Whether you are an entrepreneur or a professional, have you ever wondered:  Do good management practices truly matter?

If you are a business owner, you may have been told of a number of good management practices:  keeping good records, reviewing production and sales data regularly, meeting with employee regularly…  But how much do these pay, if anything?  A recent study by Nick Bloom at Stanford and his co-authors provides the most convincing answers to date: yes, they matter.  And they matter a lot.

The cool thing about this study is that it was not by anecdotal observations of some companies or interviewing some successful managers.  Instead, the authors conducted a ‘randomized experiment‘, a term that should not be unfamiliar to those working in the pharmaceutical industries.  Yes, just like a clinical trial or a lab experiment, the authors identified a group of plants making cotton fabrics, randomly split them into two groups that are more or less identical to each other.  Then in the control group, they give some light consulting on how to better manage their operations.  In the other treatment group,  in contrast, they gave five months of intensive management consulting.

The results?  The treatment group gained a whopping 17% gain in their productivity while the benchmark control group show very little improvement.  Inventory fell and costs decreased.  In term of profitability, the treatment group earned an extra of $300,000 of profits in the first year alone.  You can view an abstract of the paper here, or you can watch the video of the author’s presentation below:

The takeaway?  If you are an entrepreneur, it is a good idea to adopt  good management practices in production, inventory control, quality, human resources, and sales and marketing.   If you are a professional, it pays to learn more about those good practices and apply them into your work.

 

Editor’s Note:  The original version of this article appeared in CEA newsletter of January 2013.

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