Public service managers rate poorly in a study released by the Australian Institute of Management.
They ranked lowest across all 10 categories in the Australian Management Capability Index, an online survey of 460 CEOs.
It gives a particularly low ranking to the public sector across the three tiers of government for innovation and people leadership.
The problems have been recognised by governments, with the Australian Public Service Commission running a session on innovation for all SES later this month.
Institute national president Brian Nye is also concerned Australian managers across all sectors are ill-equipped for the Asian Century because they are working at only 70 per cent of their capabilities.
"Managers across the economy underperform in key business areas," he said.
"We face serious issues unless managers improve their skills and knowledge and then apply them in the workplace."
The index rated managers in areas affecting performance and profit including leadership, financial and organisational management, technology and relationships.
Australian managers scored 70.3 out of 100 for management capabilities.
"The index's lowest score, 60.3, is for managers demonstrating international perspectives and understanding global markets and thinking," Mr Nye said.
"That level of capability means we will struggle to meet the government's challenge to benefit fully from the Asian boom."