business and fiscal management of the educational enterprise

International Journal of Research and Innovation in Social Science

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The Best Practices of Financial Management in Education: A Systematic Literature Review

• Ruel S. Vicente
• Loyd C. Flores
• Ronald E. Almagro
• Mary Rose V. Amora
• Jocel P. Lopez
• Sep 4, 2023
• Accounting & Finance

Ruel S. Vicente, Loyd C. Flores, Ronald E. Almagro, Mary Rose V. Amora, Jocel P. Lopez

Davao del Norte State College

DOI: https://dx.doi.org/10.47772/IJRISS.2023.7827

Received: 26 July 2023;  Accepted: 29 July 2023; Published: 04 September 2023

This study explored the literature on the best practices of Financial Management in Education utilizing a systematic review analysis design. This study aimed to answer the following questions:  1. The demographic data in the existing literature on the the best practices of Financial Management in Education in terms of country, research design, and the number of participants. 2. The best practices of Financial Management in Education, and 3. Suggestions for further research can be identified by exploring the current literature on an educational strategic direction based on the elements of financial management. As a result of the systematic analysis showed themes on the best practices of Financial Management in Education as

According to the demographics of the literature, Western countries and Southeast Asia conducted very few studies on best practices of financial management in education Therefore, this integrated and systematic study of the educational literature on the best practices and financial management sought to identify the key best practices of financial management in education. Finally, we hope that the framework offered by this study and the overview of the difficulties presented here will help to improve school leaders’ practices in strategic financial management and serve as the basis for future research and policy decisions.

Keywords : Financial Management, Financial Planning, Resource Management, and Best Practices

INTRODUCTION

According to Gitman (2003), finance is the art and the science of managing money and is concerned with the process, institutions, markets and instruments involved in the transfer of money among individuals, institutions (including schools) and governments. School principals like any leaders of any organization have decisions to make when it comes to utilization of the funds channeled to public schools (Atieno, 2012). These decisions according to Brigham and Houston (2012) have financial implications on the financial management of school principals who play the most crucial role in ensuring schools’ effectiveness and performance taking into account the day-to-day operations of the school (Ballada and Ballada, 2012).

Republic Act No. 9155 in the Philippines or commonly called as Governance of Basic Education Act of 2001 mentioned how school principals are expected to administer and manage all personnel, physical and fiscal resources of the school. In any organization, it is very important that the financial management of its leader is properly and prudently observed considering that this may lead to further success. A study defined financial management as dealing with the sources of funds, their efficient use of and minimization of cost or losses for the greater profitability. This productivity is generally intended for business in ministerial departments and post primary institutions. Similarly, it is for the enhanced welfare of students and both the teaching and non-teaching staff.

The school head’s efficient and effective management of financial or material resources is considered one significant factor in the attainment of institutional objectives. On the other hand, inappropriate and inconsistent exercise of financial management may cause failure in terms of financial difficulties and mismanagement of resources. In the end, an excellent and improved performance is the ultimate aim of every organization as they align well their financial management systems by wisely observing applicable and advantageous practices. In the school setting, the financial management of school heads prevail when they have basic knowledge and clear understanding of the basic processes involved in managing school’s account, the budgeting process and the systems and controls that are necessary to ensure that the school’s finances are not misappropriated, (Clarke, 2008). School financial management involves the planning and implementation of a financial plan, accounting, reporting and the safeguarding of assets from loss, damage and fraud. Basically, the level of school heads’ financial management can usually be determined through their formal education, on the-job training and experiences. Sometimes, their personal or individual characteristics are also considered respectively.

Furthermore, to manage diverse financial resources in school is as simple as handling your own finances, properties or assets. If a school administrator has enough capability on budgeting, accounting, procurement and asset management, he is not easily tempted or cannot simply commit erroneous spending. The school head will not go far beyond the financial allotment which is consistent with the approved School Operating Budget (SOB), Annual Procurement Plan (APP), Monthly Disbursement Program (MDP), Project Procurement Management Plan (PPMP) and other financial management plans. If a school head is properly directed and guided by existing rules and regulations, guidelines and policies involving financial management and has appropriate stewardship and ethical leadership orientation, he or she can minimize or manage the number of challenges usually experienced in the field. Some problems and other sources of conflict and misunderstanding in the organization will eventually be controlled.

There is evidence on the lack of comprehensive studies on best practices in the field of financial management. While there is some research available on financial management practices in educational institutions, there is a need for more rigorous and systematic investigations that identify and evaluate the most effective strategies and approaches for managing finances in education. Specifically, there is a need for research that examines the implementation and impact of financial management practices such as budgeting, resource allocation, cost control, and financial accountability measures in educational settings. This research could investigate how different practices are being used in various educational contexts and their effects on student outcomes, school performance, and overall financial sustainability.

Furthermore, there is a lack of comparative research that evaluates the effectiveness of different financial management practices across different educational systems or countries. Such studies could provide valuable insights into the transferability and adaptability of best practices in different contexts. By addressing these research gaps, policymakers, school administrators, and financial managers in the education sector can gain evidence-based guidance on the most effective financial management practices to improve resource allocation, enhance educational quality, and ensure long-term financial sustainability.

Research Questions

The study tends to conduct a systematic review analysis of the existing literature about the best practices of financial management in education. It aims to answer the following research questions:

• What demographic data is in the existing literature on the best practices of financial management in education in terms of country, research design, and the number of participants?
• What are the best practices of financial management in education? and
• What suggestions for further research can be identified by exploring the current literature in financial management based on the elements of strategic financial management in education?

METHODOLOGY

This study employed a methodical review and analysis design. One of the most important requirements for a high-quality review article is that it follows a predetermined methodology, carefully selects and evaluates articles, and surveys the field on a regular basis to discover the most recent advancements (Snyder, 2019). Systematic meta-analyses study results and ranks them in terms of quality (Ahn & Kang, 2018). A systematic review is a statistical method that is commonly used in systematic reviews for statistically combining the findings of multiple research studies to produce a pooled estimate of treatment impact. This is also a primary concern for Ranganathan and Aggarwal (2022). As a result, systematic reviews provide the most credible evidence (Chandler et al., 2019). This systematic review was carried out using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) reporting checklist, as shown in Figure 2. (Prisma;Liberati et al. 2009). Identification, screening, eligibility, and inclusion are the four stages of the process with thorough literature search for this investigation in order to find articles that included systematic reviews.

Figure 1: Information flow between the various stages of a systematic review

Searching, Screening, and Data Extraction

The study’s primary database-search tool was Google Scholar, which was used to find relevant literature that could be included in it. Google Scholar was selected because of its advanced search tool, which allows users to specify their preferred functional words, the section of the paper in which they were used, and the year of publication. It also includes statistics and full-text versions based on inclusion and exclusion criteria. We used Google Scholar and the “advanced search” feature to find relevant reviews. We specified that the inclusion criteria should be based on the titles of the articles, and we used keywords like “Financial Management” “Best Practices” of “Public Schools” during the search. This method produced a total of 4,570 results. We then reduced the number of articles to 1,320 by narrowing the publication year range to 2018-2023. We were able to refine our search and obtain a more focused set of reviews from recent years by following these steps.

During the process, there were several duplicates. We exported the articles using Microsoft Excel and sorted them from A to Z to quickly eliminate the duplicates. As a result, 67 items remained. Only articles written in English were included in the analysis, resulting in the identification of 31 sources and the exclusion of 36 articles. Because the researchers could not access the 7 eliminated publications, they only kept 24 sources from these 26 journals. The number of papers was then reduced to 17, excluding seven that had not been administered in Southeast Asia.

Furthermore, we screened the articles by focusing primarily on the key elements of educational financial management. Table 1 shows the eligibility criteria that determined which articles were included and excluded for this review’s inclusion and exclusion standards.

Table 1 . Inclusion and Exclusion Criteria of the Systematic Review

Search Strategy

            In this study, the documentation of the analysis process and inclusion criteria was done in accordance with the rules. We searched Google Scholar for relevant works. We used the “advance search” option and selected inclusion criteria such as “in the title of the article” and the year between 2018 and 2023 to quickly compile the most recent and relevant articles. The documentation of the analysis process and inclusion criteria in this study was done in accordance with the systematic flow.

Data Extraction Procedures

This systematic review has extracted the names of the authors, the year of publication, the country, the study design, participant characteristics, the study aim, the results and discussion, the conclusion, the recommendations, and the implications for strategic planning in education for ease of reference, navigation, and citation. Table 2 contains the studies that were reviewed for strategic planning in education. They were all taken from Google Scholar.

Table 2. Reviewed Studies on strategic planning

Data Analysis

During the final listing of the literatures, simple tabulations of demographic data in terms of the study year, nation, and subject area were made using Microsoft Excel. A comparison of various literatures was considered in order to overcome the outdated professional development skills in public schools. The analyzed data were also presented graphically to provide a general picture of the entire data set.

RESULTS AND DISCUSSION

Ten peer-reviewed articles came from three different countries. These were distributed as follows: Philippines (15), Indonesia (1) and Malaysia (1). Fifteen (15) studies (88%) focused on public school (3) studies (22%) focused on higher education. (see Table 3). It can be assumed that there was an approximately equal distribution of qualitative and quantitative study designs throughout the publications on key elements of educational financial management. The sort of study and research design utilized are affected by the quantity of participants.

