Management Matters to Manufacturers

The U.S. Census Bureau’s Center for Economic Studies released an initial report earlier this month that examines the effect of management practices on the performance of manufacturing establishments across the United States. It is generally accepted that management matters but we often leave it undefined or unmeasured. The report is particularly compelling and provides support for the importance of management to the performance of manufacturers even after other factors such as capital, size, and industry are controlled for. They surveyed over 30,000 manufacturing establishments and captured information on management practices in terms of performance monitoring, incentives, and setting targets.  The authors found that not only do management practices differ across manufacturing plants (and that they differ across regions of the U.S.); they found that the adoption of these practices among the firms increased  between 2005 and 2010 by over 10 percent. In particular, they found that most of the increase reflected more focus on using performance measurement tools.  Most importantly, they suggest that these practices may be connected to some bottom line performance outcomes. The report echoes the findings of earlier reports done by these authors but this Census Bureau report makes the connections of management practices to a range of performance measures including productivity, profitability, growth, exporting, and innovation much more strongly given the sample size.

The researchers divided the sample of plants into groups, based on deciles (or tenths) of their scores across these management practices – the use of incentives, performance measurement, and establishing performance targets —  from lowest score to highest, and find that firms with higher scores do better in terms of  profitability, productivity, growth, exporting, research and development spending, and patenting activity. As plants use more of these management practices, they are likely to achieve better outcomes. The charts below highlight the connection between more sophisticated management practices (as their management score increases) and better performance on these outcomes such as exporting, innovation, productivity, and growth.

Chart One: Better Performance is Associated with More Structured Management Practices.
Source:  N. Bloom, E. Brynjolfsson, L. Foster, R. Jarmin, I. Saporta-Eksten, & J. Van Reenen, “Management in America,” CES13-01. January 2013. 

It is hard to say whether these results make the case definitively, but they do suggest that management does matter to the performance of manufacturers.  Of course these results are suggestive and this does not mean that simply adopting these practices will provide the magic bullet to a firm’s performance issues, but it does suggest that we need to explore these and other issues across manufacturing.  Let me know what you think.