There is a common assumption that if companies perform well, they must have good managers at all levels of the organization. It is, after all, hard to imagine a company surpassing its rivals if its managers are second rate. New research now confirms the notion that management matters to all companies, including the top performers. While this finding is hardly a surprise, what is startling is just how much the decisions of managers matter. Managers are more important than the industry sector in which a company competes, the regulatory environment that constrains it, or the country where it operates. In other words, managers are more important to how a company is managed than business lines, government policy, or geography.

The research, conducted in 2005 by McKinsey and the Centre for Economic Performance, at the London School of Economics, looked at the relationship between management and performance in more than 700 midsize manufacturing companies in France, Germany, the United Kingdom, and the United States. McKinsey studied the relative quality of several key management practices at these companies and compared it with the companies' performance in areas such as total factor productivity (TFP), market share, sales growth, and market valuation.

McKinsey found a solid link between how well managers adopt proven best practices—such as lean-production methods on the shop floor and techniques for setting targets and tracking outcomes—and how well a company performs. Of course, the local environment can affect the quality of management; restrictive hiring regulations, for example, constrain the way companies manage people. But even in countries where such rules prevail, we found companies that performed at a high level, indicating that how they operate is more important than where they operate. In addition, employees in better-managed companies are likely to experience a more satisfactory work-life balance, with greater flexibility and autonomy in decision making and problem solving.

The implications for managers are clear: mediocre management goes hand in hand with mediocre corporate results. Globalization, specialization, and technology are heightening competition among manufacturers and intensifying the pressure for better management from the executive suite to the shop floor. Whatever an organization's objective, managers influence a company's future by defining standards and by managing people, assets, and capabilities.

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