Why Do Management Practices Differ across Firms and Countries?

TLDR

Productivity differences across firms and countries have long puzzled economists. The paper argues that persistent productivity gaps largely stem from variations in management practices. The authors conducted a decade‑long survey program to systematically measure management practices—such as performance monitoring, target setting, and incentive provision—across firms, industries, and countries, and then analyze patterns and drivers of variation. They find that imperfect competition, family ownership, regulatory constraints, and informational barriers enable suboptimal management to persist.

Abstract

Economists have long puzzled over the astounding differences in productivity between firms and countries. In this paper, we present evidence on a possible explanation for persistent differences in productivity at the firm and the national level—namely, that such differences largely reflect variations in management practices. We have, over the last decade, undertaken a large survey research program to systematically measure management practices across firms, industries, and countries. Our survey approach focuses on aspects of management like systematic performance monitoring, setting appropriate targets, and providing incentives for good performance. We explain how we measure management; identify some basic patterns in our data; then turn to the question of why management practices vary so much across firms and nations. What we find is a combination of imperfectly competitive markets, family ownership of firms, regulations restricting management practices, and informational barriers allow bad management to persist.