The summary of the research emphasis for all relevant literature is shown in the last row following the review analysis. Additionally, the readers were informed of the study’s purpose(s) and expected that the posed research questions would be addressed.

Table 3. Distribution of the Reviewed Studies by Country and by Educational Level  

The next section displays the outcomes of the framework’s components. The first section focuses on demographic information from the body of literature on the key elements of educational financial management, including nation, research design, and participant count. The key elements of educational financial management are identified in the second part. The third section then explores ideas for additional research that emerge from a review of recent works on educational financial management built on the principles of financial management.

Demographic Data on the Existing Literatures on the Salient Characteristics of Educational Financial management

Table 4 summarizes the full-text publications and journals reviewed for the salient characteristics of educational financial management and the nation in which the study was done, research methodologies, participant numbers, and study objectives. As seen in the table, Philippines (15), Indonesia (1) and Malaysia (1) were the countries from which the studies were from. The quantity of qualitative and quantitative research designs used throughout all literature about salient characteristics of educational financial resource management may be inferred to have been roughly unbalanced and must be trimmed more from Asian source to Southeast Asian Sources.

Table 4. Demographic of the Various Literature

Best Practices in Financial Management in Education                       

Based on a thorough review of the ten (17) articles, four (4) emerging themes on the Best Practices In Financial Management in Education: Increasing Accountability, Efficiency in Budgeting, Procurement transparency and optimization, and Sustainability and Asset Management, as shown in Table 5.

Table 5. Themes on  Best Practices in Financial  Management Practices in Education

Increasing Accountability and Financial Literacy

               The first emerging themes Increasing Accountability and Financial Literacy as best practices in financial Management in Public Education, the characteristic, as shown above, are Improved financial management capabilities and Financial Decision Making-skills

Improved financial management capabilities . The concept of financial management in schools describes the process of ensuring that school leaders plan, organize, delegate and control the funds of the school to achieve its goals (Styles, 2018). Effective financial management skills should improve financial well-being in a positive way and failure to manage finances well can lead to long term negative social consequences. The financial management is a key factor in knowing how the school is effectively managed or if it is able to realize its objectives, Ajaegbo (2020). The active participation of various stakeholders, including teachers in school governance and decision-making processes such as finance related matters (Chaka 2019)

Moreover, the principal must have a basic understanding of financial management so as to give the necessary instructions, as the head of the school. According to Brunet et al (2020), the financial Managers skills, competence and the trust that persons establish with the head teacher are invaluable. Likely, management skills receive increasing concern from researchers in recent years.

Financial decision making skills. Assist people in making wise financial decisions by encouraging problem-solving, logical thought, and a comprehension of fundamental financial principles (Surendar & Sarma, 2018).  Magak (2013) opined that educational leaders require training in financial decision making skills to assist them advance. Financial management at schools. Building on a related notion, Phylisther, Mulwa, and Kyalo (2018) claimed that financial decision making skills become necessary for school heads in order to ensure they have the necessary skills.

Furthermore, As supported by Pagaduan (2020), Financial decision making skills is the capacity to use information and skills to successfully manage financial resources for long-term financial security. It is how people interact with one another to acquire awareness of their financial condition and discover ways to improve it over time by forming the financial habits of saving, budgeting, planning, and subsequently making the appropriate financial choices.

Efficiency in Resource Allocation and Budgeting

Emerging Feedback in Financial Management Best Practices of Public Schools’  Efficiency in Resource Allocation and Budgeting, the following characteristics are: Prioritization of Needs, Regular Review and Evaluation and Collaboration and Stakeholder Involvement

The prioritization of needs . Procurement is not only important for resource allocation, but it is also directly related to the efficiency of fund management. Organizations can maximize the impact of available resources by prioritizing needs and allocating funds to address the most pressing needs first (Abag, 2019). This ensures that limited funds are allocated where they can generate the highest return on investment and drive organizational objectives. According to Sambal (2019) by aligning procurement priorities with available funds, organizations can optimize the utilization of financial resources, minimize waste, and achieve greater efficiency in fund management. This allows for a more strategic allocation of funds, resulting in cost savings and improved overall financial performance.

Regular Review and Evaluation . A financial review and evaluation regularly examines the financial operations of the firm as a whole, comparable to gaining a complete glimpse of one’s money. In most cases, a high-level financial evaluation suffices to ensure fair behavior (Ampongan, 2019). Consequently, a financial assessment and evaluation help identify potential financial risks and weaknesses, enabling organizations to proactively address concerns or dangers that may impact their operations. This is achieved through the examination of financial accounts, cash flows, and risk exposures. As a result, risk management is encouraged, and the severity of financial difficulties is minimized before they escalate into more serious issues.

Collaboration and Stakeholder Involvement . Collaboration and stakeholder participation are critical in improving an organization’s fund utilization efficiency. By involving relevant stakeholders in the procurement process, organizations can benefit from their expertise, insights, and diverse perspectives, such as finance teams, budget holders, and department heads (Cuenca, 2019). This cooperative approach ensures that the distribution of funds is consistent with the organization’s strategic goals and priorities. Participating stakeholders improve the identification and understanding of the specific needs and requirements of various departments, which leads to more accurate budgeting and resource allocation (Collantes, 2021).

Lastly, Salam & Sedik-Salam, (2018) highlighted that with such a strategy, the school can also avoid duplication of effort, streamline processes, and find opportunities for cost optimization by encouraging open communication and collaboration. Overall, collaboration and stakeholder participation ensure that funds are allocated in a way that maximizes value and supports the overarching goals of the organization, which helps to ensure efficient use of resources.

Procurement Transparency and Optimization

               Emerging Feedback in Financial Management Best Practices of Public Schools’  Procurement Transparency and Optimization, the following characteristics are: Conduct of Internal Auditing and Board Strategic Procurement Planning.

Conduct of Internal Auditing.   The internal audit activity encompasses, among others, the appraisal of the adequacy of internal controls, conduct of management audit and evaluation of the results of operations, focusing on control effectiveness of operating systems, and its support service systems. According to Suleiman et all, 2018, internal control system is defined as the policies and procedures which are put in place to ensure that the assets of an organization are protected and they are reliable for financial reporting. Internal control of organizations is meant to ensure the efficiency and effectiveness of activities, reliability of information, compliance with applicable laws and timeliness of financial reports (Jokipii 20019 and Changahit et al, 2021).

               According to Rosalid and Downes (2019), to prevent fraud in school finances, the principal should come up with clear procedures and responsibilities. These include separating staff duties, delegation of procurement authorization and also exercise effective supervision to make sure that rules and regulations are adhered to. Kaharisa (2020).

Board Strategic Procurement Planning . Sometimes referred to as strategic sourcing, is the long-term strategy to guarantee a timely supply of goods and services that are essential to an organization’s capacity to achieve its primary goals (Lopus, et. al 2019). Strategic procurement planning is essential for streamlining the procurement process, controlling costs, and improving overall organizational effectiveness in the field of financial management techniques. This operational debate looks into the useful applications and advantages of strategic procurement planning, as emphasized by the  (Lopus, et. al 2019).

As supported by Spekman, (1989). Emphasizes the importance of strategic planning as a key element of financial management procedures. Organizations may make sure that their procurement operations are in line with their larger financial goals and objectives by having a clear procurement strategy. This will help to ensure that the decisions made about procurement are profitable in the long run. Moreover, integrating strategic procurement planning into financial management procedures has various advantageous effects on operations. Organizations can use it to better their overall procurement performance, reduce risks, manage costs, build strong supplier relationships, and connect procurement activities with financial goals. In today’s dynamic business climate, firms can enhance their financial outcomes, boost efficiency, and achieve sustainable growth by using strategic procurement planning.

Sustainability And Asset Management

Emerging Feedback in Financial Management Best Practices of Public Schools’ Sustainability and Asset Management, the following characteristics are: Conduct of Internal Auditing and Board Strategic Procurement Planning.

Proper Asset Tracking and Maintenance . Proper asset tracking and maintenance are critical in schools for assets to last and perform optimally, to reduce costs, and to create a safe and favorable learning environment (Ramirez & Amponin, 2019). Repairs and upgrades should be addressed promptly to minimize downtime and improve asset performance. Staff responsible for asset tracking and maintenance should receive training and have clearly defined roles and responsibilities. Compliance with safety regulations is essential, and accurate documentation and record-keeping of all maintenance activities should be maintained (Ampongan, 2019).

Asset Accountability . In schools, IT equipment, laboratory tools, and educational materials are frequently valuable assets. Asset accountability, which includes maintaining accurate records, conducting regular inventory checks, and implementing appropriate security measures, aids in the prevention of asset loss, theft, or unauthorized use.

It deters potential perpetrators while also instilling in the school community a sense of responsibility and security.

CONCLUSIONS AND RECOMMENDATIONS

This systematic literature review on the “Best Practices of Financial Management in Education: A Systematic Literature Review” aims to give numerous pertinent studies. Additionally, Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) assisted in identifying studies that were appropriate for inclusion in a full review. The implementation of educational plans must also be taken into account when determining research that underwent a thorough review.

