The McKinsey Quarterly has published the results of research, conducted in 2005 by McKinsey and the Centre for Economic Performance, at the London School of Economics, looking at the relationship between management and performance in more than 700 midsize manufacturing companies in France, Germany, the United Kingdom, and the United States.
As if we couldn't guess, it found that "mediocre management goes hand in hand with mediocre corporate results".
So if effective management and good performance are tightly linked, how do so many badly managed companies survive?
It is a question that has long baffled researchers. Economic theory has it that competition ensures the survival of only the best-managed companies and the elimination of the weak ones. Competition, the theory says, will spur managers to work more effectively and outlast rivals.
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.3 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.
What also leaps out is the fact that well-managed companies provide more flexible working environments and that in countries with more female managers, decision making is delegated further down in the ranks and employees have greater autonomy.
Good management is about methods, style, and skill, not hours clocked on the job; our research found no connection between a sector's competitiveness and how hard managers work. In the better-managed companies we studied, managers worked an average of less than one hour a week more than managers in other companies. The implication is that supervisors in well-managed companies work smarter rather than harder.