(FORTUNE Magazine) – What keeps managers up at night more than any other problem? My guess would be a business that--no matter how hard you try--just won't perform. You know the symptoms. Boosting sales and profits is like dragging a refrigerator through sand. Nasty competitors lurk around every corner. Employees line up at your door to complain about pay but don't deserve a raise. When things really get bad, you start getting calls from your CEO, banker, or board.

Four decades of business experience have taught me one important thing. No matter what kind of business you work in, no matter what the product, service, market, or location, a single set of management rules or principles, applied correctly, can in most cases turn poorly performing businesses into stars.

These basic principles aren't rocket science, but time and again I've seen companies stray from them and get crushed by the competition. Here are my four rules of management.

ABOVE ALL, MAKE SURE MANAGEMENT HAS THE RIGHT BUSINESS FOCUS. That's not as easy as it sounds. As a rule, if you ask ten managers what business you are in or should be in, you're likely to get ten different answers--hardly the focus to drive the business ahead. Sit down with your team and talk about alternative businesses, places where you can grow. Try to make a decision about what businesses you should be in, what businesses you shouldn't be in, and what business you are in.

At Uniroyal, which we bought in 1985, we soon realized we could not compete head-to-head with tire companies that were four or five times bigger than us. So we had to choose products or consumer segments where we could develop some sort of competitive edge. We picked out the light truck, high-performance, and female segments--tires for rednecks, yuppies, and the safety-minded. We launched a series of new products, including a puncture-proof tire called Life line. It worked, and we grew. When Michelin bought Uniroyal in 1990 for $1.2 billion, we made $200 million.

Whatever new business strategy you select, remember that you need a good and sustainable value proposition that you can make to your customer. Customers don't want to hear how big you are or how nifty your organization is. They want to hear how you can save them money, free up cash, or give them an economic advantage over their competitors.

BENCHMARK YOUR TOUGHEST COMPETITORS AND THEN WORK LIKE HELL TO BECOME BEST IN CLASS. For every business there are key, measurable factors of success. Surprisingly, a lot of companies don't take enough time in their strategic planning to think through these factors. If you don't know what they are in your business, you have to do the same thing that McKinsey, Boston Consulting Group, or any other strategic consultant does-- identify the three or four ingredients of success.

You can't know where you stand, of course, unless you know what your competition is doing. It helps to put together a team of the best marketing, sales, manufacturing, and finance people and tell them to analyze your profit-and-loss statement in detail against your major competition's. Then the team can report on your major strengths and weaknesses. A caveat: This will work only if you're willing to take a truly objective look at your business. What usually happens is that no matter where you stand vis-e-vis the competition, your manufacturing guy will say he's got the best manufacturing process in the world, or your development guy will say he's got the best products in the world and won't listen.

What you measure depends upon what kind of business you run. For instance, in a manufacturing business you want to look at your cost structure and your total investment vs. those of your competitors. Disadvantages here can be fatal if not corrected. If your total investment is much over 60 cents for each dollar of sales, it will be hard for you to get the kind of return you need. Another yardstick: total working capital. Although pretty fundamental, it is often out of line. If it's too high, you face an opportunity to improve profits by reducing working capital.

Example: Allison is an airplane engine maker that we bought from GM. When we acquired the company, it carried $400 million of inventory, which equaled about 60% of the company's $700 million in sales. That was way out of line. We saw a tremendous opportunity to take inventory down to a best-of-class inventory ratio, which is about 25% to 30% of sales.

To get such dramatic results we needed to reengineer Allison's production process. We took the shop drawings for Allison's critical engine parts and walked them through the production cycle. The blueprints showed that one critical part was supposed to take 25 to 30 hours to manufacture. It was actually taking several months. Why? We found there was a lot of dead time in the factory, with inventory piling up behind machines because the plant wasn't laid out properly. Once Allison's managers focused on the problem, they cut inventory in half without impairing service, freeing up some $200 million in cash.

Benchmarking can be just as valuable in a service company. Say you're in a labor-intensive service business like accounting, consulting, law, or technical repair. First you have to measure labor costs, because in a service business what you're really doing is buying labor at one price and selling it at another. Once you've found the spread between what you pay for your labor and what you sell your service for, make sure it's within the range of your competition's. If it's not, you're either spending too much or not charging your customer enough, or both.

It can also help to look at how many hours you could potentially bill each month. Take that number and compare it with the number of hours you actually bill. If you bill anything less than 70% of your available hours, you're not going to make any money. If you bill 75% to 80%, you'll probably do okay. If you bill 85% to 90%, you're going to make a lot of money.

BRING INTO YOUR BUSINESS AS MUCH FRESH BLOOD AS YOU CAN. The first question to ask: Is your management team up to the challenge? The only way to find out is to spend some time talking to the people who work for your key manager. If they express concern about his leadership, replace him. You shouldn't run the risk of going with a manager if he doesn't have his team behind him.

If a manager has strong support within an organization but is getting poor results, give him a fair chance to turn the situation around. Don't, however, let a bad situation drag on. At CD&R we have made the mistake of not replacing managers as quickly as we should have. Yes, try to work with them and build with them. But in some situations we stuck with poor performers for two, three, or four years, and that was too long.

The advantage of bringing in new blood quickly is that it's a lot easier to change the culture. For example, at Lexmark, a printer maker that CD&R bought from IBM in 1991, the managers had been ensconced in Big Blue for years and didn't know what they didn't know. But over the past year or so, Lexmark's CEO has hired a lot of talent from other computer companies and has promoted young people from within the organization. That has helped the company improve tremendously. Why? Bringing in people from the outside and moving new people up is a reality check. They have a different and often more realistic take on the market, the competition, and the technology.

LET THE PEOPLE WHO CREATE VALUE EARN A LOT OF MONEY. It's one thing to have a plan for revitalizing a lackluster business, quite another to get your people to execute it. Over the years I've found that by far the best way to do this is to make people feel like investors in the company. That means creating incentive programs that start at the top and reach as far down in the organization as possible.

To start, don't let yourself be bound by a compensation system developed by the human-resources people. Corporate compensation structures all look alike: You have all the grade levels and a minimum, middle, and maximum for each one. It may be a useful framework, but too many managers get stuck in it. Instead, think about how much shareholder value a manager is going to create, and you pay him for that. In one company the top management team told me they had a six-year breakeven goal. I said, "If you beat your target in three years, I'll give you half of any excess profits." They did, and today there are some happy managers in that company.

Incentive rewards shouldn't be limited to top management. In Wesco, an electrical parts distributor, we set aside a pool of five million shares of stock that can be earned by workers for improving profits over the next three to five years. This is on top of the annual bonus plan that pays off handsomely for beating their budgets.

Of course, the danger is that if you put in such a plan, people hoping to maximize their bonus might manage for short-term profits and not pursue the long-term interest of the company. Or they may come up with a business plan that's easy to meet so they'll get their bonus. To counteract that, you have to set realistic goals. For instance, no one is eligible to participate in the Wesco stock plan unless his branch office averages annual profit gains of 15%.

Fixing a broken business is hard to do unless you can somehow create a culture where people aren't afraid to buck authority and say what they think. Setting clear goals and implementing a reward system will get you part of the way. But none of this will work unless you become a catalyst for change. That means you must drill into your people a code of conduct where anyone feels free to talk to anyone else in your organization, up or down. Remember, the power of the idea is more important than the authority of the title. You can bank on it.

Charles Ames is a director at Clayton Dubilier & Rice, a New York leveraged-buyout firm that owns and operates companies like Lexmark, formerly IBM's computer printer business, and Remington Arms. On average, the firm has earned a 60% annual return on its investments.