!
Not just temporary shocks
Could account for large part of cross country differences
UK 2000 plant at the 90th percentile productivity 5x plant at the 10th percentile (Criscuolo et al, 2006); 1/3 of TFP quintile don’t move in a 5 year period (Bartelsman & Dhrymes)

18. Distribution of plant TFP differences: Higher average US productivity due to fewer less productive plants
Source: Hsieh and Klenow (2008); US mean=1

19. Big TFP dispersion among US ready mix concrete plants: More
Competition means higher productivity (cut off lower tail)
Low competition
High competition
Get the exact measures
Source: Syverson (2004)

20. How Total Factor Productivity increases
Within Firms (Traditional view)
The same firms become more productive (e.g. new technology spreads quickly to all firms, like Internet)
Between Firms (Schumpeterian view)
Low TFP firms exit and resources are reallocated to high TFP firms
High TFP firms expand (e.g. more jobs), low TFP firms contract (e.g. less jobs)
Exit/entry
UK 2000 plant at the 90th percentile productivity 5x plant at the 10th percentile (Criscuolo et al, 2006)

21. Example of How Total Factor Productivity increases –Firm A twice as productive as firm B
Period 1 A B
Total
Productivity
output/jobs 2 1
Jobs 10 20
Output 30
Aggregate productivity
1.5 (=30/20)
UK 2000 plant at the 90th percentile productivity 5x plant at the 10th percentile (Criscuolo et al, 2006)
Aggregate (weighted) productivity is 1.5

22. How Total Factor Productivity increases – both firms increase TFP by 0
Period 1
Period 2 A B
Total
Productivity 2 1
2.5
1.5
Jobs 10 20
Output 30 25 15 40
Aggregate productivity
1.5 (=30/20)
(=40/20)
This is the way economists normally think of productivity growth
Aggregate productivity increases from 1.5 to 2 (one third)

23. How Total Factor Productivity increases - reallocate all labor to firm A
Period 1
Period 2 A B
Total
Productivity 2 1
Jobs 10 20
Output 30 40
Aggregate productivity
1.5 (=30/20)
(=40/20)
UK 2000 plant at the 90th percentile productivity 5x plant at the 10th percentile (Criscuolo et al, 2006)
Aggregate productivity increases from 1.5 to 2 (one third)!

24. Some Empirical Evidence on reallocation
Need large-scale database of many firms/plants observed over time (panels)
Reallocation appears to be an important factor:
In aggregate US productivity growth: c.50% of aggregate TFP growth in a 5 year period in typical industry due to reallocation (Bailey et al, 1992)
Following trade liberalizations: about half of productivity gains due to shrinking/exit of less productive plants (e.g. Pavcnik, 2002)
For certain sectors: In retail trade, just about all of labor productivity growth is due to exit/entry of stores (Foster et al, 2006)
Caveats
Reallocation is not immediate (e.g. trade dislocation)
Some shocks can destroy valuable “specific capital”
UK 2000 plant at the 90th percentile productivity 5x plant at the 10th percentile (Criscuolo et al, 2006)

25. Management
Case studies management in similar industries and positions respond differently
Toyota and General Motors
Goldman Sachs and Lehman Brothers
Obviously management matters but
how to generalize?
how much does it matter?
what causes the differences?
2009 January. Toyota sold 8.97 million vehicles in 2008, beating the 8.35 million sold by the Detroit auto giant and ending GM's 77-year reign at the top. GM introduced M- forms in 1920s to overtake Ford’s U-Form. Toyota Lean Manufacturing/JIT. Not necessarily management quality.

26. Break and pick presenters

27. 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)

28. What we need A way to quantitatively benchmark management practices
At the firm-level
Across countries and sectors
That can be matched with firm performance data

29. Looked at why productivity was important for the wealth of nations
Conclusion
Looked at why productivity was important for the wealth of nations
Discussed factors that might influence productivity, in particular considered management 29