Additionally, content analysis was used to combine the Best Practices of Financial Management in Education in order to avoid duplication when gathering the data. The application of thematic analysis, which concentrated on the newly developing themes of the execution of educational strategy evaluation: Increasing Accountability and Financial Literacy, Efficiency in Resource Allocation and Budgeting, Procurement transparency and optimization, Sustainability and Asset Management.

The reviews state that among the best practices of financial management mentioned in the proposal are encouraging stakeholder engagement, making sure that all stakeholders take part in the budgeting process, and forging connections with outside partners. It enables the implementation of efficient finance management systems in education. Therefore, educational organizations should push for regular monitoring and evaluation of all financial programs. It is advised that future researchers look at financial management procedures in more detail in order to establish accountability, transparency, and reliable financial controls. Regular financial analyses, precise record-keeping, budgeting, risk management, and ongoing review of financial performance are all included in this. To ensure efficient and responsible resource management, it is also imperative to encourage stakeholder engagement, put ethical standards into practice, invest in financial literacy programs, and train staff members involved in financial management.

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Enterprise Education. The what, the why and the how.

Click Here to read this article in Chinese 点击这里阅读中文

Governments across the world are working to close the gap between education and the workplace, enabling citizens to progress from one to the other, support economic growth, navigate changes to work practices and lead fulfilling lives. One common approach is to introduce enterprise and entrepreneurship education into the school, college and university experiences of young people to better prepare them for adulthood and work.

Entrepreneurial people are better employees and develop skills that are becoming increasingly in demand by employers. An entrepreneurial approach to learning is motivating for students, developing their self-esteem and a sense of purpose, and equips them with life skills that help them to become more positive contributors to society. Simply using the language of enterprise can benefit the aspirations of students. Most importantly, however, for enterprise education to really work effectively it needs to focus on each individual, and their individual potential to achieve.

What is enterprise education?

Enterprise education focuses on helping students develop entrepreneurial, life and employment skills to prepare them for life beyond school, usually with an emphasis on financial capability, enterprise capability, and economic and business understanding. Learning provides students the opportunity to identify, use and develop a range of skills and qualities that are generally recognised as being essential for the future workforce, as well as for anyone thinking about starting their own business.

Entrepreneurial skills gained by students through enterprise education include:

Problem-solving Communication Teamwork Time management Innovation Collaboration Leadership

Entrepreneurial qualities students can develop through their enterprise education are:

Creativity Determination Taking initiative Flexibility Adaptability Resilience

Why enterprise education is important to students

Enterprise education provides students with the knowledge and skills needed to start a business, if they choose that route in the future, whilst also promoting this as an acceptable and alternative career option.

In addition to entrepreneurial skills, the aim is also to ensure that those who do choose to enter the workforce through more traditional paths are equipped with the soft skills employers are seeking.

Students gain new awareness and knowledge, together with the skills and qualities they need to confidently navigate the adult world, from tackling a job interview to planning a house purchase, from understanding more about the economy and society to being able to effectively manage every day financial budgeting.

Enterprise education programs are beneficial for students who struggle with traditional academic learning or those who don’t intend to pursue further study at tertiary level, offering an alternative learning model and the chance to learn hands-on skills for the workforce. Unlike normal academic learning, enterprise education is not so focused on pass or fail outcomes — students can learn from their failures as well as successes.

Enterprise education can provide the opportunity for students and their schools to work together with local businesses and to promote apprenticeships.

Through enterprise education students can develop their understanding of the concept of social enterprise and enterprise programmes can directly benefit local community organisations and charities.

Enterprise education can help people to become enterprising, resourceful, flexible citizens.

As an important footnote, undoubtedly schools benefit from enterprise education too!  It stands to reason that if enterprise education offers new skills and qualities to students, in turn the students become more employable, university marketable and motivated students.

How to embed enterprise education into the curriculum

While not a new concept, more and more schools are looking at ways to incorporate enterprise education into the curriculum. Enterprise education programmes can be integrated into the curriculum, provided as extracurricular activities, run through external companies or offered as intensive ‘projects’ over a set amount of time (a day or week, for example).

Examples of enterprise education programmes that are already available in some schools include:

Tasks that ask students to come up with a creative solution to a problem or put together a proposal for a new product Student-run businesses, stalls and events Excursions Community service initiatives Career programs that allow students to interact with industry professionals Real-world applications for basic numeracy and literacy skills Financial units focused on teaching students about budgeting, loans, interest rates, investment, calculating profit and loss, and so on.

For details of ICE’s own enterprise illumination programme which provides multiple options for delivery of enterprise education programmes both within and outside of the school and curriculum click here .

As well as specially orientated enterprise education activities and programmes, enterprise can also be woven through every lesson; research shows that an enterprising approach to teaching encourages pupils to be enterprising too.  At the heart of an enterprising teaching style is:

Learning by doing Facilitation of learning, rather than instruction Team-orientated and problem solving activities Combinations of activities that appeal to student’s different learning styles (visual, auditory and kinaesthetic).

This style of teaching enhances pupils’ engagement with their lessons, and can improve their classroom behaviour and performance.

To find out more about enterprise education please get in touch

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The Future of Enterprise and Entrepreneurship Education in Relation to Technology

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This concluding chapter focuses on the future of teaching and learning in enterprise and entrepreneurship education in relation to the adoption of technology. Based on the previous chapters in this dedicated text, it is evident that the adoption of technology will play an important role in the development of teaching and learning pedagogies in this discipline. Building on the key learning outcomes and points that have been discussed, a consensus centring on six points on enterprise and entrepreneurship education have been presented. This ranges from the importance of entrepreneurship education in the development of economic prosperity, enhancing individual learner’s knowledge of enterprise and business start-up, cultivating unique skills for creative thought, recognizing and acting upon commercial opportunities, and developing learner’s confidence to deal with uncertain futures. The evidence suggests that there will be a significant shift towards gamification and simulations, embedding digital technology for quiz activities, reflective practices, measuring the effectiveness of learning programmes, collaborative and interdisciplinary approaches, and the pertinence of knowledge co-creation. This chapter emphasizes the importance of pedagogy that is underpinned by technology adoption, creative approaches to teaching and learning, student-centred learning, flipped classroom approaches, engagement with entrepreneurs, and the focus on tangible outcomes of enterprise and entrepreneurship education provisions.

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Hyams-Ssekasi, D., Yasin, N. (2022). The Future of Enterprise and Entrepreneurship Education in Relation to Technology. In: Hyams-Ssekasi, D., Yasin, N. (eds) Technology and Entrepreneurship Education. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-84292-5_11

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Article Contents

I.introduction, ii.conceptualizing the relationship between education and management practices, iii.human capital and management practices in firms, iv.‘external’ measures of skills and management practices, v.managerial human capital and management practices in public services, vi.conclusion, acknowledgements.

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Education and management practices

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Anna Valero, Education and management practices, Oxford Review of Economic Policy , Volume 37, Issue 2, Summer 2021, Pages 302–322, https://doi.org/10.1093/oxrep/grab006

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The empirical management literature has found that the education of both managers and the workforce more generally appears to be an important driver of better management practices. This article sets out how such relationships might be conceptualized, and suggests that in a complementarities framework, modern management practices can be thought of as a type of skill-biased technology. It then summarizes the literature that has explored the relationships between human capital and surveyed management practices in manufacturing firms and other sectors, highlighting the handful of papers that have found a positive correlation between management practices and measures of local skills supply. It concludes with a discussion of the policy implications that stem from what we know so far, together with avenues for future research that could shed more light on the causal mechanisms at play.

The past two decades have seen major advances in the measurement of management practices, with the deployment of the World Management Survey (WMS) across businesses and public-sector organizations worldwide ( Bloom and Van Reenen, 2007 ; Bloom et al. , 2014 ), and questions on management practices now being embedded in standard business surveys in a number of countries ( Bloom et al. , 2016 a ). The empirical literature on management practices has established their importance in explaining differentials in productivity between and within countries and sectors, and a growing body of experimental evidence supports a causal interpretation; Scur et al . (2021 , this issue) provide an overview of findings from 18 years of research as the WMS ‘comes of age’. Relatively less is known about the drivers of differences in management practices across firms, though a number of factors have been shown to be important, including informational or market frictions ( Bloom et al. , 2019 ). This article summarizes evidence from a series of papers that suggest that workforce education might help explain such differences.

A key finding in empirical analysis of the international WMS manufacturing data has been that the education of both managers and workers—typically measured in terms of the establishment-level share of each group with a university degree—is positively and significantly correlated with management practices (see for example Bloom and Van Reenen, 2007 ; Bloom et al. , 2014 ). In fact, in Bloom and Van Reenen (2007) , human capital seemed perhaps the most important explanatory variable. Across countries, when managers were asked about the constraints to improving management practices, an inadequate supply of managerial human capital was the most cited constraint, followed by insufficient worker skills ( Homkes, 2010 ). A correlation between management practices and human capital has been found in other contexts where WMS-style management surveys have been conducted. The human capital of business owners has been found to be positively associated with business practices in smaller (micro) firms in developing countries ( McKenzie and Woodruff, 2017 ). Beyond the private sector, it has also been shown that the type of education received by clinical managers in hospitals matters—better managed hospitals tend to have a higher proportion of managers with MBA-type degrees ( Bloom et al. , 2017b ).

