![[PHOTO] Light streaming through a key hole illuminating an old iron key.](../images/ph_findings.jpg)
Executives take it on faith that applying the tenets of good management improves a company's financial performance. A recent analysis pinpoints the link. Directors of operations at 100 companies in Germany, France, the United Kingdom, Canada and the USA were interviewed about their use of three management techniques long thought to improve business performance: Business and Organizational Renewal, to rejuvenate performance and eliminate waste; Performance Management and Human Asset Development, to attract and retain high-caliber people, and Multirater Feedback for Business Growth and Development, to reward employees who meet preset goals.
The companies were scored and then those scores were compared over five years (1996-2001) with several key financial metrics, the most important being the average return on capital employed within each company's sector. Companies with the highest management scores outperformed the rest.
This finding has important implications for companies looking to improve their labor productivity: better management, often spurred by competition, can be a more effective lever than capital improvements or even tax breaks.