Organizations Feb 3, 2020
Do Manager Training Programs Boost Companies’ Productivity?
The answer has been surprisingly elusive. A new study tackles the question, and highlights the outsized value of HR training.
Management training is a huge industry. Yet it is not entirely clear if all the money being spent on instructing managers is worth it.
Researchers have run experiments to try to answer this question—for example, training managers at one set of firms and not another, then comparing the firms’ productivity. But these studies were often relatively small, analyzed changes in productivity over a short time, or didn’t disentangle the effects of different types of training.
Now, a study of a massive historical data set has bolstered the case that management training can indeed make firms substantially more productive. Perhaps surprisingly, instruction in human resources (HR) seemed to yield the biggest gains. And combining HR training with training in other areas, such as factory operations, increased the effectiveness of that additional training, too.
“Training is important,” says Nicola Bianchi, an assistant professor of strategy at Kellogg and coauthor of the study. But “HR really was the most effective training of all.” If a company has limited resources, he says, they might want to prioritize that area.
A Tricky Task of Evaluating Management Training
At first glance, the question of whether formal training programs are worthwhile seems like it should be pretty simple to answer.
“You would think that we should know by now whether management training and management consulting affects productivity,” Bianchi says.
But gathering convincing evidence of this is not so straightforward. If researchers just compare the productivity of firms that choose to enroll managers in training versus those that don’t, they can’t necessarily conclude that the training caused the productivity. After all, if a company decides to invest in training, it might be different in other ways too; for instance, perhaps it treats employees better overall.
“A lot of firms ... adopt management practices that are quite far from what we think are the best ones. Why don’t they do it? We don’t know.”
— Nicola Bianchi
So researchers have gotten around this problem by setting up randomized controlled trials. They find a group of firms to participate, randomly assign a subset to receive training, and compare the trained and untrained companies. And those studies usually do find that instruction boosts company performance.
But the studies often involved a relatively small number of firms observed for a limited amount of time, and training was usually given as a package of interventions, without much analysis of whether certain modules were more effective than others. Additionally, instruction was typically directed at top executives. Bianchi and his collaborator, Michela Giorcelli, at the University of California, Los Angeles, wondered if teaching middle managers would yield different results.
A Massive Training Program
Luckily, the team discovered a huge data set that allowed them to answer all of these questions.
The data came from a program for U.S. war contractors called Training Within Industry (TWI), carried out by the government from 1940–45. The program began because demand from allies for World War II supplies was rising. And government officials anticipated that if the United States entered the war, companies would lose many male workers. The hope was that training would boost productivity and enable firms to quickly train replacement employees.
So the government dispatched instructors to firms around the country to teach three modules. Factory operations covered practices such as improving safety and documenting why machines broke down; human resources included tasks such as establishing performance incentive schemes and clarifying job duties; and inventory, order, and sales management covered topics such as prioritizing orders and creating a market research team.
To Bianchi and Giorcelli, this program was “like a gold mine for economists.”
First of all, “it was massive,” he says. The firms that applied to be part of the program had more than 10 million employees, about 18 percent of the U.S. workforce.
Second, the program was executed somewhat haphazardly, making it similar to a randomized controlled trial. Each instructor was trained in only one module, targeted to either middle or top managers. The government then assigned instructors to specific geographical areas, clustering them so that there were five instructors able to visit each firm enrolled in the program. However, for some reason, officials did not take the teachers’ different trainings into account when making these assignments. So some companies ended up with a training team that could teach only one or two modules, or only one level of management—which meant the researchers could assess the effects of individual trainings.
“We have to thank the lack of coordination,” Bianchi says. “It’s as good as random.”
The team also dug up financial statements and annual reports for applicant firms from 1935 to 1955. This information, obtained from a database called the Mergent Archives, allowed them to assess the performance of companies that had or hadn’t undergone training. For example, they could compare firms that received instruction in factory operations to other companies in the same industry and geographic area that had applied for the TWI program at the same time—but hadn’t been enrolled due to budget or instructor constraints.
Productivity Boosts, Especially from HR Training
Bianchi and Giorcelli started with a simple question: Did management training improve productivity?
The answer appeared to be yes. Companies that received instruction in factory operations saw annual increases of 2.5 percent in sales, 2.2 percent in productivity, and 1.5 percent in return on assets (ROA) compared to similar untrained firms. Inventory training increased those three measures by 3.3 percent, 3.8 percent, and 2.5 percent per year, respectively.
But the biggest gains came from HR training, which was linked with annual increases of 5.5 percent in sales, 4.6 percent in productivity, and 3.9 percent in ROA.
“All training increased productivity,” Bianchi says. But “HR comes at the top.” He speculates that perhaps HR instruction was particularly effective because it encouraged companies to set up incentive schemes for workers, motivating them to improve their own performance.
What’s more, HR training seemed to amplify the benefits of the other modules. For example, companies that received both HR and inventory instruction saw productivity gains that were 1.9 percentage points greater than just adding up the effects of the HR module alone and inventory module alone.
The result makes sense, Bianchi says, because an effective HR unit—particularly one that establishes performance incentives—can make the whole company run more smoothly.
“Being able to incentivize your workers properly is going to have beneficial effects throughout the organization,” he says. Whether workers are tasked with keeping factory floors tidy or managing customer orders, they’re likely to perform better if they know their efforts will be rewarded.
To solidify the evidence that training caused the productivity gains, the researchers also examined company surveys that recorded whether the firms actually implemented the practices they’d learned. They found that most companies did follow through.
“There’s a very clear relationship between training and changes,” he says.
Top or Middle Managers?
Finally, the team studied the question of whether training middle vs. top managers made a difference.
For factory operations, it didn’t. The benefits weren’t significantly different either way.
In HR, however, teaching middle managers was more effective than teaching executives. Perhaps this difference arises because middle managers are closer to employees and can better intuit which incentives will motivate staff to perform, Bianchi speculates.
“They might have a better sense of ‘What are the needs of employees?’” he says. “The CEO might have lost touch.”
In contrast, inventory training was more effective when directed at top executives. The reason might be that tasks such as managing production and developing marketing strategies require information from multiple departments, which is easier for executives to gather.
“You have more leverage to get this information,” he says.
A Worthwhile Investment
The team estimates that over 10 years, firms that received instruction in two modules saw overall productivity gains of about 15–18 percent, “which is a lot,” Bianchi says. The results “should really convince everybody that management training and implementing good management practices is important to increase productivity.”
Yet, despite this finding and the existence of previous research that suggests a substantial benefit from management training, many companies today don’t seem to bother with training.
“A lot of firms, even in the United States, adopt management practices that are quite far from what we think are the best ones,” Bianchi says. “Why don’t they do it? We don’t know.”
While the program studied was conducted in the 1940s, its instruction modules are very similar to current methods.
“The actual training itself is remarkably close to the training that is provided today,” Bianchi says. “Our results might be quite valid for modern firms as well.”