There is a common assumption that if companies perform well, they must have good managers at all levels of the organization. It is, after all, hard to imagine a company surpassing its rivals if its managers are second rate. New research now confirms the notion that management matters to all companies, including the top performers. While this finding is hardly a surprise, what is startling is just how much the decisions of managers matter. Managers are more important than the industry sector in which a company competes, the regulatory environment that constrains it, or the country where it operates. In other words, managers are more important to how a company is managed than business lines, government policy, or geography (Exhibit 1).

The research, conducted in 2005 by McKinsey and the Centre for Economic Performance, at the London School of Economics, looked at the relationship between management and performance in more than 700 midsize manufacturing companies in France, Germany, the United Kingdom, and the United States. We studied the relative quality of several key management practices at these companies and compared it with the companies' performance in...