Contrary to media stories that suggest CEO’s are the key to organizational success, the impact of CEOs, CFOs and other top-level executives on large firms is extremely limited. In fact, these top positions explain less than 5% of the variation in firm performance amongst Fortune 800 companies.

Of course, senior leaders set the strategic direction and the overall tone of how an organization is run, but in large, established organizations they account for relatively little of why some companies perform better than others. In a recent study, Wharton management professor Ethan Mollick found that it was middle managers who best explained the differences in firm performance.

This study overturns the long-held belief that performance differences between organizations are due mainly to organizational factors such as business strategy, management systems and HR practices. Instead, it turns out that it is the quality of your middle managers that makes the most difference.

The reason this is so may be explained by discoveries made by the Work and Employment Research Centre at the University of Bath. They found that one of the keys to effectively managing performance is triggering discretionary effort in employees.

Discretionary effort is the level of effort over and above that required for an employee to simply get by and keep their job. Individuals choose to what extent they are willing to provide additional effort, for which they are essentially unpaid.

People are more likely to engage in discretionary effort when they feel motivated, are satisfied with their jobs and are committed to their employer. It is in this area that people management practices play a key role in terms of making work, and the working environment, satisfying and motivating.

Clearly frontline managers play a pivotal role. The discretionary effort of their employees is affected by the way in which they exercise their own discretion in how they manage their people. Employees are more likely to go the extra mile if their frontline manager behaves in ways which stimulate and encourage this behaviour.

If the secret to effectively managing employee performance is to trigger discretionary effort, then the same is true for managing the performance of frontline managers. In fact triggering discretionary effort in frontline managers is even more important, since it impacts on those they manage. Consequently, the way frontline managers are managed by their middle manager, influences their discretionary effort positively or negatively.

Middle managers hold the key to success. The way they manage their frontline managers determines how well those managers motivate and manage the employees who perform the actual work. So it appears that what makes or breaks organizations is the quality of their middle managers.

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