“The most significant factor in America, leading to high production at low cost, is efficient management.” This quotation is not from a longitudinal, empirical study, but it is stated by the British Productivity Council in the context of the Marshal Plan - the Anglo - American productivity mission in 1951. Hence, one question might be: Is there indeed a strong link between management practices and firm performance? A further question might be: How American management practices rank compared with European or Asian management practices? And what role plays organizational structure on firm performance? Are there interacted effects between management practices and organizational structure? Insights into the impact of management practices and organizational structure on firm performance are mainly based on theories.
Consequently, there is a strong need to measure management practices and organizational structure across countries and cultures to verify theoretical hypotheses with empirical data. This paper sheds some empirical light on these topics as well as on the distribution of management practices and organizational structures across countries and industries.
This book is based on a unique data set with more than 3500 management interviews to document and analyze the influence of management practices and organizational structure on firm performance (Bloom 2010). Furthermore, the role and impact of organizational change is obtained and compared to a strand of literature.
This book relates to a number of strands in the literature. It builds on and extends the paper of Nick Bloom and John van Reenen (2007) “Measuring and explaining management practices across countries and industries.” Furthermore, this paper is related to the paper of Marianne Bertrand and Antoinette Schoar (2003), “Managing with style: the effect of managers on firm policies“ in which the effect of individual managers on firm performance is analyzed. This paper also builds on major organizational theories from Chandler, Lawrence and Lorsch and Picot.
The empirical data has been obtained in a London School of Economics, McKinsey & Company and Stanford University joint project. The author of the book was part of a team of 35 international MBA, Ph.D students and professionals from top business schools around the world and conducted 201 management interviews himself.
Table of Contents
1. Introduction
1.1. Rationale and Motivation
1.2. Project and Layout
2. Literature Review of Empirical Literature and Theoretical Discussion
2.1. Management Practices and Firm Performance
2.2. Organizational Structure and Firm Performance
2.2.1. Difficulties
2.2.2. Empirical Literature
2.2.3. Theoretical Discussion: Contingency Theory and Trade Off Decentralization
2.3. Organizational Structure, Management Practices and Firm Performance
2.3.1. Difficulties
2.3.2. Empirical Literature
2.3.3. Hypothesis based on Principal Agent Theory
2.3.4. Hypotheses based on Change Management Literature
3. Data Collection and Method
3.1. Measuring Management Practices
3.2. Measuring Organizational Structure
3.2.1. Overview
3.2.2. Plant Autonomy
3.2.3. Worker Autonomy
3.2.4. Span of Control
3.2.5. Number of Hierarchical Levels and Number of Levels Changed in the Last Three Years
3.2.6. Firm Slope and Plant Slope
3.3. Measuring Firm Performance
3.4. Measuring Competition
3.5. The Interview Process: Obtaining the Truth
3.6. Noise in the Signal
3.6.1. Control Variables
3.6.2. Second Interviews
4. Data Description
4.1. Sample Description and Criteria
4.2. Country Comparisons
4.2.1. Management Practices
4.2.2. Organizational Structures
4.3. Industry Comparisons
4.4. Explanations and the Role of Regulation
5. Summary of Hypotheses and Econometric Modeling
6. Results
6.1. The Impact of Management Practices on Firm Performance
6.1.1. Hypothesis 1
6.1.2. Discussion and Managerial Implication
6.2. The Impact of Organizational Structure on Firm Performance
6.2.1. Hypotheses 2 – 5
6.2.2. Discussion and Managerial Implication
6.3. The Impact of Management Practices and Organizational Structure on Firm Performance
6.3.1. Hypotheses 6 – 9
6.3.2. Discussion and Managerial Implication
7. Conclusion
7.1. Limitations
7.2. Contribution and Future Research
Research Objective and Topics
This paper aims to empirically analyze the influence of management practices and organizational structure on firm performance using a unique cross-country and cross-industry dataset of over 3,500 interviews. The primary research goal is to verify theoretical hypotheses regarding the impact of management quality and decentralization on firm productivity, while also examining the interaction effects between organizational structure and management practices in the modern information and communication age.
- Measurement and evaluation of management practices across different countries and industries.
