When European policy makers agonize over how to close the growing productivity gap with North America, they often propose to boost IT spending. Just adding more computing power, the reasoning goes, will surely help.

Yet in all likelihood, this approach won't have a substantial impact. Some economists have argued that good management—rather than more computing power—is the key to higher productivity, but they have lacked convincing proof.¹ Now, however, a new study of 100 manufacturing companies in France, Germany, the United Kingdom, and the United States supports the view that IT expenditures have little impact on productivity unless they are accompanied by first-rate management practices. Indeed, companies can significantly raise their productivity solely by improving the way they operate.

Our research, undertaken in partnership with the London School of Economics,² focused on the period from 1994 to 2002. It offers evidence that specific management practices foster higher productivity regardless of a company's location, size, sector, or historical performance.³ In essence, the connection between better management practices and improved corporate productivity accounts for the gaps among the four countries in our study and holds true for all of the manufacturers we examined.⁴

The payoff from improved management...