Are Better Managed Firms More Innovative, Adaptable and Resilient?

Are Better Managed Firms More Innovative, Adaptable and Resilient?


What characteristics allow a firm to adapt and thrive when major unexpected shocks occur? Using novel UK survey data from the Management and Expectations Survey (MES), we investigate the differential response of better- and worse-managed firms in response to the COVID-19 pandemic which suddenly and unexpectedly separated workers and customers from their normal work and retail spaces. We find that better-managed firms adopt homeworking and online sales practices more fully, and as a consequence see a smaller drop in their turnover in 2020 compared to similar, less-well managed firms. These results are highly heterogeneous because the ability to work remotely and sell goods or services online differs by industry. The positive effect of management on adaptability holds for essentially all industries, and is stronger in industries that face larger disruptions. By adding questions to a later firm-level survey and merging with the MES data, we can provide further evidence on the mechanisms.

We find that better-managed firms innovate in multiple ways to support the pandemic-induced working practices.


Why do some firms appear more resilient and even thrive in reaction to a common shock while others struggle? What attributes do firms possess that makes them more innovative, adaptable and resilient than others? It is often hard to determine the answer to these questions because change requiring innovation, adaptive behaviour or resilience, normally takes place in a sufficiently gradual manner that it is hard to discover the determinants.

In this respect, the COVID-19 pandemic provides a rare example of a sudden and unexpected shock that affected nearly all firms to a greater or lesser extent and forced many of them to fundamentally change the way they produce and sell their output (Brynjofsson et al (2020)). The literature hypothesises that some firms were better placed, because they had pre-existing arrangements in place such as greater use of remote working or IT support, to accommodate the effects of the shock (Baiet al. (2021)). The assumption is that firms were ready to respond because they had flexibility in key dimensions e.g. being able to work from home while government-issued stay at home orders were in place.

But a different type of shock might not have given these particular firms the edge, they just so happened to be in a good position for the COVID shock. In this project we build on the insight of Bloom and Van Reenen (2007), that better managed firms are generally better performing in most dimension. Better managed firms have higher productivity, profitability, exports, patents etc (Bloom and Van Reenen, 2007; Bloom et al 2012). Bloom et al. (2017a) argue ’management variation accounts for about a fifth of the spread of productivity, a similar fraction as that accounted for by RD, and twice as much as explained by IT’. We conjecture that at least part of the source of innovation, adaptability and resilience lies in the management practices a firm has adopted (prior to the shock). We already know that better managed firms have better forecasting ability: better managed firms predict both firm-level and economy-wide variables better than otherwise similar competitors, and more certain in their forecasts [Bloom et al 2021]. It is not unreasonable that firms that form more accurate forecasts are able to react to large changes more comprehensively and more quickly even though the shock itself may be unanticipated. This is the hypothesis we test in this project.

The period of turmoil due to COVID provides an ideal laboratory to explore the whether better management practices enable greater innovation, adaptability and resilience. We make use of the UK Office for National Statistics (ONS) Management and Expectations Survey (MES), which collects information on management practices and can provide a management practices score (MPS) in two waves undertaken in 2017 and 2020 to gather data on the previous year that gives the level and three-year change in MPS. We merge this data with information on business performance and practices e.g. ONS Annual Business Survey and the Business Insights and Conditions Survey (BICS), a large-scale ONS survey that provides more qualitative insights into firm decision-making.


Our empirical analysis consists of two parts. First, we use the full MES2020 panel sample to study the differential response of better managed firms to a large, exogenous and unanticipated shock to working practices. Our outcomes of interest are turnover, a firm’s on-line sales share and its homeworking rate. Second, we use the linked MES2020-BICS sample to add additional qualitative information on the mechanisms, and the many supporting innovations firms adopt to make the most of this change in working practices. Using the MES2020- BICS linked sample we can also assess to what extent this change in working practices is transitory, and to what extent it represents a permanent change.

Research Team

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