Finance & PSD Impact JUNE 2019 The Lessons from DECFP Impact Evaluations ISSUE 53 Our latest note tests two different approaches to improving management, and finds a novel group-based approach to be more cost-effective than the standard approach of providing consulting to individual firms. Improving Management in Colombian Firms Through Individual and Group Consulting Leonardo Iacovone, William Maloney and David McKenzie Differences in the quality of firm Management practices in these firms at management practices are estimated to the time of application were similar to those account for up to 30 percent of cross-country of other Colombian manufacturing firms, and productivity differences. Intensive similar to those in Kenya and India, individualized consulting provided by an suggesting plenty of room for improvement. international consulting firm has been shown to deliver lasting improvements in Experimental Design and Intervention management. However, such an approach is We randomly divided this sample into a very costly, raising the question of how to control group and two treatment groups, each best scale-up such programs. of 53 firms: We worked with the Government of • Control group: they received a two- Colombia to test two approaches to scaling- week diagnostic, in which a team of up management improvements: consultants assessed management individualized consulting delivered by local practices in 5 areas (logistics, HR, consultants; and a group-based approach that marketing and sales, finance, and aimed to lower the cost of delivery and production), ending with a report with leverage group-learning dynamics. recommended areas to improve. • Individual treatment: after the Working with Auto-parts Firms diagnostic, they received 500 hours of The Government of Colombia chose the individual consulting over 6 months auto-parts sector for this program, and to help improve in these 5 areas. This launched a call for interested firms in 2012. cost $29,000 per firm. This sector consists largely of second-tier • Group treatment: after the diagnostic, suppliers to large car manufacturers, groups were formed of 3 to 8 firms producing parts like fenders, tires, suspension from the same region. The parts, plastic parts, paints, etc. consultants then met with workers Firms were told the program would offer and managers from the whole group assistance in improving production practices, at the same time, for 408 hours of and that the program would not require any group consulting at a cost of $10,500 payment by the firms, but instead require the per firm. time and effort of their management and workforce. The individual treatment was 218 firms applied for the program, of delivered between March and November which 159 firms were selected for the 2014; while due to a government funding program. The firms ranged in size from 10 to delay, the group treatment took place 310 employees, with a mean of 59 workers. between September 2015 and March 2016. Most had been operating for many years, We measure impacts of the program through with a median firm age of 24 years. three sources: (i) measurement of 141 management practices collected during the Do you have a project you want evaluated? DECRG-FP researchers are always looking for opportunities to work with colleagues in the Bank and IFC. If you would like to ask our experts for advice or to collaborate on an evaluation, contact us care of the Impact editor, David McKenzie (dmckenzie@worldbank.org) diagnostic, implementation, and one year • Firms within the same small group later; (ii) firm data on sales, defects, and other tended to improve similar practices, key performance indicators collected during suggesting coordinated learning and in-person firm visits; and (iii) administrative experimentation. data on employment taken from the social • Only the group treatment resulted in security records. The last source enables significant growth in firm size: measurement of impacts up to 4 years after employment grows by a statistically the individual treatment and 3 years after the significant 6 to 7 workers relative to the group treatment. control group. Sales also grew 8 to 9 percent (p=0.12). In contrast, the impacts Results of the individual treatment on • The individual and group treatments employment and sales are smaller and not both improved management practices statistically significant. by a similar amount, between 8 to 10 percentage points relative to the control Policy Implications group (Figure 1). These improvements 1. The new group-based approach to last at least one year after treatment. consulting trialed here delivered as large an improvement in management Figure 1: both treatments resulted in as the individual consulting approach similar increases in management practices at one-third the cost, clearly dominating on a cost-benefit basis. 2. Although we were not able to precisely measure impacts on firm profitability, the impacts we find on sales suggest the group-based intervention is likely to pay for itself within 14 months. 3. Several implementation challenges arose from delays in contracting, highlighting the importance of public • Both treatments led to a broad management in being able to improvement in management successfully scale-up efforts to practices, improving practices in all improve management in the private five areas, and when we zoom into the sector. level of our 141 specific practices, the mix of practices improved is also similar across treatments. For further reading see: Iacovone, Leonardo, William Maloney and David McKenzie. 2019. “Improving Management with Individual and Group-Based Consulting: Results from a Randomized Experiment in Colombia�, World Bank Policy Research Working Paper no. 8854 Recent impact notes are available on our website: http://www.worldbank.org/en/research/brief/finance-and-private-sector-impact-evaluation- policy-notes