We examine a setting in which managers learn about the effectiveness of managerial practices by trial-and-error. We show that such a learning process generates persistent performance differences across firms. If learning is centralized, persistent performance differences arise if firms have different initial conditions. And if learning is decentralized and managerial practices are complementary, persistent performance differences can arise even if firms are identical. Moreover, if managerial practices are complementary, performance differences can persist even if managers can imitate each other. Finally, we explore the implications of our model for the growth and development of nations.