Given that management practices are a key driver of economic performance, these associations can be rationalized in the context of the broader literature that has linked human capital and the economic performance of firms, regions, and countries. 1 Within standard growth frameworks, there are two key (non-mutually-exclusive) channels through which human capital could drive differences in management practices. First, the positive relationship between the education of managers and management practices could simply reflect the fact that more skilled managers are able to design and implement more effective (productivity-enhancing) management practices. This view is supported by the literature that has established an association between top-level managerial human capital and firm performance (see, for example, Bertrand and Schoar, 2003 ; Bandiera et al. , 2017 ; Queiro, 2018 ). Framed in terms of a ‘Lucas–Lucas’ model which combines the allocation of talent between workers and managers ( Lucas, 1978 ) and human capital externalities ( Lucas, 1988 ), Gennaioli et al. (2013) find evidence to support the importance of educated entrepreneurs for the creation and productivity of firms.

Second, and considering the workforce more broadly to include workers as well as managers: if modern management practices can be thought of as a type of technology ( Bloom et al. , 2016b ), then given the features measured in the WMS, it is reasonable to predict that this technology is complementary with workforce skills, so that having a skilled workforce increases the marginal benefit or reduces the marginal cost associated with implementing better management practices (as is argued to be the case with technologies more broadly by Nelson and Phelps (1966) ). In this sense, management practices can be thought of as a ‘skill-biased’ organizational technology ( Caroli and Van Reenen, 2001 ; Feng and Valero, 2020 ).

There are, of course, a number of issues in interpreting organization-level relationships between human capital and management practices. Such associations are subject to a number of sources of endogeneity: it could be that more highly educated managers and workers select into working in better managed organizations, or that these correlations are actually driven by unobserved (to the econometrician) factors that influence both workforce composition and management practices—for example, technology adoption or organizational culture. Such concerns have prompted some to investigate the extent to which external (to the firm) measures of skills supply might help explain differences in organizational human capital and management practices. Using an international sample of manufacturing plants surveyed in the WMS, Feng and Valero (2020) show that plants closer to universities and facing a lower price of skills tend to have a more skilled workforce and higher management scores, ceteris paribus . It is argued that this provides evidence in support of the complementarities hypothesis. Bloom et al. (2017a) link the presence of land-grant colleges in US counties to better management practices in manufacturing establishments, and Bloom et al. (2017b) show that hospitals closer to universities that have both medical and business schools have a higher share of clinical managers with MBA-style courses and higher management scores. It must be noted, however, that in the absence of an experiment that randomly allocates differentially skilled workers to firms it remains challenging to pinpoint the mechanisms driving these associations and address all sources of endogeneity.

Another issue regards the measures of human capital which tend to be available in the data. In general, the proxy for human capital is based on the organization-level share of workers or managers with a university degree (or equivalent). There is clearly significant heterogeneity in the quality or focus of different degree courses and, with such data, it is difficult to determine whether effects are driven by general human capital or more specific knowledge picked up in business related courses (including MBAs), or simply via higher ability individuals selecting into higher levels of education. To try to get at measures of ability of employees within firms, Bender et al. (2018) link WMS data on manufacturing plants to longitudinal employee earnings records in Germany from which they derive estimates of skill at the individual level based on observed wages. The authors find that manager effects appear to be more important than worker effects for explaining management practices, and also that better managed firms are more likely to be able to recruit and retain higher ability workers. Cornwell et al. (2019) use a similar approach in Brazilian firms to examine the sorting of managers and workers into firms and how this relates to management practices.

These studies have policy relevance for a number of reasons. First, given the importance of management practices as a driver of organizational performance, and the general focus on education and skills policies for improving both growth and societal outcomes more broadly, shedding light on the relationships between human capital and management practices and how these might vary for different types of organization or context can help inform growth policies at the national or local level that seek to improve productivity and living standards. While it remains challenging to establish causal relationships, the studies set out here attempt to address endogeneity concerns to the extent possible given data constraints. The evidence points to there being a complementarity between various measures of the supply of human capital and management practices, and suggests that there is merit in considering policies in these two areas in tandem.

The papers that have linked proximity to universities to better management practices are also relevant for policies that seek to build or strengthen clusters around universities. The overall economic impact of universities on their surrounding regions is examined by Valero and Van Reenen (2019) using international data from the 1960s to today—a period of large-scale expansion in university enrolments worldwide. A robust positive association between the establishment of universities and growth in regional GDP per capita is found, and the authors suggest that this is likely to be driven by an increased supply of human capital, innovation, and associated spillovers. 2 The evidence set out in this article suggests that the positive relationship between human capital and productivity enhancing management practices could be one of the channels through which universities might contribute to regional economic growth.

From a policy perspective, it is also important to understand what type of education matters for improving management practices and whether this is more likely to be general, or business-related. Recent decades have seen a large growth in business-focused education ( Lock, 1996 ) which on average tends to generate relatively high returns in the labour market. 3 Today, UK enrolments in business and administrative studies subjects represent 14 per cent of undergraduates and 19 per cent of postgraduates; with over 19,000 students enrolled in MBA programmes. 4 Feng and Valero (2020) show the relationships between management practices and proximity to universities are no stronger for universities with business departments, while Bloom et al. (2017b) suggest that a combination of business and medical education is important in hospitals (perhaps hinting that specific knowledge is important in managing complex public-sector organizations). Further research is needed to understand better which specific skills matter in different contexts.

The focus of this article is on the extent to which management practices—as measured in the WMS or similar surveys—might be driven by the general education of managers and/or workers (i.e. that obtained in the schooling system). Of course, knowledge and skills can also be gained on the job, or via training or consultancy programmes. A related literature has evaluated randomized business support programmes that seek to raise management practices and organizational performance (some examples include Bloom et al. (2013) , Bruhn et al. (2018) , Iacovone and McKenzie (2019) , Bloom et al. (2020) ). Such studies span a variety of sectors and countries, and evaluate consultancy or training provision of varying intensity, in general finding positive impacts. McKenzie (2021 , this issue) summarizes the evidence on the impacts of small business training programmes in developing countries where to date the bulk of this type of research has been conducted, finding that training improves business performance but that impacts are often too small for experiments to detect. From a policy perspective, more research is needed to determine which types of intervention are most effective for different types of organization, and deliver beneficial programmes that can be scaled up in a cost-effective manner. For the purposes of this article, the relative effectiveness of training programmes for recipients with different levels of formal education is of particular interest, and so far findings on this have been mixed. For example, in the context of a bank in the Dominican Republic, Drexler et al. (2014) show that simplified levels of financial management training have larger impacts on real outcomes for micro entrepreneurs who have low educational attainment and poor business practices prior to the intervention, relative to more advanced businesses; 5 while Fairlie et al. (2015) find no evidence that an entrepreneurship training programme in the United States was more effective for those with less education (or other measures of human capital). Fryer (2017) evaluates a randomized control trial that provides training on management practices to principals of schools in Texas. The author finds that treatment effects (on student outcomes) are larger for higher ability teachers and principals.

This article is organized as follows. Section II summarizes the key conceptual frameworks for thinking about how human capital might drive (or relate to) management practices. Focusing on manufacturing firms, section III summarizes the relationships between measures of human capital and management practices found in the literature, and section IV considers studies that have linked measures of skills supply external to the firm to management practices, in particular using proximity to universities as a shifter of local skill supply. Section V then summarizes work that has linked managerial human capital to management practices in public services. Section VI concludes with policy implications from what we know and avenues for future research.

A starting point in this discussion is the view that higher management scores reflect better management quality. That is to say that while there might be elements of ‘contingency’ in practice, whereby certain practices are more optimal in certain environments, higher scores across operations, monitoring, targeting, and people management practices—as measured in the WMS—have been shown to be tightly linked to performance in the data and therefore it is fair to assume that management is an input in which output is monotonically increasing ( Bloom et al. , 2016b ).

In thinking about the relationship between human capital and management practices it is helpful to reflect on the distinction between management and managers themselves. One interpretation of the WMS scores is that they reflect entrepreneurial ability as in Lucas (1978) (see discussion in Bloom et al. (2014) ). There is empirical evidence that top-level managers themselves matter for firm performance. In the case of senior leaders in US firms, Bertrand and Schoar (2003) show that individual CEOs matter for firm policies and performance, and that some characteristics of CEOs (including whether they have an MBA) are important drivers of these relationships. Bandiera et al. (2017) examine time use data on CEOs across manufacturing firms across six countries 6 and construct a CEO behaviour index where higher scores reflect ‘leader’ CEOs, and are associated with better firm performance. They find that this index is significantly higher for individuals that hold an MBA. The fact that the education of top-level managers is related to firm performance does not necessarily imply that better operational management practices 7 can help explain this. But there is evidence to suggest this might be the case: on the sub-set of firms where both the CEO behaviour index and WMS scores are available, Bandiera et al. (2017) find the two measures to be correlated with each other, and also independently correlated with firm performance.

In another study focused on top-level managers, Queiro (2018) employs matched employer–employee data from Portugal and finds that firms with more highly educated managers have better growth performance (results are robust to accounting for the omitted ability of entrepreneurs and selection into being an entrepreneur). The author suggests that the mechanism for this involves more-educated managers being more likely to introduce new technologies or management practices (consistent with a Nelson and Phelps (1966) view of human capital and technology diffusion), and finds that the relationships are stronger in more technology-intensive industries in support of this.

