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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. 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. To stay ahead, the thinking goes, a company must stake out a distinctive strategic position—doing something different than its rivals. This is what the C-suite should focus on, leaving middle and lower-level managers to handle the nuts and bolts of managing the organization and executing plans.

Michael Porter articulated the difference between strategy and operational effectiveness in his seminal 1996 HBR article, “What Is Strategy?” The article’s analysis of strategy and the strategist’s role is rightly influential, but our research shows that simple managerial competence is more important—and less imitable—than Porter argued. ugt

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.

Nobody has ever argued that operational excellence doesn’t matter. But we contend that it should be treated as a crucial complement to strategy—and that this is true now more than ever. After all, if a firm can’t get the operational basics right, it doesn’t matter how brilliant its strategy is. On the other hand, if firms have sound fundamental management practices, they can build on them, developing more-sophisticated capabilities—such as data analytics, evidence-based decision making, and cross-functional communication—that are essential to success in uncertain, volatile industries.

Achieving managerial competence takes effort, though: It requires sizable investments in people and processes throughout good times and bad. These investments, we argue, represent a major barrier to imitation.

In this article we’ll review our research findings and then discuss the obstacles that often prevent executives from devoting sufficient resources to improving management skills and practices. Throughout, we’ll show that such investments are a powerful way to become more competitive. If the world has really entered a “new normal” of low productivity growth, as Robert Gordon and others have argued, pushing managerial capital up a level could be the best route out of the performance doldrums.

The Research

Over the past century, scholars have learned a great deal about how core management processes affect a company’s performance. For example, researchers such as Kim Clark, Bob Hayes, and David Garvin documented differences within factories, industries, and companies. But a lack of big data encompassing many firms, industries, and countries inhibited the statistical study of management practices. In the past decade, however, we have developed ways to robustly measure core management practices, and we can now show that their adoption accounts for a large fraction of performance differences across firms and countries.

As we’ve described in earlier articles in HBR, in 2002 we began an in-depth study of how organizations in 34 countries use (or don’t use) core management practices. Building on a survey instrument that was initially developed by John Dowdy and Stephen Dorgan at McKinsey, we set out to rate companies on their use of 18 practices in four areas: operations management, performance monitoring, target setting, and talent management. (See the sidebar “Core Managerial Practices” for a detailed list. Though these don’t represent the full set of important managerial practices, we have found that they’re good proxies for general operational excellence.) The ratings ranged from poor to nonexistent at the low end (say, for performance monitoring using metrics that did not indicate directly whether overall business objectives were being met) to very sophisticated at the high end (for performance monitoring that continuously tracked and communicated metrics, both formally and informally, to all staff with an array of visual tools).

Our aim was to gather reliable data that was fully comparable across firms and covered a large, representative sample of enterprises around the world. We realized that to do that, we needed to manage the data collection ourselves, which we did with the help of a large team of people from the Centre for Economic Performance at the London School of Economics. 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.

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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.

By interviewing several companies multiple times throughout the past decade, we were able to observe that these large differences in the adoption of core management practices were long-lasting. This isn’t really surprising: According to our estimates, the costs involved in improving management practices are as high as those associated with capital investments such as buildings and equipment.

One of our findings may surprise readers: These differences show up within companies, too. A project conducted with the U.S. Census revealed that variations in management practices inside firms across their plants accounted for about one-third of total variations across all plant locations. This was particularly true in large firms, where practices can differ a great deal across plants, divisions, and regions. Even the biggest and most successful firms typically fail to implement best practices throughout the whole organization. Some parts of it are effectively managed, but other parts struggle.

Our second major finding was that the large, persistent gaps in basic managerial practices we documented were associated with large, persistent differences in firm performance. 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.

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But these empirical findings raise a major question: If the benefits of core managerial practices are really so large and extensive, why doesn’t every company focus on strengthening them? Also, a more existential issue (which we’ll address toward the end of the article) is, What should executives, business schools, and policy makers take away from this body of research?