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Daily RC Article 143

The Impact of Effective Management


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Despite a proliferation of management gurus, management consultants and management schools, it remains murky to many of us what managers actually do and why we need them in the first place. A new World Bank-Stanford study titled "Does Management Matter?" provides an answer. Working in collaboration with the consulting firm Accenture, the researchers randomly selected a set of textile factories in India to receive a complimentary five-month management makeover and compared the profitability and efficiency of these revamped factories with a control group of factories that continued doing business as usual. It turns out that management does matter: The consultants boosted productivity by about 10 percent by improving quality, managing inventory and speeding up production.

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For Stanford professor and co-author of the study Nick Bloom, to observe the chaos that reigned in the cotton weaving factories before the consultants arrived is to glimpse a world without managers. Bloom recounts seeing store rooms strewn with rotting yarn, unsorted by color, quality or any other attribute – employees had to rummage about to find the requisite product, if it was there to be found at all. Factory floors were a mess, hallways blocked by heavy machinery and littered with discarded tools. Equipment was dirty, unkempt and often well past expiration dates. On average, the companies in their sample were using only about 10 of the 38 best practices on the consultants' list.

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Before the consultants rolled up their sleeves, each of the 20 factories received a one-month diagnosis of its management and performance. This was effectively an initial management-health check. The 14 factories selected to work with Accenture then received four months of management practice upgrades. For the most part, the same managers were kept in place, but the previously ad hoc ways of getting things done were replaced by the standard protocols of modern management. Finally, Accenture did a follow-up evaluation in all 20 factories to assess whether performance improved after the consultants' intervention.

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Out of disarray and confusion, there arose order: In storerooms, bags of yarn were now stacked, carefully arranged and elevated to protect against dampness. Offices previously cluttered with random stacks of paper were now equipped with charts to prioritize and track the flow of inputs and outputs working their way through newly organized assembly lines. Defects were cut in half, and inventories fell by nearly 20 percent, even as output increased by 5 percent. Overall, the authors calculate that profits at each factory – assuming the new practices remained in effect – would improve by more than $200,000 a year. Indeed, the researchers found more delegation of responsibility to factory managers after the new management practices were put in place.

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When the 38 principles of good management meet the realities of running an organization with tens or hundreds of thousands of employees, what results is a rigid set of rules, regulations and constraints that can seem designed to make office life a pointless misery. But it's also what allows the modern corporation to avoid the chaos of the unmanaged cotton weavers of Mumbai.

A World Bank-Stanford study, "Does Management Matter?" reveals the profound impact of effective management practices in textile factories in India. Accenture-led improvements in management led to a 10% boost in productivity by refining quality control, inventory management, and production speed. The study highlights the transformation from chaos to order, demonstrating how streamlined management practices significantly enhanced productivity, reduced defects, slashed inventories, and increased profits, shedding light on the crucial role of managers in organizational success.
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