In my last column, I discussed the conduct of monetary policy in India. I suggested that the quality of technical analysis is improving, and that is a cause for optimism. I also noted that what is happening with the quality of leadership and organisational decision-making is another positive sign. While monetary policy is a relatively centralised undertaking, the idea that people and technology can combine to improve economic outcomes is a general one. Individuals acting within organisations need to have their incentives aligned to achieve broader goals, and technology can play an important supporting role in achieving this, as well as changes in organisational structures. Again, these innovations typically need to go hand in hand. In this column, I offer three examples to illustrate this proposition: private sector management, public sector schools, and local government.
Evidence has accumulated that many Indian firms display poor management practices. Establishing this claim has required systematisation of how to measure good management, and detailed surveys across a range of firms and countries. This knowledge is now firm. Less clear are the causes, but they include lack of training and awareness, as well as lack of external pressures for improvement in practices. Lack of competition plagues Indian industry. Less surprisingly, the same problems are manifest in schools and hospitals, where competitive pressures would be expected to be much lower, and asymmetries of information much higher. In the case of manufacturing firms, there is also evidence that information technology investments increase productivity. Such investments can improve the efficiency of resource use, quality of products, and attention to customer needs. In other words, information technology (IT) has the potential to substitute for the absence of adequate human management. Alternatively, it can serve to enhance the effectiveness of human managers. Specific examples of this phenomenon are not well documented for India, but one that comes to mind is the early and widespread adoption of Tally accounting software by small Indian firms (not just in manufacturing).
Using IT to improve how businesses run is a natural idea, but there have been two roadblocks. One is that business requires complex coordination tasks,