It is well understood within the economics and business school research communities that above average productivity improvements are highly correlated with the financial success of a firm. Correlation does not always mean causation, however. Did financially healthy firms become that way because of their better management practices (for example, adoption of lean/six-sigma practices) or are financially healthy firms simply able to afford the resources required to install such programs? This is a difficult question to answer without an experimental setting that can help isolate the effect of these programs, thus providing stronger support for the causality argument.

One of the most promising causal results on the relationship between better operational management and firm financial performance are the randomized control trials in Indian textile firms carried out by Bloom, Eifert, Mahajan, McKenzie and Roberts (2013). They introduced intensive management consultancy to treatment manufacturing plants and compared the performance of these plants to the performance of control plants who received a light consultancy treatment (no lean/six-sigma practices). They find significant increases in productivity within weeks of the implementation of interventions. The intervention raised productivity by an average of 10% (compared to the control group) after just 20 weeks of applying the new practices. While this study is not specifically focused on reverse logistics, there is no reason to believe that the management of reverse logistics would not offer similar improvement opportunities from the implementation of a lean/six-sigma program.

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The above is a condensed summary of:

Bloom, Nicholas, Eifert, Ben, Mahajan, Abarjit, McKenzie, David and John Roberts (2013) “Does management matter? Evidence from India” Quarterly Journal of Economics 128 (1) 1-51

An online presentation of the study can be found here:
http://mitsloan.mit.edu/shared/ods/documents/?DocumentID=2580

This paper is part of a series of papers and studies originally organized by The Center for Economic Performance at The London School of Economics and Political Science. Links to the research papers and other details about the study can be found at the following site: http://worldmanagementsurvey.org/

1 This recurring series provides plain-English summaries of leading academic research in the area of consumer returns. It is co-produced by Mark Ferguson (Univ. of South Carolina), Michael Galbreth (Univ. of South Carolina), and Guangzhi Shang (Florida State Univ.).

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Mark Ferguson, Michael Galbreth, and Guangzhi Shang
Guangzhi Shang, Michael Galbreth, and Mark Ferguson