A team of Stanford economists (and one dude from the World Bank) conducted a fascinating field experiment in India:

Our experiment in India involved 20 large textile firms. Each firm got a set of recommendations about its management practices based on an initial month of management diagnosis from a major international consulting firm. Then the treatment firms got four more months of free consulting, that helped them implement the recommendations.
We collected detailed performance metrics on output, inventory and quality to understand the effects of improved management for firm performance. The evidence suggests that Indian factories are typically disorganised, with inventories and spare parts chaotically organised, inadequate performance tracking, and extremely poor quality control (see Exhibits 2 to 6)
The consultants started to address these issues by introducing the sort of basic operational practices that are standard in European, Japanese and US factories (see Exhibit 7). These had a massive effect on performance, cutting quality defects by 50%, inventories by 40%, and increasing overall productivity by 10%. This also increased firms’ profits by about $200,000, and by improving the ability of owners to expand their firms.

So why the hell didn’t these textile firms embrace better management practices earlier on?

(1) The managers in place weren’t aware of the best practices.

(2) There’s not a ton of competition or foreign ownership. The first forces you to get smarter or die. The second is a way to transmit knowledge from better-managed multinationals to locals.

(3) And finally there’s the role of what you might call pathological familism:

One reason is the reallocation of market share to well managed firms in India is restricted by span of control constraints on firm growth. In every firm in our sample all senior managerial positions are held by members of the owning family. The number of adult males available to fill senior positions thus becomes a binding constraint on growth. For example, the owner of one of these best managed firms in the sample told us the reason he could not expand was “no sons, no brothers”. Hence, well managed firms do not always grow large and drive unproductive firms out of the market if they lack male family members. Meanwhile, entry is limited by a lack of finance, while imports are restricted by heavy tariffs. [Emphasis added]

Bloom has co-authored a fascinating paper on the variation in management quality across firms and across countries, and one of his findings was that family firms tend to have lackluster management.

This is an illustration of a point that Brink Lindsey makes in his new paper on “Frontier Economics“: imitative growth is much easier to achieve than innovative growth, which is why poor countries like India have the potential to grow much faster than a frontier economy like our own. Innovative growth, as Brink explains, requires a trial-and-error discovery process, a theme than Edmund Phelps has touched on in his work. We have to throw more effort at every increment of gain because innovation requires making lots of bad calls before you hit on managerial practices, products, etc., that consistently outperform existing best practices.