How Leadership Can Increase Your Profits

How Leadership can increase you profits

By Mark Wager

We know what leadership is when we see it, we know we need it and we know it's important but just how important is leadership? The impact of skills which are essential for every leader such as the ability to motivate and inspire are difficult to measure. If a team performs well how much credit should go to the leader? We have all seen teams that have performed well despite having a poor leader so just how important is leadership?

This is a significant challenge for businesses because if you struggle to measure the impact of something then it's difficult to invest in. When a business places an advert in a newspaper, it can measure the impact on sales and the results of that campaign influences how much is invested in the future. If a business can measure the impact of an investment then money can be more wisely spent to grow the business more effectively. I believe that the same approach the businesses use for advertising can also be used to measure the quality of leadership within the organisation and its impact on profits.

There has been several studies form organisations such as the Harvard Business School & the Bureau for Economic Research that have aimed to look at this issue. They have looked at Managers from a range of countries and industries and evaluated their performance as a leader in three ways, firstly by getting feedback from the leader's staff, secondly a self-score from the leader and lastly from a third party either an experienced Leadership Coach or the Leaders Manager. This data was then compared to the performance of the team being lead by the concerned leader and the results were interesting.

The more that teamwork is needed the greater the importance of leadership

It became clear that the nature of the work undertaken by the team impacted just how important leadership is. The teams which had roles interdependent on each other, couldn't complete an end result without the assistance of their colleagues were highly impacted by leadership. A typical example of these type of teams can be found in sports. If you are part of a Rugby or Football team you are completely reliant on your colleagues because you can't win on your own. For these teams to succeed they need a positive work environment which is dependant on the quality of their leader. By comparison if the team consists of individuals that can operate independently, then the leader has little impact on the end results because even if the leader is poor the individuals perform regardless. The leadership required for success comes from the staff rather than the Manager. The nature of the team influences the importance of leadership.

Leadership is not the most important factor in the success of a business.

Leadership is undoubtedly important but in a short to midterm business situation leadership is not always the most significant deciding factor. Imagine if there were two hotels situated next to each other. There are many factors that will decide which one you stay at. The quality of rooms, what facilities are available, cost and level of customer service are only some factors. If one hotel is a five star hotel and the other is only two stars then regardless of the level of leadership the five star hotel will be more popular. Leadership takes time to impact the business. If I took over the All Blacks Rugby team tomorrow, they would still win their next game and while I would like to consider myself as being knowledgeable in Rugby I am nothing compared to the current All Blacks coach, Steve Hansen so while we would win the next game you will see a drop in performance with each subsequent performance until the wins turn into losses.

The difference between great and good is 11%

The difference in impact between a poor leader and a good one is huge. A poor leader can completely destroy a team, its people and it's productivity and measures have gone as far as showing that staff who report to a good leader can be up to 300-500% more productive than staff who work under a poor leader yet being honest if you were a poor leader you wouldn't be reading this article. The more interesting results came when good leaders where compared to great leaders. When a business had teams that reported to a leader that was measured as having excellent leadership skills their staff were on average 11% more productive than teams that had leaders that were measured as having good to very good leadership skills. Just imagine the impact if a company had 100 full time employees working 40 hours a week and 4000 work hours and their leader was a very good one, this company would still be missing out on 11% of 4000 or 440 work hours every week. The impact on the business of these additional hours could be significant and could be the difference between having a national brand and a global brand or even the difference between being profitable or closing down.

Only 8% of leaders are viewed as excellent

The last piece of information I will share is the most important. The majority of the readers of this article will be leaders in business and most likely very good and experienced leaders who with a lot of justification will believe that they are one of the excellent leaders that I've been talking about and they are already experiencing the benefits of having staff who are productive yet the chance that this is true is highly unlikely. Research done by the Australasian Leadership Institute has shown that only 8% of Leaders are in the excellent category. Leaders in business are good, in fact, many are very good but very few are excellent and the fact that you are most likely not excellent is actually very good news. This means that you have an opportunity, a chance to make at least 11% positive difference to your workforce. Just imagine where your team would be if everyone including your high performers were 11% more productive?

Leadership within your organisation needs to be treated as vital to your businesses and any training shouldn't happen as a result of the Managers having a spare day or even as a result of a needs analysis. Quality leadership training is not there to fix things instead it needs to be seen as an investment, an attempt to bring a leadership expertise on board to tap into that 11% productively that is currently hiding in your business, waiting for you to discover it.