Building High-Growth Firms Through Training the Owner vs Through Linking the Firm to Business Service Markets

Firms will be randomly assigned to one of four interventions: business training; business consulting; insourcing of an accounting or marketing worker; or outsourcing to an accounting or marketing firm.

The target population for this intervention is firms in the five priority industries (light manufacturing, construction, ICT, hospitality and entertainment) who meet the following criteria:
i. They show interest in growing their firms by applying to the BIG platform.
ii. They then attend an induction workshop where they receive a baseline survey and are scored on their current level of business practices. Firms that receive a score of below 5 out of 10 are excluded (with some offered basic training), while those with scores above 8 that may have less room to improve are also excluded (with some offered consulting services or grants).
iii. They have 2 to 15 workers, and are not already insourcing or outsourcing both their financial and marketing functions.
iv. They are located in Abuja or Lagos (where we have been able to identify sufficient human resource specialists and business service providers).
These criteria aim to select firms with high-growth potential, who have scope to improve and grow, and who operate in a location where linkages to markets are possible.

Firms which meet the eligibility criteria will be offered one of the following four interventions:
1) Business Training: The objective is to strengthen the capacity of SMEs by providing them with a mix of online and in-class training. The curriculum is based on the IFC Business Edge and adapted to the local context. The core modules are in financial management, marketing, and human resource management. Firms have to complete a minimum of 12 days in-class along with online courses. The business owners can choose the dates and locations for the modules.
2) Business Consulting: 88 hours (11 full days) of business consulting services provided by consultants over 6 to 9 months, meeting at least once a month. The initial visits (about 8 hours including site visits) will help the MSME define a Need Assessment and a Growth Strategy. The consulting services provider will then propose a list of business enhancing activities (Scope of Support) for the remaining 80 hours. These activities are personalized to the MSME but typically focus on Management, Finance, Sales & Marketing, Operations and Human Resources.
3) Insourcing: Firms in this group access an online marketplace to choose a Human Resource (HR) specialist from a list of vetted firms. This HR specialist will then help recruit an accounting worker or marketing worker to join the firm and perform tasks in the respective functional area. The firm will receive a wage subsidy that fully pays the cost of such a worker in the first few months but then gradually declines over 9 months (by which time the firm covers the whole wage).
4) Outsourcing: Firms in this group access an online marketplace to choose an Accounting firm or Marketing firm from a list of vetted firms. They will then outsource their accounting or marketing activities to this firm. As with insourcing, a subsidy will cover the cost of these services initially, which will be phased out over time.

2016-12-15

2018-12-31

In the short-term, we are interested in which program has the most impact on business practices
In the longer-term, key outcomes are business survival, profitability, sales, and employment

The pre-analysis plan will describe how these outcomes are defined and constructed

Short-term: time-use of the business owner
Longer-term: use of market for business services, access to and use of finance, innovation

The pre-analysis plan will describe how these outcomes are defined and constructed

Firms will be randomly allocated in enrolment batches. Within each batch, firms are randomly allocated to one of the four treatments, or to a control group, in equal proportions.

To be included in the study, firms undertake the following steps:
Step One: apply online through the BIG platform in response to advertising campaign. McKenzie (2017) notes that requiring online application already screens on firms which are more sophisticated and likely to be plausible candidates for high-growth. Moreover, by applying for the program firms indicate their interest in developing their skills.
Step Two: pass an initial screening based on having complete data on the application, operating in one of the 5 GEM sectors, being 18 and older, and having more than one and fewer than 100 workers.
Step Three: attend an induction workshop in Lagos or Abuja, and answer baseline survey at this workshop. This screens further on motivation and effort.
Step Four: have a score of between 5 and 8 out of 10 for business practices based on this screen, have between 2 and 15 workers, and not be already outsourcing or insourcing both marketing and finance functions. This generates a group of potential high-growth firms who are determined to grow, and have made it past the barrier of hiring other paid workers apart from the owner.

Firms are then randomized by induction group (enrolment batch) - for example, the batch of firms that attended the Lagos induction workshop on a particular date. Firms are randomly assigned in equal proportions to the four treatment groups and to a control group.

A second sample outside of Lagos and Abuja are randomly assigned to consulting, training, and control only.

Randomization done in office by computer, stratified by enrolment batch

Firm

No

The number of clusters is the same as the number of units. It is 753 firms.

753 firms

The sample size is equally allocated across the five groups (subject to rounding).
Control - 149 firms
Training - 153 firms
Consulting - 149 firms
Insourcing - 152 firms
Outsourcing- 150 firms

See pre-analysis plan.

Pre-analysis plan

Pre-analysis plan

Updated Pre-analysis Plan before Round 2 Follow-up

Many small firms lack the finance and marketing skills needed for firm growth. The standard approach in many business support programs is to attempt to train the entrepreneur to develop these skills, through classroom-based training or personalized consulting. However, rather than requiring the entrepreneur to be a jack-of-all-trades, an alternative is to move beyond the boundary of the entrepreneur and link firms to these skills in a marketplace through insourcing workers with functional expertise or outsourcing tasks to professional specialists. We conducted a randomized experiment in Nigeria to test the relative effectiveness of these four different approaches to improving business practices. We find that insourcing and outsourcing both dominate business training; and do at least as well as business consulting at one-half of the cost. Moving beyond the entrepreneurial boundary enables firms to use higher quality digital marketing practices, innovate more, and achieve greater sales and profits growth over a two-year horizon.

Anderson, Stephen and David McKenzie (2020) "Improving business practices and the boundary of the entrepreneur: A randomized experiment comparing training, consulting, insourcing and outsourcing", World Bank Policy Research Working Paper no. 9502. December 2020

https://documents.worldbank.org/en/publication/documents-reports/documentdetail/377351608212969114/improving-business-practices-and-the-boundary-of-the-entrepreneur-a-randomized-experiment-comparing-training-consulting-insourcing-and-outsourcing

Many small firms lack the finance and marketing skills needed for growth. A standard approach
is to train the entrepreneur in these skills. However, rather than requiring entrepreneurs to learn
everything, an alternative is to move beyond the boundary of the entrepreneur and link firms to
these skills in a marketplace through insourcing workers, or outsourcing tasks to professionals. We
conducted a randomized experiment in Nigeria to test the relative effectiveness of these different
approaches to improving business practices. Insourcing and outsourcing both dominate business
training; and do at least as well as business consulting at one-half of the cost.

Anderson, Stephen and David McKenzie (2022) "Improving business practices and the boundary of the entrepreneur: A randomized experiment comparing training, consulting, insourcing and outsourcing", Journal of Political Economy, 130(1): 157-209

https://www.journals.uchicago.edu/doi/full/10.1086/717044