Governments around the world are committed to raising productivity to improve economic performance. As the research of the McKinsey Global Institute (MGI) has demonstrated repeatedly over the past decade, productivity at the sector level is driven by the degree to which companies are exposed to competition. Hence, the argument goes, governments should remove barriers to competition, such as excessive regulation, if higher productivity is the goal.
Do managers also have a part to play? It has always been assumed that good management increases productivity, but this proposition has never really been proved. However, a new McKinsey study of the manufacturing sector reveals clear evidence of a link between the two.
Three management techniques have long been thought to improve a company's performance: lean manufacturing, which minimizes waste; talent management, which attracts and retains high-caliber people; and performance management, which rewards employees who meet set goals. To assess and measure the impact of these management techniques, we interviewed the directors of operations or of manufacturing at 100 companies in France, Germany, the United Kingdom, and the United States.1 The interview process was double-blind: subjects didn't know how their management practices were being assessed and measured, and the interviewers weren't...