Monitor, Measure, Incentivize: Is Management as Simple as That?

Digital tools allow business leaders to oversee their organizations with unparalleled speed and efficiency. And, increasingly, new technologies are influencing how the tasks of management are themselves performed. To better understand what makes management most effective in this environment, Nicholas Bloom, William Eberle Professor of Economics at Stanford University, conducted an extensive study of 30,000 U.S. factories, and found that two practices, underpinned by innovative software and IT systems, stand out in highly effectively managed operations: monitoring and incentives.

Although monitoring employees and offering incentives correlate with higher productivity in factories, their effectiveness has implications for many other industries. Bloom’s other research — exploring the challenges and impacts of employees working from home at a large Chinese company — found that the same practices played a central managerial role and led to a significant rise in productivity.

MIT Sloan Management Review spoke with Bloom about how sophisticated new technologies are reshaping managers’ ability to monitor workers’ performance and to better align incentives to performance, thus improving firms’ profitability, sustainability and growth.

Your research surveys management practices in 30,000 firms across the United States. What were the main findings?

The survey was called the Management and Organizational Practices Survey (MOPS). It’s the first large-scale survey of management in America and was run by the U.S. Census, looking at 30,000 factories across the country. Manufacturing tends to be at the forefront of management technology because it’s super competitive, so it’s often the seed bed of new ideas. What’s new about our work is the application of big data to management: We’re looking at tens of thousands of firms and trying to find reliable, stylized facts.

The survey provided data on organization’s management practices, which we define as an organization’s use of monitoring, targets, and incentives. This definition builds on the concept of Lean manufacturing that developed in the ‘80s and the associated principles of continuous oversight, evaluation, and improvement. We worked closely with the Census Bureau; the survey questions drew on research I had previously conducted with a colleague, and we carried out the first analysis of the findings, with one wave of responses in 2010, and another wave just completing for 2015.

We found that firms that scored highly on management per our scale also scored well on productivity.