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Management Consulting Works

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Business consulting may seem like something you want to avoid. After all, what do all those managers actually do at your company? A new study, however, shows that business management actually does work. And that business consulting can dramatically improve the success of a company and impact the economy of a nation.The report comes from a research team at Stanford led by economist Nicholas Bloom. The full study [PDF] opens as follows:

A long-standing question is whether differences in management practices across firms can explain differences in productivity, especially in developing countries where these spreads appear particularly large. To investigate this, we ran a management field experiment on large Indian textile firms. We provided free consulting on management practices to randomly chosen treatment plants and compared their performance to a set of control plants. We find that adopting these management practices raised productivity by 17% in the first year through improved quality and efficiency and reduced inventory, and within three years led to the opening of more production plants.

Management Consulting: Textile Factory

© Flickr user ezloa

Let’s translate that academic-speak into regular language:

  1. Everybody wonders if management actually matters.
  2. We decided to run an experiment by sending management consultants to some companies.
  3. Other companies were left to run as they always did.
  4. Our management consulting experiment worked. Big time.

The widespread skepticism about managers is nothing new. In fact, a piece by Ray Fisman outlines this complaint and explains the study:

Imagine a world without middle managers. If you’ve done time in a cubicle, you might picture a paradise where workers are unshackled by pointless bureaucracy, meaningless paperwork, and incompetent bosses. A place where stuff actually gets done.

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.

Where’s the evidence that it worked? Fisman notes that pictures tell the story:

The before/after photographs of stockrooms and production lines tell pretty much the whole story. 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.

In short: management is important. But Fisman does provide one key warning:

Keep in mind that this is also a set of practices that has the potential to create a Dilbert-esque world of unwieldy reporting requirements, Big Brotherly monitoring, and rigid protocols that blunt creativity and innovation. (If you doubt any of this, just think about the last time you filed an expense report.)

Management and business processes are like butter on toast. You need just the right amount to perfect the experience.

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