Managing Variation

By Nicholas Bloom

The enormous variation in firm and establishment performance has become a focus of empirical and theoretical interest throughout the social sciences, including economics. The opening up of business micro-data by national statistical agencies and vast improvement in computer power to store and analyse large and complex data sets have facilitated the documentation of this first-order economic fact.

Adecade ago, we began a project now called the World Management Survey (WMS) that sought to address the issue of whether management practices were an important factor in understanding the heterogeneity of firm productivity.

Many theories put entrepreneurial or managerial ability at the heart of this issue, but until recently, there was precious little large-scale quantitative data across firms, industries and countries to empirically investigate these claims. Over the last decade, WMS has collected firm-level management-practices data across sectors and countries.

Our survey tried to explain the large and persistent total factor productivity (TFP) differences across firms and countries.… Our preliminary results suggest that about a quarter of cross-country and within-country TFP gaps can be accounted for by management practices.

Management seems to matter qualitatively and quantitatively. Competition, governance, human capital and informational frictions help account for the variation in management.

From “The New Empirical Economics of Management”