- Analysis of the relationship between firm performance and organizational structures, specifically decentralization and hierarchy.
- Examination of interaction effects between management practices (e.g., lean management) and decentralization.
- Testing of organizational theories such as Contingency Theory and Principal-Agent Theory using empirical data.
- Evaluation of the impact of organizational change on firm performance through a longitudinal perspective.
Excerpt from the Book
2.2.1. Difficulties
Analyzing correlations between organizational structure and firm performance with empirical data is a difficult task, due to various reasons discussed in the following. First, the specific environment for companies varies across industries and countries, which leads consequently to different needs in the organizational structure. This is discussed in more detail under section 2.2.3. Second, companies are in different life cycle stages, for which different organizational structures may be optimal and different profits are typical. Therefore, for instance, a company with a certain type of organizational structure could perform better simply because they are at a more mature stage within the organizational life cycle.
In addition, to see the extent of the influence of organizational structure on firm performance these effects would need to be isolated from other extraneous influences. This paper takes this into consideration. In all regressions including organizational structure variables, it is controlled for obvious drivers of firm performance, such as capital and the number of employees.
All these factors make it difficult to derive conclusions out of regressions between organizational structure and firm performance.
Summary of Chapters
1. Introduction: This chapter provides the rationale for the study, emphasizing the lack of quantitative evidence regarding management practices and organizational structure, and outlines the project layout.
2. Literature Review of Empirical Literature and Theoretical Discussion: This section summarizes existing empirical work and discusses relevant organizational theories, such as Contingency and Principal-Agent Theory, to derive specific research hypotheses.
3. Data Collection and Method: This chapter explains the methodology for measuring management practices, organizational structure, and firm performance, while detailing the interview process used to ensure data quality.
4. Data Description: This section provides a detailed breakdown of the sample, including country and industry comparisons, and describes the regulatory environment's influence.
5. Summary of Hypotheses and Econometric Modeling: This chapter formalizes the research hypotheses and defines the econometric models used for testing, including the multivariate regression framework.
6. Results: This chapter presents the empirical findings from the regressions, tests the formulated hypotheses, and discusses the managerial implications of the results.
7. Conclusion: This final chapter synthesizes the study's findings, discusses inherent limitations regarding causality, and proposes avenues for future research.
Keywords
Management Practices, Organizational Structure, Firm Performance, Lean Management, Talent Management, Decentralization, Contingency Theory, Principal-Agent Theory, Firm Slope, Plant Autonomy, Worker Autonomy, Quantitative Analysis, Cross-Country Study, Organizational Change, Econometric Modeling
Frequently Asked Questions
What is the core focus of this research?
The research focuses on empirically analyzing how management practices and organizational structures, such as decentralization and hierarchical levels, impact the performance of manufacturing firms across twelve different countries.
What are the central thematic areas?
The study centers on lean management, performance management, talent management, the locus of decision-making (decentralization), and the impact of organizational change on business outcomes.
What is the primary research question?
The primary research question investigates whether there is a measurable, statistically significant link between the quality of management practices and firm performance, and how organizational structure moderates this relationship.
Which scientific methods are employed?
The study utilizes a cross-country empirical analysis based on over 3,500 interviews. It employs multivariate regressions and the Ordinary Least Square (OLS) method to test derived hypotheses within an econometric framework.
What does the main body of the work cover?
The main body covers a comprehensive literature review, the methodological approach for data collection (including the McKinsey management evaluation tool), a descriptive overview of the data by country and industry, and a detailed econometric analysis of the stated hypotheses.
Which keywords characterize this work?
Key terms include management practices, firm performance, decentralization, organizational structure, lean management, cross-country analysis, and contingency theory.
How does the study define "good management"?
Good management is quantified using a scoring grid across eighteen dimensions—categorized into lean, performance, and talent management—derived from extensive McKinsey & Company client projects.
Why is the "second interview" approach significant?
The second interview approach acts as an internal validity test, allowing the researcher to quantify measurement error and verify that the initial management scores represent a reliable signal of actual firm practices.
- Quote paper
- Stefan Jelinek (Author), 2007, The Impact of Management Practices and Organizational Structure on Firm Performance, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/163137