Managers are expected to have a strong influence on the processes and culture within their firms during their tenure, but these are likely to persist for some time after their departure. It seems more likely that management is a broader concept, more akin to a type of intangible capital ( Bloom et al. , 2016b ). In the ‘management as a technology’ model ( Bloom et al. , 2016b ), there is a heterogeneous initial draw of managerial ability upon start-up, and an endogenous change in managerial capital in response to environmental shocks.

Thinking of management as a type of organizational technology allows us to conceptualize its relationship with firm human capital (that of both managers and workers) in terms of complementarities ( Brynjolfsson and Milgrom, 2013 ). Feng and Valero (2020) hypothesize that modern management practices, as measured in the WMS, and firm human capital are complementary so that a skilled workforce increases the marginal benefit or reduces the marginal cost associated with good management practices, and firms facing a skill-abundant workforce employ more skilled labour and have better management practices in equilibrium. It would follow that, in equilibrium, the firm’s managerial technology is an increasing function of human capital. This type of relationship can be interpreted as a ‘demand equation’ in a complementarity framework (see, for example, Bresnahan et al. , 2002 ). 8 The complementarities framework can be justified on conceptual grounds because the management practices scored in the WMS are consistent with the complementary characteristics of ‘modern manufacturing’ outlined in Milgrom and Roberts (1990) and Roberts (1995) . Highly skilled, cross-trained workers are listed alongside lean production techniques, performance tracking, and communications as features of the modern firm ( Roberts, 1995 ). Similarly, a well-managed firm in the WMS is defined as one that has successfully implemented modern manufacturing techniques; and one that is continuously monitoring and trying to improve its processes, setting comprehensive and stretching targets, and promoting high-performing employees and fixing (by training or exit) underperforming employees ( Bloom et al. , 2012 ).

To the extent that management practices are complementary with skills, there is a basis for considering them to be a type of ‘skill-biased’ organizational technology. 9 Caroli and Van Reenen (2001) argue that this is the case for the decentralization of authority in workplaces, and that such ‘skill-biased organizational change’ is characterized by three features, in support of which they provide empirical evidence. First, given that the returns to new practices are higher when the skill level of the workforce is higher, skill-biased organizational changes will lead to an increased demand for skill in firms. Second, a lower price of skilled labour will accelerate the introduction of skill-biased organizational changes, all else equal. And third, more skill-intensive firms will experience greater productivity growth when introducing skill-biased organizational changes (assuming that decision-making is subject to some optimization errors or lags).

A complementarity between skilled managers and management practices might seem intuitive. A more highly skilled manager is likely to find it easier to design and lead the implementation of better organizational processes. Similarly, a more educated workforce is more likely to show initiative and be able to effectively implement complex, flexible, and more decentralized production practices set by managers. However, it could also be argued that management practices and workforce skills are more likely to be substitutes in certain cases. For example, there could be less need for continual performance tracking and communication when workers are more highly skilled. There might be heterogeneity in the relationships for different types of management practices or in different contexts.

Shedding light on the empirical relationship between human capital and management practices can therefore be valuable in helping managers and policy-makers understand best how to improve productivity. In particular, given the positive correlations between human capital and management practices seen in the data, the key challenge is establishing the extent to which these reflect causal relationships. It is also important to understand whether managerial or worker skills (or both) appear to matter, which skills are important (and the relative importance of general education versus business specific education), and the extent to which relationships between human capital and management practices vary for organizations of different types. Progress in answering these questions is summarized in the following sections, and avenues for future research to fill remaining gaps are set out in the conclusion.

(i)Establishment-level human capital and management practices

In a series of papers based on international WMS data on manufacturing plants, Bloom, Sadun, Van Reenen, and co-authors have shown that, at the establishment level, the education of both managers and workers is strongly correlated with management scores ( Bloom and Van Reenen, 2007 , 2010 ; Bloom et al. , 2014 ). The measure of education available in the WMS is the reported share of the workforce with a university degree, split into managers and non-managers in most survey waves. In the management practices regressions of Bloom and Van Reenen (2007) based on data from the US, UK, France, and Germany, the natural log of the proportion of employees with a degree is the variable with the largest explanatory role for management. The authors also find that while firms with a higher degree share have higher management scores in general, they appear to be particularly good at the more human-capital focused management practices (relative to more fixed-capital focused practices), suggesting that firms might tailor their specific mix of management practices to their environment.

The raw correlation between plant-level degree share and management practices on the sample of manufacturing plants across 19 countries analysed in Feng and Valero (2020) is shown in Figure 1 . This plots the correlation between average management scores of firms within 20 equally sized bins in terms of degree share (absorbing country and survey wave fixed effects, though results are not sensitive to this), showing a positive and precise relationship. Table 1 reports the regression equivalent (panel A), and shows that the strong relationship holds for both managers and non-managers and is of similar order of magnitude. The relationships between firm skills and management practices remain highly significant, though coefficients are smaller in magnitude when a full set of firm and geographic controls are included (panel B).

Firm skills and management practices, basic regressions

Notes : *** Denotes significance at the 1% level, ** 5% level, and * 10% level. All columns estimated by OLS. Reported standard errors are clustered at the region level for consistency with regional analysis in the paper. Panel A specifications include only country and year dummies. Panel B include a full set of firm, industry, geography, and survey controls as per the main specifications in the paper.

Source : Feng and Valero (2020) .

Firm skills and management practices Notes : Scatter plot of average firm management practices on average Ln(1+degree share) within 20 evenly sized bins. Sample includes manufacturing plants surveyed in the WMS across 19 countries: Argentina, Australia, Brazil, Canada, Chile, China, France, Germany, Greece, India, Italy, Japan, Mexico, New Zealand, Poland, Portugal, Sweden, United Kingdom, and United States. Variation is within country and survey wave dummies are also absorbed. For details on the sample, see the online data appendix in Feng and Valero (2020) . Reported standard errors are clustered at the region level for consistency with regional analysis in paper. The dashed line represents the line of best fit. Source : Feng and Valero (2020).

Focusing on manufacturing plants in Germany, Bender et al. (2018) link the WMS data to employee earnings records, enabling a richer analysis of worker features than is possible using the surveyed measures of education. Using longitudinal data on earnings of workers, including their pay at previous or subsequent employers, the authors decompose wages into worker and establishment effects using the AKM approach ( Abowd, Kramarz, and Margolis, 1999 ). The worker effects allow for the measurement of the worker skill or ability, together with analysis of the relative quality of different employee sub-groups—specifically, the authors assume that those in the top quartile of earnings are managers. Establishment effects provide a measure of the financial incentive system at each plant.

The authors find a strong relationship between average employee ability and management practices, conditioning on firm size and other standard firm covariates. The coefficient is over a third larger when only the ability of managers is considered. And when both of these are included in the specification, only the manager effect survives (the coefficient on average worker ability remains positive but is much smaller in magnitude and not significant). Moreover, the result with respect to managerial ability holds even when the plant-level share of workers with a college degree is controlled for (plus other measures of human capital including experience, age, and tenure). The authors conclude that these results suggest that management practices and human capital (particularly managerial) are complementary in the sense that they covary together.

(ii)Management practices and the demand for skills

While plant-level correlations might suggest a role of human capital as a driver of better management practices, they could also reflect an increased demand for highly skilled workers in better managed firms. Accordingly, some papers have examined the extent to which management practices explain variation in plant-level human capital. Bender et al. (2018) also use the longitudinal employee data in German establishments to examine job inflows and outflows, finding that plants with higher management scores are more likely to recruit higher ability workers, and are less likely to lay off such workers. Using a similar approach, Cornwell et al. (2019) link WMS data to matched employer–employee data from Brazil where information on individuals’ occupations is also available so that managers and workers can be identified. This paper can therefore more accurately differentiate between worker and manager quality and consider the selection and sorting of these two groups separately. The authors find that better managed firms recruit higher ability workers, and this is particularly the case with managers. They find that such firms are better at retaining higher quality hires, and that they fire more selectively.

There is further evidence for both management practices–skill complementarities, and the role of management practices in increasing the relative demand for skilled workers in the context of South Korea. Lee (2018) analyses data on South Korean manufacturing firms in the years following the Asian financial crisis and links the adoption of ‘modern’ WMS-style management practices (which accelerated in that period as South Korea opened up to foreign firms) to increased demand for technical skills. More specifically, this study utilizes a business survey that includes questions that can be mapped to the WMS, and also granular data of the number of employees by occupational skill groups (including managers and technical workers) which allow the construction of measures of relative demand for skilled occupations relative to unskilled groups using relative employment and wages respectively. The author finds that there is a positive correlation between the relative demand for more skilled workers and management practices. To address issues of endogeneity, the author instruments establishment-level management practices using an industry-level ‘frontier’ management index. 10 Controlling also for establishment technology adoption, the results hold for technical workers only. The author provides evidence of a complementarity between modern management practices and technical skills via interactions between management practices and the quantity of technical workers in establishment-level performance regressions, and concludes that such complementarity is likely to be a reason for the technical skill demands of modern management practices.

