DP11057 The Contingent Effect of Management Practices

Author(s): Steven Blader, Claudine Gartenberg, Andrea Prat
Publication Date: January 2016
Keyword(s): management, relational contracts, relative ranking
JEL(s): D2
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11057

This paper investigates how the success of a management practice depends on the nature of the long-term relationship between the firm and its employees. A large US transportation company is in the process of fitting its trucks with an electronic on-board recorder (EOBR), which provide drivers with information on their driving performance. In this setting, a natural question is whether the optimal managerial practice consists of: (1) Letting each driver know his or her individual performance only; or (2) Also providing drivers with information about their ranking with respect to other drivers. The company is also in the first phase of a multi-year "lean-management journey", which corresponds to an overhaul of the relational contract with its employees. This phase focuses exclusively on changing employee values, mainly toward a greater emphasis on teamwork and empowerment. The main result of our randomized experiment is that (2) leads to better performance than (1) in a particular site if and only if the site has not yet received the values intervention, and worse performance if it has. The result is consistent with the presence of a conflict between competition-based managerial practices and a cooperation-based relational contract. More broadly, it highlights the role of intangible relational factors in determining the optimal set of managerial practices.