Core management practices can’t be taken for granted

Monday, May 16th, 2022

In MBA programs, students are taught that companies can’t expect to compete on the basis of internal managerial competencies because they’re just too easy to copy:

If you look at the data, it becomes clear that core management practices can’t be taken for granted. There are vast differences in how well companies execute basic tasks like setting targets and grooming talent, and those differences matter: Firms with strong managerial processes perform significantly better on high-level metrics such as productivity, profitability, growth, and longevity. In addition, the differences in the quality of those processes—and in performance—persist over time, suggesting that competent management is not easy to replicate.


To date the team has interviewed managers from more than 12,000 companies about their practices. On the basis of the information gathered, we rate every organization on each management practice, using a 1 to 5 scale in which higher scores indicate greater adoption. Those ratings are then averaged to produce an overall management score for each company.

That data has led us to two main findings: First, achieving operational excellence is still a massive challenge for many organizations. Even well-informed and well-structured companies often struggle with it. This is true across countries and industries—and in spite of the fact that many of the managerial processes we studied are well known.

The dispersion of management scores across firms was wide. Big differences across countries were evident, but a major fraction of the variation (approximately 60%) was actually within countries. The discrepancies were substantial even within rich countries like the United States.

In our entire sample we found that 11% of firms had an average score of 2 or less, which corresponds to very weak monitoring, little effort to identify and fix problems within the organization, almost no targets for employees, and promotions and rewards based on tenure or family connections. At the other end of the spectrum we identified clear management superstars across all the countries surveyed: Six percent of the firms in our sample had an average score of 4 or greater. In other words they had rigorous performance monitoring, systems geared to optimize the flow of information across and within functions, continuous improvement programs that supported short- and long-term targets, and performance systems that rewarded and advanced great employees and helped underperformers turn around or move on.


As we’ve noted, our data shows that better-managed firms are more profitable, grow faster, and are less likely to die. Indeed, moving a firm from the worst 10% to the best 10% of management practices is associated with a $15 million increase in profits, 25% faster annual growth, and 75% higher productivity. Better-managed firms also spend 10 times as much on R&D and increase their patenting by a factor of 10 as well—which suggests that they’re not sacrificing innovation to efficiency. They also attract more talented employees and foster better worker well-being. These patterns were evident in all countries and industries.


Furthermore, we found zero correlation between perceived management quality and actual quality (as indicated by both their firms’ management scores and their firms’ performance), suggesting that self-assessments are a long way from reality.


  1. Gavin Longmuir says:

    “almost no targets for employees”

    “performance systems that rewarded and advanced great employees”

    Just an observation from a peon who has worked in a number of different organizations: setting targets for employees and for departments tends to end up with careerists putting their narrow interests ahead of the business of a whole. ‘OK, the business lost money, but I met all of my targets’. Those greasy pole climbers get promoted — and the business eventually goes bust.

    Target-setting can also be a very difficult issue in many businesses where so many activities are inter-related and hard to quantify. I always remember the consultant brought in to advise one business on performance management suggesting that people could be rated on whether they turned in their weekly reports on time!

    Observation is that most real-world performance management systems are low utility — large input effort for small output value.

  2. David Foster says:

    Incentive systems require thought and tuning if they are to do more harm than good. Years ago, I was talking to the manager of a very large factory and asked if he paid on piecework. He said he hated piecework, and the reason was interesting: he’s found that guys attempting to exceed their target and make more $$ would take too many physical risks. 99.9% of the time, it worked out, but .1% of the time, someone got a finger cut off or worse.

  3. Bomag says:

    What Gavin Longmuir said.

    My first thought was how this would apply to government agencies. The bulk of my experience is with Department of Interior, and they are laughably dysfunctional; internal performance reports are a farce; failure is rewarded with more spending to fix the problem, which remains or becomes larger; etc.

  4. Pseudo-Chrysostom says:

    “…this[1] 2019 article in Harvard Business Review which, remarkably, argues that managers in modern MBA programmes are taught NOT TO VALUE OPERATIONAL EXCELLENCE! ‘Operational effectiveness — doing the same thing as other companies but doing it exceptionally well — is not a path to sustainable advantage in the competitive universe’, elite managers are taught.”

    Which is, of course, an accurate expression of how the harvard priesthood views not just commercial business in particular, but the whole world in general. Teaching ‘business men’ to think like communist apparatchiks.

  5. Wang Wei Lin says:

    My two cents as a maintenance electrician in automotive machining: Managers have one concern only, “How can I maximize my bonus?” The corporation may have a grandiose mission statement and philosophy, but normal human selfishness will always be the animating force. Most people will look at a situation with a “what’s in it for me?” mentality. That’s fine. Use it. The problem is most companies work against this natural asset of self-interest.

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