Training from the 1950s worth 3.3% a year

Photo in Oahu, Hawaii courtesy of Fiona Smallwood

In the Long-Term Effects of Management & Technology Transfers, UCLA's Michela Giorcelli shows a causal link in Marshall Plan training from the 1950s.

Twists in history have provided a truly unique data set, and smart analysis of it shows the right type of management training can have a real and lasting impact on the performance of teams, to the tune of a 3.3% average boost in productivity every year for 15 years. And these results flow from more than just better maintenance!

“Usually Italian workers work twice as long as workers in the US but only finish half the amount of work. . . In the US, we learned to manage firms the way they did and we were able to bring back those practices to our firms.”
– Francesco Sartori, Manager and Owner, Lanificio Sartori, 1953

The Marshall Plan’s Productivity Program

In 1949, the commissioner of the U.S. Bureau of Labor Statistics stated “productivity levels in the United States were more than twice those in Great Britain, and more than three times that of Belgium, France and other industrial countries of Europe.” To address this, the U.S. created a Productivity Plan and operated it from 1952 to 1958. Managers of firms that participated in the program went on study trips to U.S. factories and initiated consulting engagements with U.S. experts. Trainings included modern management practices for plant operations, production planning, human resources management, and marketing.

For Italy, the original design of the Productivity Plan started with a pilot phase spanning 5 regions, and called for applications from firms that 1) were located in one of the regions, 2) operated in the manufacturing sector, 3) had between 10 and 250 employees, 4) and produced a balance sheet. UCLA’s Michela Giorcelli, author of the study, ran her own analysis of firm registries stored at the Historical Archive of Confindustria to identify a total of 6,065 eligible firms (she then digitized yearly balance sheets from 1946 to 1973). Firms that chose to apply to the program could opt for management training, advanced technology transfers financed at competitive rates, or a combination of the two.

Training, implemented

Some of the training focused on factory operations, consisting of regular PP&E maintenance and general maintenance of safety conditions, while production planning consisted of sales control. Human resources management stipulated employee training within the firm and regular supervision. This work enabled faster problem-solving and constant improvements of production methods. Finally, marketing training emphasized market research, product requirements, branding, and design, and some advertising campaigns and modernization of distribution channels.

Contemporaneous technical reports reveal that 65% of the firms that received the management or the combined management and technology transfers started performing routine maintenance on their machinery. 71% initiated safety protocols within the first year. This reduced downtime to repair machines by 22.3% and a drop of 28.5% in job-related injuries. More than 95% of the firms started tracking production and sales orders. Today, JLL has found that preventive maintenance is worth $0.33/sf.

When a budget cut creates an opening

Professor Giorcelli’s remarkable study explores a unique opening in the data, caused by a budget cut to the Productivity Program. After all firm applications were submitted and reviewed, the U.S. cut the program’s budget. The smaller budget lowered the number of accepted applications, thereby creating a data set of firms that applied for and eventually received the management or the technology transfer (treated firms) paired to firms applying for the same transfer, but not receiving it due to the budget cut (comparison firms).

Out of the 6,065 eligible firms, 3,624 applied for U.S. assistance. Among applicant firms, 809 applied for the management transfer, 1,190 for the technology transfer, and 1,625 for the combined management and technology transfers. By combining quantitative evidence (firms report worker training and marketing expenditures on their balance sheets) with qualitative evidence from technical reports compiled by U.S. experts who visited the treated firms in the three years after the program, Professor Giorcelli is not only able to measure results from the program, but draw causal links to the program participation by comparing them to the cohort of firms that applied but did not participate.

Results from statistically-significantly useful training

Before the start of the Productivity Program, fewer than 6% of firms were reporting either worker training or marketing expenses. For treated firms that got the management or the combined management and technology transfers, this percentage jumped to more than 70% one year after the program and to more than 95% three years after. For the comparison firm cohort, the percentage remains almost unchanged. And, interestingly, technology transfer-only firms did not increase worker training or marketing expenses either, revealing the strong distinction between the two flavors of improvement.

Firm longevity was also improved–15.1% of firms that got the management transfer and 12.3% of firms that got the combined management and technology transfers were still on the market between 2010 and 2013, compared to 2.1% and 2.5% of firms that applied for the same intervention but did not participate. For the technology-transfer firms, 98% of the machinery loans were repaid within the ten-year term of the loan.

Productivity of treated firms increased 15% within a year, relative to the comparison group, and continued to grow to a total of 49.3% after fifteen years. The technology transfer also boosted firm performance, but the gains didn’t last–productivity rose gradually by 11.5% in ten years, relative to the comparison group, but then plateaued. Furthermore, management  training and technology were complementary: in each year after the Productivity Program, sales, employment, and productivity of firms that received the combined transfers were statistically significantly higher than either the single management or the single technology transfer groups.

And finally, it’s interesting to ponder why excluded firms didn’t catch up. It might be that they were not aware of the adoption of such practices by the treated firms, or they weren’t reading the right newsletters…as Professor Giorcelli puts it, “information seems to play an important role in today’s development context as well.”

The Long-Term Effects of Management and Technology Transfers

Figures and diagrams from the report

About Millen Paschich

Millen began his career at Cambridge Associates, trained in finance at SMU, and has an MBA from UCLA. Talk to him about bicycling, business, and green chile burritos.

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