(iii)The education of microenterprise owners and business practices

The management practices literature outlined so far, based on the WMS, has been focused on medium-sized manufacturing firms across a mixture of advanced and developing countries. McKenzie and Woodruff (2017) explore the extent to which these types of practices matter in micro and small firms, across sectors, in the developing country context (where such firms account for the majority employment). The authors analyse surveys on business practices in marketing, stock-keeping, record-keeping, and financial planning across seven countries (a key difference from the WMS is that human resource practices are not included, reflecting the fact that the median firm in the sample has no employees). They show that variation in business practices explains as much of the variation in performance in microenterprises as in larger enterprises. Moreover, as in the WMS, the effect of business practices is robust to including numerous measures of the owner’s human capital. This suggests that business practices are not simply capturing owner ability in this context.

Nevertheless, consistent with studies based on WMS data, owner education is found to be positively related to business practices. The authors argue that it is likely that more educated and able owners will find it easier to learn and adopt good business practices, and that owner education is likely to matter more in the context of smaller firms where there are no intermediate levels of managers or workers. It is shown that owner years of education have a positive and significant association with business practices, which survives the inclusion of key owner and firm covariates and also two measures of analytical and cognitive ability—both of which also matter, but have smaller coefficients.

(iv)Does human capital drive differences in management practices?

A series of studies have shown that variation in human capital appears to help explain variation in management practices at the establishment level. But, clearly, a number of issues arise when attempting to interpret such a relationship. First, human capital could be a driver of better management practices, and at the same time, better management practices could be a driver of higher human capital in firms ( Bender et al. , 2018 ; Cornwell et al. , 2019 ; Lee, 2018 )—both are consistent with a complementarity hypothesis. Plant-level associations are also likely to be subject to omitted variables bias due to the presence of a number of typically unobserved characteristics of firms, including technology adoption or firm culture, which are correlated with both management practices and human capital. Finally, given the need to find proxy variables for worker and manager skill in many contexts—based on quantities or relative prices of workers with different levels of education—there are also likely to be issues of measurement error, together with a lack of specificity in terms of which skills might drive the relationships.

The next section outlines two studies that have sought spatial measures of skills supply that are external to the firm in an attempt to move closer to identifying the extent to which differences in human capital could drive differences in management practices, though in the absence of a natural experiment that generates random variation in human capital across places, these studies cannot rule out all potential sources of endogeneity.

(i)Universities, regional skill premia, and firm management practices

Feng and Valero (2020) combine international data on management practices in manufacturing plants from the WMS with spatial measures of skill availability based on university location and regional labour markets. 11 Data on universities are sourced from the World Higher Education Database (WHED), which provides university location and other characteristics, 12 and the key distance measure at the plant level is the estimated drive time to the nearest university. 13 On the sub-sample of 13 countries where international labour force survey (or equivalent) data were accessed, relative skills prices (the premium in wages for having a university degree), and quantities (degree share) were estimated at the region level. Such measures of skill supply have been linked to organizational practices and technology in previous papers, including decentralization ( Caroli and Van Reenen, 2001 ) and computer adoption ( Beaudry et al., 2010 ).

where the first arrow represents the relationship between the spatial presence of universities and supply of human capital (measured as the share of the workforce with a degree in a region k ), which is hypothesized to be positive. The share of skilled labour in the region can be expected to affect the relative skill price (skill premium), which then will influence the hiring decisions of firms. All else equal, we expect that a higher skill premium would result in a lower degree share in firm i , ( H ik ) since skilled labour is more expensive relative to unskilled labour. Finally, a complementarity between human capital and management practices implies a positive relationship between firm-level human capital and the adoption of management practices ( M ik ).

The approach to estimating these relationships is largely dictated by data availability and issues of aggregation. The authors begin by showing that regions with higher university density (universities normalized by population) have a higher degree share and lower skill premium.

Next, reduced form relationships between distance to closest university and firm skills and management practices are estimated. While firm-level measures of human capital are available for managers and workers separately, this analysis focuses on the entire workforce as it was not possible to meaningfully create external skills supply measures for these two categories separately. 14 The results of the core specifications are depicted in Figure 2 . Firms located further from universities have both lower human capital and lower management scores, controlling for firm and geographic factors.

Distance to university, management scores, and degree share Notes : Scatter plots of average management Z-score and degree share on average driving time within 20 evenly sized bins. Controls and fixed effects are absorbed. Reported standard errors are clustered at the region level. The dashed line represents the line of best fit. Source : Feng and Valero (2020).

To get more information on the mechanism at work, similar specifications are estimated replacing distance to university with the regional skill premium. This analysis finds that firms facing higher skill premia in the regions in which they are located employ significantly less skilled workers and are significantly worse managed. 15 Interestingly, results are stronger when capital regions are excluded. This is to be expected since demand shocks or other unobservables that raise both the skill premium and management practices to be more prevalent in capital regions, and in addition, firms in capital cities are more likely to be able to recruit from wider areas (due to commuting patterns or inward migration).

This analysis helps to address some of the endogeneity concerns in firm-level associations. In particular, using the university distance measure it is easier to rule out reverse causality: it seems unlikely that universities choose locations close to mid-sized manufacturing firms with higher management scores. Region fixed effects and a rich set of geographical and firm controls help to address concerns about unobservables that drive both university proximity and management practices, including the possibility that such relationships simply reflect agglomeration effects. However, in the absence of an instrument for university location using this international dataset, it is not possible to rule out a scenario whereby the results are driven by better managed firms choosing locations close to universities. Feng and Valero (2020 ) attempt to address this concern by showing that there is no differential effect for firms which are founded after their nearest university, and by considering within firm variation as an extension to the skill premium analysis. The authors note, however, that if these results are driven by better managed firms making such locational decisions, they are still suggestive of a complementarity between better management and skills.

The authors analyse heterogeneity by observable characteristics of firms and universities and provide insights that support the education-management practices complementarity hypothesis. The relationships between management practices and both external skills measures are stronger for single-plant firms compared to plants that are part of multinationals or multi-plant domestic firms. Smaller, single-plant firms are likely to be more reliant on local skills supply when recruiting staff and setting management practices. In contrast, plants that are part of larger multinational enterprises may be able to attract workers from other regions or countries due to their stronger brand, and might also move staff between locations ( Choudhury, 2017 ). Moreover, management practices in such firms might be set centrally at the company headquarters, which may be located elsewhere.

The university distance effect does not appear to vary for universities offering different disciplines, including business related courses. This supports an interpretation that the university effect is operating (at least in part) via the production of general human capital—whereby the general education and skills picked up at university are complementary with modern management practices. If, instead, the main mechanism was the diffusion of information from universities to surrounding firms via consultancy services, managerial training, or access to more specialized inputs, including business-specific knowledge of graduates, we would expect stronger effects for universities with business departments. Nevertheless, it is important to caveat this discussion given data limitations, 16 and further research is needed to understand which specific skills or knowledge might matter for managers and workers across different types of firms, and how these are acquired.

Finally, as an extension to the main analysis in Feng and Valero (2020 ), performance equations are also estimated on a sub-sample of firms where financial data were available. These take the form of simple production functions including, in turn, firm degree share, and then the external skills measures and their interaction with management practices. For single-plant firms only, the signs of the interaction terms are as would be expected under the hypothesis that skills and management practices are complements: positive for firm-level human capital; and negative for distance and the skill premium for which higher values imply that the skill price is higher. However, only the distance interaction is significant at conventional levels. This analysis therefore provides additional suggestive evidence to support the main results.

In summary, this paper finds robust associations between measures of local skill supply and firm management practices, and evidence that lends support to there being a complementarity between general workforce education and management practices.

(ii)County level universities and management practices

While the management scores in the WMS are determined based on the answers to open-ended questions asked in telephone interviews ( Bloom and Van Reenen, 2007 ), more recently ‘closed-ended’ questions on management practices have been integrated into business surveys carried out by national statistics offices (see Bloom et al. (2016a) for comparisons of these different approaches). The US Census Bureau’s Management and Organizational Practices Survey (MOPS), on US manufacturing plants, was the first-ever mandatory government management survey. Bloom et al. (2019) analyse these data for 35,000 plants across two waves of the survey in 2010 and 2015. The large sample size, panel structure, and coverage of different plants within a firm enables a rich analysis of the relationships between management practices and productivity, and the drivers of management practices.

The published paper focuses on two key drivers—the business environment and learning spillovers—but a previous working paper version ( Bloom et al. , 2017a ) also explored human capital as a driver. Specifically, the authors combine information on the location of plants within counties across the US with the quasi-random location of Land Grant Colleges across counties to construct an instrument for the local supply of educated employees. This approach builds on the work of Moretti (2004a) , who examines the impact of education on local productivity and wages.

The authors find that there is a positive and significant reduced form relationship between an indicator dummy for whether or not a county has a Land Grant College and plant-level management practices, controlling for local economic development features (population density and the unemployment rate) plus industry and state fixed-effects and plant-level covariates. Importantly, this relationship survives at the 10 per cent level of significance even when controlling for firm-level fixed effects, so that variation is across plants in the same firm.

