A new study from McKinsey confirms the “common assumption” that management matters – well managed companies outperform their poorly managed competitors.
We 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.
How companies operate is more important than where they operate? That certainly draws me in to read it! The final verdict?
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.
Another interesting question that the piece addresses is “how do poorly managed companies survive?” The answer deals with the quality of rules and regulations, i.e. environments within which these firms operate. Yet another proof that competition really does matter!
Our research sheds new light on the subject. It showed that poorly managed companies hang on because of a lack of competition, combined with restrictive labor laws. In each country, we found some high performers working with varying degrees of regulation, but, overall, we uncovered a clear link between badly managed companies and government regulations that hobble a company’s ability to manage its employees. The connection is even stronger if the freedom to hire and fire is restricted.
We also found that the more protected companies are from competition, the less incentive they have to adopt advanced management tactics. With this kind of protection, some companies can survive for years. In fact, we found that some of the most persistently mismanaged companies are family owned and often do business in uncompetitive markets. Conversely, the study revealed that the more competitive the environment, the more sophisticated a company’s management approach became.
Published Date: February 23, 2006