Achieving Business Excellence with John Spence

The High Cost of Poor Leadership

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I was recently asked by one of my clients to put together some statistics on the cost of bad leadership and the upside of excellent leadership. He needed this information so that he could help support an investment in hiring me to do an advanced leadership training workshop for his organization. I think that intuitively, most people understand that subpar leaders/managers obviously have a negative impact on the organization. However, when you look at how big the cost of poor leadership really is, then you begin to re-examine the importance of leadership development within the company. In order to review the high cost of poor leadership, I am sharing the information I sent to my client:

Poor leadership practices cost companies millions of dollars each year by negatively impacting employee retention, customer satisfaction, and overall employee productivity.

Evidence of the High Cost of Poor Leadership

According to research from the Blanchard Company:

  • Less-than-optimal leadership practices cost the typical organization an amount equal to as much as 7% of their total annual sales.
  • At least 9% and possibly as much as 32% of an organization’s voluntary turnover can be avoided through better leadership skills.
  • Better leadership can generate a 3-4% improvement in customer satisfaction scores and a corresponding 1.5% increase in revenue growth.
  • Most organizations are operating with a 5-10% productivity drag that better leadership practices could eliminate.

From other sources:

  • It’s a sad truth about the workplace: just 30% of employees are actively committed to doing a good job. Gallup’s 2013 State of the American Workplace report indicates that 50% of employees merely put their time in, while the remaining 20% act out their discontent in counterproductive ways, negatively influencing their coworkers, missing days on the job, and driving customers away through poor service. Gallup estimates that the 20% group alone costs the U.S. economy around half a trillion dollars each year. The single greatest cause for employee disengagement? Poor leadership.
  • Authors Rosen and Brown, for their book Leading People, compiled findings from more than a dozen studies that focused on leading companies from the Forbes 500, Fortune 500, seven hundred privately-held firms, and interviews at the three thousand largest companies in America, and Rosen and Brown found that current leadership is costing American companies more than half their human potential. To put that another way, improved leadership alone could double worker productivity. This translates directly to the bottom line. The single biggest influence on employee commitment and performance is the leadership skills of their managers.

From Harvard:

Quite simply, the better the leader, the more engaged the staff. Take, for example, results from a recent study we did on the effectiveness of 2,865 leaders in a large financial services company.

You can see a straight-line correlation here between levels of employee engagement and our measure of the overall effectiveness of their supervisors (as judged not just by the employees themselves but also by their bosses, colleagues, and other associates on 360 assessments). So, as you can see at the low end, the satisfaction, engagement, and commitment levels of employees toiling under the worst leaders (those at or below the 10th percentile) reached only the 4th percentile. (That means 96% of the company’s employees were more committed than those mumbling, grumbling, unhappy souls.) At the other end, the best leaders (those in the 90th percentile) were supervising the happiest, most engaged, and most committed employees — those happier than more than 92% of their colleagues.

*By Jack Zenger and Joseph Folkman

Employee Engagement croppedPreventative Action for the High Cost of Poor Leadership

It would be easy to deliver another twenty pages of statistics showing both the negative and positive impact of leadership. Even if some of these numbers are skewed, the impact of the high cost of poor leadership is still so significant that it warrants serious attention. I would suggest that for most companies today, a focus on improving leadership skills and creating a winning culture that engages employees is likely the single greatest area for organizational improvement, and the fastest way to decrease costs and increase profitability. The high cost of poor leadership cannot be ignored.


Free eBook Link for Building and Sustaining a Winning Culture by John Spence

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Comments

  1. Michal Petras says:

    An excellent article. Very interesting info.I am not suprised. Simply a poor leadership means disaster for long term.

  2. Oh the plight of the dis-empowered workforce. Great writing John, it is fantastic to be able to continue to learn from you years later thanks to great technology and your willingness to invest in us. Here is another example of something that if people would latch onto it and let it frustrate them just how awful and frustrating and dis-empowering it feels to work where they work.

  3. Great summary, John.

    We developed our Savvy Transition leader assimilation program (www.SavvyTransition.com) to address the leadership failures you cite in the research. It’s typically within the first several months of a leader’s new role that he/she thrives or languishes.

    PS – your book looks great!

  4. John T says:

    Thanks, John. I was recently asked a very similar question. In today’s world, it isn’t enough to say leadership coaching and development improve results, we have to measure and verify those results so the organizations can see their return on investment.