How do companies pull away from the pack once their performance already matches best practice? In automotive supplies, for example, productivity in terms of parts per employee is much the same be it in Japan, the US, or Thailand. The same is true in automobile manufacturing, where it takes roughly 16 man-hours to build a small car whether it is assembled in Japan, the US, or a new factory in eastern Germany. Similar progress is being made in product development and sales processes, where benchmarking is leading to the convergence of standards at a single, high level.

The obvious way in which companies can still strive to differentiate their performance is by lowering factor costs, to which end many have already shifted production to low-cost countries. But another, neglected area is the improvement potential that still lies within existing technologies. To investigate just how much scope there is to improve the performance/price ratio of technological products and processes, McKinsey embarked on a research project with the Institute of Production Engineering and Machine Tools at the Technical University of Darmstadt (see the boxed insert, "About the research").

The results have been encouraging. Everyday technologies are frequently located at...