Here is an excerpt from an article written by Randall Beck and James Harter for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.

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Gallup has found that one of the most important decisions companies make is simply whom they name manager. Yet our analysis suggests that they usually get it wrong. In fact, Gallup finds that companies fail to choose the candidate with the right talent for the job 82% of the time.

Bad managers cost businesses billions of dollars each year, and having too many of them can bring down a company. The only defense against this massive problem is a good offense, because when companies get these decisions wrong, nothing fixes it. Businesses that get it right, however, and hire managers based on talent will thrive and gain a significant competitive advantage.

Managers account for at least 70% of variance in employee engagement scores across business units, Gallup estimates. This variation is in turn responsible for severely low worldwide employee engagement. Gallup reported in two large-scale studies in 2012 that only 30% of U.S. employees are engaged at work, and a staggeringly low 13% worldwide are engaged. Worse, over the past 12 years these low numbers have barely budged, meaning that the vast majority of employees worldwide are failing to develop and contribute at work.

Gallup has studied performance at hundreds of organizations and measured the engagement of 27 million employees and more than 2.5 million work units over the past two decades. No matter the industry, size, or location, we find executives struggling to unlock the mystery of why performance varies so immensely from one workgroup to the next. Performance metrics fluctuate widely and unnecessarily within most companies, in no small part from the lack of consistency in how people are managed. This “noise” frustrates leaders because unpredictability causes great inefficiencies in execution.

Executives can cut through this noise by measuring what matters most. Gallup has discovered links between employee engagement at the business-unit level and vital performance indicators, including customer metrics; higher profitability, productivity, and quality (fewer defects); lower turnover; less absenteeism and shrinkage (i.e., theft); and fewer safety incidents. When a company raises employee engagement levels consistently across every business unit, everything gets better.

To make this happen, companies should systematically demand that every team within their workforce have a great manager. After all, the root of performance variability lies within human nature itself. Teams are composed of individuals with diverging needs related to morale, motivation, and clarity — all of which lead to varying degrees of performance. Nothing less than great managers can maximize them.

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Here’s a direct link to the complete article.

Randall J. Beck is a Managing Partner for Gallup, which delivers research, analytics, and advice to business leaders. Combining more than 75 years of experience with its global reach, Gallup is devoted to producing greater knowledge of the attitudes and behaviors of the world’s constituents, employees, and customers.

Jim Harter, Ph.D., is Chief Scientist of Workplace Management and Well-Being for Gallup’s workplace management practice. He is coauthor of the New York Times bestseller 12: The Elements of Great Managing, an exploration of the 12 crucial elements for creating and harnessing employee engagement. His latest book, Wellbeing: The Five Essential Elements, is based on a global study of what differentiates people who are thriving from those who are not.