The authors also find a positive and significant relationship between the share of working-age adults with a degree in the county, and plant-level management practices. Instrumenting this with the Land Grant College variable they find that the effect is even higher, though as noted this relies on the strong assumption that Land Grant Colleges only affect management practices via their impact on the supply of skilled workers rather than any other routes, for example business education.

Finally, in a quantification exercise, the authors estimate that variation in human capital appears to account for the largest share of variation in management practices (around 15 per cent). Overall, the results of this piece of analysis—which uses a different dataset on management practices in the United States only and employs different university-based measures of skills supply—finds results consistent with Feng and Valero (2020) : plants in areas with a more plentiful supply of skilled workers tend to have better management practices.

A positive relationship between managerial education and management practices has also been found in hospitals. Employing WMS data from hospitals across nine countries, Bloom et al. (2017b) investigate the extent to which differences in managerial education are a driver of variation in management scores.

The hospital-level measure of managerial education is the share of managers that have an MBA (or management-related courses that are at least 6 months long). Overall, in the sample, 26 per cent of managers are reported to have such a qualification, and this is positively and significantly associated with management practices, controlling for geographic and hospital characteristics. The authors employ the WHED data ( Valero and Van Reenen, 2019 ; Feng and Valero, 2020 ) to generate more exogenous measures of the supply of managerial skills in the hospital in the form of distance to nearest university.

While the authors calculate the distance to all types of university, the focus is on those that offer both medical and business courses. They find that the distance to such universities is positively and significantly related to mortality rates from heart attacks, and negatively related to management practices. On management practices, their results imply that a 10 per cent increase in drive time to the nearest university offering both medical and business courses is associated with 0.014 standard deviations in the management score. 17 There is no such relationship for universities in general or those that offer just one of medical or business courses. This suggests that specialist knowledge or training of managers (medical and MBA) is more important in the management of hospitals and it contrasts with the findings in manufacturing firms where there is no evidence of heterogeneity by broad university subject areas ( Feng and Valero, 2020 ).

In the robustness, the authors address a number of endogeneity concerns. First, it might be that universities offering both medical and business degrees are of higher quality. They find that the main results survive the inclusion of variables that proxy quality. Second, they show that the inclusion of region fixed effects and (on the US sample) county-level controls based on census data for differences in labour markets does not wipe out the result. In addition, on the US sub-sample they show that results are robust to adding fixed effects for the networks to which hospitals belong.

Supporting the interpretation that universities with medical and business schools increase the supply of managerial human capital, the authors find that hospitals which are closer to the combined clinical and business schools also have a higher fraction of managers with MBAs. But they do note that the cross-sectional nature of the data does not allow them to exclude the possibility that universities are creating bespoke managerial programmes in response to having a high-quality hospital in the area.

The fact that specific types of education might matter more in hospitals is not surprising, since hospitals are large, complex organizations with multiple goals and stakeholders, and are therefore quite different from mid-sized manufacturing plants which have been the focus in the WMS manufacturing surveys. Indeed, the literature that has studied the effects of CEOs on organizational performance in the public sector (following the methods of Bertrand and Schoar (2003) in firms) has found mixed results. In UK hospitals Janke et al. (2019) find that the movement of CEOs does not affect performance, which the authors attribute to being at least in part due to the size and complexity of hospitals. Perhaps consistent with Bloom et al. (2017b) , however, this study finds that CEOs with a clinical background are associated with better clinical performance in teaching hospitals.

The evidence summarized in this article appears to suggest that human capital is an important driver of management practices. While some analyses have focused on management education ( Bloom et al. , 2017b ), others have considered the general education of both managers and workers. Feng and Valero (2020) provide evidence that supports there being a complementarity between workforce education and management practices using measures of local skills supply; while in focused analysis of human capital in German firms, Bender et al. (2018) find that manager ability appears to matter more.

A number of policy implications flow from the apparent complementarity between productivity-enhancing management practices and general workforce human capital. First, complementarity implies that policies to raise human capital can raise productivity via a direct impact on worker skills, but also via an indirect effect as firms with a skilled workforce are more likely to successfully implement productivity enhancing management practices. The analysis in Feng and Valero (2020) suggests that this might be particularly the case for smaller, single-unit firms that are likely to be more reliant on their local skills environments. Second, complementarity implies that the payoffs from implementing education and skills policies to raise general human capital and policies specifically aimed at improving management practices (such as managerial training or consultancy) are likely to be higher when such policies are implemented in a coordinated fashion.

Third, and more broadly, the finding that proximity to universities appears to be related to the education of the workforce and management practices in firms (and hospitals) is relevant for place-based policies that seek to maximize the positive impacts that universities have on local economies via the diffusion of innovative technologies or organizational practices. There is a general need to know more about the mechanisms driving the positive impacts that universities can have on regional economic performance ( Valero and Van Reenen, 2019 ; Valero, 2019 ), and to understand better how to encourage university–business collaboration, in particular for smaller firms ( OECD, 2019 ).

With respect to future work, further efforts at finding causal relationships between organizational human capital and management practices are needed, together with gaining an improved understanding how these interact in driving organizational performance, and establishing which particular skills or knowledge matter in different contexts. Work in the following three areas will enable this.

First, expanded datasets will allow for more controls or fixed effects in regressions. As further survey waves become available in WMS and standard business survey versions like the MOPS, more panel evidence can be built. Datasets where more than one surveyed manager within larger organizations has been interviewed allow an assessment of differences in management practices holding aggregate organizational factors constant. Larger samples with more coverage of performance data can also allow more detailed analysis of complementarities in performance equations.

Second, causal evidence on the drivers of management practices can continue to be built, exploiting experimental or quasi-experimental variation. To the extent that human capital can be built via more targeted educational programmes, there could be an important role for well-designed managerial education and workforce training programmes in raising management practices and productivity in lagging firms. Training and consultancy programmes that seek to do this have been evaluated in a series of randomized controlled trials (as set out in this issue by Scur et al . (2021) and McKenzie (2021)), and the need for more experimentation in this area is acknowledged by policy-makers. 18 There might be scope for programme design that can introduce some level of randomness in access to more general business training delivered in the education system. An example would be subsidized higher or further education courses being offered to managers (for example, through vouchers or other incentives) which could be randomized or implemented in a way that would allow robust evaluation. 19

In order to understand how best to target interventions in different contexts, interactions between the effectiveness of targeted management training or consulting programmes and the formal education of managers (or workers) could also be explored further. Another interesting avenue would be to consider the relative effectiveness of programmes that include training for both managers and workers, versus those focused only on one group.

Third, the measure of firm-level human capital used in much of the analysis described in this paper (degree share, or MBA-equivalent qualification share) is rather broad. It would be valuable to understand at a more granular level the specific types of skills or cognitive/non-cognitive abilities that are relevant with respect to improving modern management practices, and how these can best be acquired.

The author is grateful to Simon Quinn, Daniela Scur, Chris Adam, John Van Reenen, an anonymous referee and the participants in the Oxford Review of Economic Policy editorial seminar in July 2020. Financial support from the Economic and Social Research Council through the Centre for Economic Performance, the Programme on Innovation and Diffusion (POID), and under grant ES/S001735/1 is gratefully acknowledged.

See, for example, Abowd et al. (1999) and Moretti (2004b) on firms (the latter also finding evidence of human capital externalities in firm productivity), and Gennaioli et al. (2013 , 2014 ) on regions. For recent discussion of the macro literature on human capital and growth, and estimates of relationships using measures of ‘knowledge capital’ based on cognitive skills, see Hanushek and Woessmann (2015) .

For a summary of the literature that links universities with local economic success see Glaeser and Hausman (2020) , and Azmat et al. (2018) for an application to the UK policy context.

At the undergraduate level, Belfield et al. (2018) show that business courses generate wages that are 10 per cent above the average earnings for graduates in the UK; and Altonji and Zhong (2020) find positive returns to MBAs and other business-related masters degrees using US data (controlling for selection on ability and occupational preferences).

Data on 2018/19 student enrolments by subject area are sourced from HESA, HE student enrolments by subject of study and domicile (DT051 Table 22), available at https://www.hesa.ac.uk/data-and-analysis/students/table-22. MBA student numbers are obtained from HESA, MBA students by domicile (2018/19 )), available at https://www.hesa.ac.uk/data-and-analysis/students/chart-8 .

In this setting, while simplified training is found to be effective, more standard accounting training had little measurable effect.

There are: Brazil, France, Germany, India, the UK, and the US.

As measured in the WMS via interviews with middle management in manufacturing plants.

Other interpretations are possible, it could simply reflect better management practices being ‘produced’ by higher skilled managers and workers, as discussed above.

For a condensed survey on the theoretical and empirical literature on skill biased technical change, see Violante (2008) .

This is based on the average WMS scores from five advanced economies: US, Britain, France, Germany, and Italy, by sector.

A key assumption is that labour markets are local in nature ( Moretti, 2011 ), so that local skill supply is relevant to firm hiring decisions.

See Valero and Van Reenen (2019) for a full description of the WHED data.

This type of measure has been used widely in the labour economics and innovation literatures. In labour, Card (1995) relates distance to university to individual level enrolment at university. Examples of papers that relate proximity to universities to firm innovation include Anselin et al. (1997) , Henderson et al. (1998) , and Belenzon and Schankerman (2013) .

Moreover, the firm-level relationships between these two measures of human capital and management practices were not so different, as shown in Table 1 .

Applying the coefficient on the skill premium to the variation in this variable across US states, the results imply that one standard deviation rise in the skill premium reduces management scores by –0.048 standard deviations, representing 18 per cent of the cross-state variation in management practices.

Subjects offered by each university are ascertained by extracting relevant key words from theinformation provided in WHED. For some universities the descriptions offered can be quite broad (e.g. it may specify ‘social sciences’ instead of listing out individual subjects). The subject categories in the paper are broad to account for this, but there are likely to be cases where the accurate subject mix at a university is not picked up.

In fact this is very similar to the magnitude of the effect found in Feng and Valero (2020) on the relationship between manufacturing plant management practices and distance to nearest (general) university, where a 10 per cent rise in distance is associated with 0.01 standard deviation lower management scores. The log specification for comparison is given in Table A.10 in Feng and Valero’s Online Appendix.

A good example is the UK’s Business Basics Programme, which has been designed to fund the implementation and evaluation of innovative ways of encouraging small and medium-sized enterprises to adopt existing technologies and management practices to improve their productivity.

For example, a gradual roll-out across locations, or eligibility criteria for accessing support that could create discontinuities to be exploited in evaluation.

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The ROI of enterprise education for your organization:

• Empowered Workforce: Employees gain the necessary knowledge and skills to navigate challenges and contribute meaningfully
• Enhanced Innovation: A culture of creativity flourishes, leading to the generation of innovative solutions and improved problem-solving
• Bridged Leadership Gap: Strong leadership skills are nurtured across all levels, fostering a collaborative and efficient work environment
• Increased Employee Engagement: Impactful learning experiences boost employee morale and commitment

Enterprise education isn't just about acquiring knowledge, it's about empowering your people to think critically, adapt to change, and become active participants in the organization's success.

How Stanford's Enterprise Education Programs Empower Your Workforce

Stanford Engineering, a leader in innovation and education, offers a variety of enterprise education programs designed to meet the specific needs of your organization. These programs address critical challenges faced by companies today, such as transforming digitally, developing leadership, and building a culture of creativity.

Our enterprise-wide approach offers  tailored solutions designed specifically for your organization,  curated programs of online content that can be offered to groups and teams to facilitate collaborative problem-solving, and online, self-paced content integrated into your L&D catalog for individual employees to learn new skills, work toward their career goals.

"Faculty at Stanford School of Engineering are researching the intersection of science, engineering and business practice, and that combination is essential for the future of work. Industries will need to adopt new ways of thinking, new language, new cultures—not just by one business unit, not just by senior leadership, but across the entire enterprise."

         –Carissa Little, Associate Dean, Global & Online Education

In a recent LinkedIn Workplace Learning Report , 90% of organizations expressed concern over employer retention. Programs like ours can help keep your top talent connected and motivated while providing them with the skills and knowledge needed to meet your organization's goals. 

Enter­prise Edu­ca­tion Examples

Enterprise education doesn't have to happen all at once. It is the sum of a variety of programs delivered across different units and teams over time. Read about some examples of how organizations worked with us to deliver programs to their executives, their product designers, or their emerging leaders. 

Empow­er­ing Engi­neers to Har­ness the Pow­er of  AI

15-week program to learn how to tackle new challenges with machine learning.

More Information

Emerg­ing Lead­ers Become Dig­i­tal-Savvy Superstars

6-month program diving deep into digital transformation best practices.

Aspir­ing Man­agers Learn to Lead Com­plex, High-Val­ue Projects

1-year program to build skills in risk management, team leadership, trust-building and strategy.

Unleash the Full Poten­tial of Your Workforce

Contact Stanford today for a free consultation to discuss how our customized Enterprise Education programs can help your organization transform and thrive.

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Financial Management

• Financial Management - Introduction

Meaning of Financial Management

Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.

Scope/Elements of Financial Management

Get access to complete course on Financial Management

Objectives of Financial Management

The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be-

Functions of Financial Management

Estimations have to be made in an adequate manner which increases earning capacity of enterprise.

This involves short-term and long-term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties.

Choice of factor will depend on relative merits and demerits of each source and period of financing.

Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc.

This can be done through many techniques like ratio analysis , financial forecasting , cost and profit control, etc.

Principles of Financial Management

Financial management is a broad topic which encompasses a wide range of actions taken by corporations in order to maximize their financial value of the firm. These actions are generally guided by the policies being followed in the organization. These policies in turn are guided by some of the fundamental principles related to financial management.

The details related to the seven fundamental principles of financial management are as follows:

Financial management programs must ensure that the stakeholders are aware of this accountability. It is important to have periodic appraisals and feedback process in order to ensure accountability is maintained.

It is important for each organization to either adopt some of these principles or create their own principles with regards to financial management.

Financial Management Strategies

It is important to understand that financial management is not an exact science. There is no “one size fits all” approach which can be used with regards to financial management. Instead, companies may have to choose between different approaches.

Over the years, companies have realized that they need to choose amongst two or three commonly used financial management strategies and align their actions to the same. The purpose of the strategy is to clearly communicate to all stakeholders about what the firm is trying to achieve. The objectives must be clear, measurable and quantifiable.

Some of the strategies which are commonly used in financial management are as follows.

Hence, a profit maximization strategy for financial management is inherently focused on the short term. This means that the financial resources of the company need to be deployed to meet short term goals. Such a strategy may be useful for startups who need to show short term profitability in order to keep investor funds flowing.

There are many well known companies across the world which spend a lot of their financial resources on research and development. In the short run, this goes against the principles of profit maximization. However, in the long run, financial resources spent on research enables companies to produce better products, gain market share and increase their wealth. The same principles of financial management can be applied to companies who deploy their financial resources in branding, customer services and such other intangible assets.

The wealth maximization strategy of financial management is more important for mature companies or companies trying to disrupt their marketplace with technological innovation .

The level of risk which an organization is willing to bear must be carefully thought through. It is important for financial managers to clearly define the level of risk their willing to take in order to meet their financial objectives .

In the absence of a clearly defined risk measurement and mitigation strategy, the company may not be able to meet its strategic objectives using financial management tools and techniques.

  Related Articles

• Financial Planning - Definition, Objectives and Importance
• Finance Functions - Investment, Financial, Dividend and Liquidity Decisions
• Role of a Financial Manager
• 3 Modern Financial Management Techniques that Will Change Your Business

View All Articles

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team . MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider . To Know more, click on About Us . The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.

• Financial Planning
• Finance Functions
• Role of Finance Function
• Capital Structure
• Capitalization in Finance
• Financial Goal - Profit vs Wealth
• Profit Maximization Criticisms
• Financial Intermediaries - Meaning, Role and Its Importance
• Role of the Finance Function in the Financial Management for Corporates
• Why Financial Innovation can be both a Force for Good and Bad ?
• Aspiring for a Career in Finance? Here are Some Things that Would Help You Prepare
• Want to Become a Financial Professional? Read on for Some Tips on How You Prepare
• What is Financial Modeling and What Purpose does it serve in the BFSI Sector?
• Does Financial Innovation Benefit the Society?
• The Financial Black Hole Called Eskom

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Executive Education

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The Program Experience

Taught by a team of faculty members from hbs and other graduate schools within harvard university, our open enrollment and custom programs feature a wide range of management cases and materials., nonprofit programs, driving nonprofit performance and innovation - virtual.

Designed to help nonprofit leaders use performance measurement to enhance their organization's ability to achieve their mission, this program explores how participants can use performance measurement to drive innovation and have an outsized impact in a rapidly changing world. This program is a collaboration between the Harvard Business School Social Enterprise Initiative and the Hauser Institute for Civil Society at Harvard University.

Strategic Perspectives in Nonprofit Management

Designed to strengthen the capacity of nonprofit CEOs and executive directors to lead their organizations effectively, this program provides a conceptual approach to shape the direction, mission, policies, and major programs of nonprofit organizations. Participants explore strategic concepts in mission focus, market sensitivity, organizational structure, and performance management and control. Participants also take part in peer consultations, small-group consultative sessions in which they address critical challenges facing their organizations.

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Public education leadership project (pelp) summer institute.

Intended for teams of eight participants, including district office personnel, school principals, and regional supervisors who are responsible for school systems with at least 30,000 enrolled students. This five-day program helps leaders from urban school systems drive improved performance by applying proven management concepts to the unique challenges of their districts.

PELP Accelerating Board Capacity (ABC) Institute

Intended for school board members and superintendents in member districts of the Council of the Great City Schools. This three-day program helps participants explore key topics in strategy, management, and governance, including building capacity for district improvement, managing conflict, and addressing inequities.

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"I got to be a part of an incredible cohort of people from all over the world."

"I have a small cohort of colleagues and friends from the program. We meet virtually every other month to encourage one another to complete our stated goals (developed before completing the program), share best practices, resources, and tools, and have a laugh or two. These personal and professional connections have been invaluable."

"You absolutely need to have that wider view, but the practical tools and strategy to execute a vision are equally important. SPNM provides both sides of the equation."

Participants in Social Enterprise Executive Education programs come from outside the U.S.

Annual participants in Social Enterprise Executive Education programs

people served by Strategic Perspectives in Nonprofit Management participant organizations annually

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