Does Leadership Really Matter?
There has been a lot written on how people are irrational. We have biases that subconsciously influence our decision-making. One of these is leadership attribution error. It's the tendency to attribute leaders with greater impact on results than is real. A coach gets their team into the championship series, and we say, what a great coach. Likewise, if a team has a losing season or is relegated, the coach gets fired. Compelling evidence suggests that leadership does moderate company performance and results. But, maybe you feel the importance of effective leadership is overstated. There is some proof that followers contribute up to 80% of an organization's success. Given unconscious biases and the seemingly contradictory evidence about leadership impact, it is no surprise if you feel skeptical. It could be that you are entirely on board with the value of leadership and are curious about the conditions. Here are five ways leadership impacts people, profit, and purpose in your business and what to consider for your next leadership development investment.
Leadership Impact #1: Business Performance
Good leadership can create a win out of a weak plan, but ineffective leadership can destroy a business with a great strategic plan. Leadership effectiveness moderates company performance. According to Jim Collins in his book Good to Great, a review of 1,435 companies studied over more than forty years revealed that leadership effectiveness accounted for up to 6.9 times greater financial returns than market averages.
In a separate study of over 2,000 firms and leaders, effective leadership accounted for a 38% increase in an organization's overall business performance. This same study then examined the leadership effectiveness scores of the top and bottom-performing 10% of companies. The results revealed that leadership effectiveness was at the 80th percentile in the top-performing companies. Leadership effectiveness was at the 30th percentile in the lowest-performing companies, lower than 70% of the norm leadership effectiveness scores.
Personal experience: Working with a large Forbes Top 25 Private Company, we set out to quantify the value of executive leadership. We used internal key business metrics and various cognitive and behavioral leader assessments. A large controlled study involving leaders across different markets revealed a positive correlation between the leader's effectiveness and employee retention, sales, margin, labor costs, and net profit.
Leadership Impact #2: Follower Performance
Several studies investigate the connection between the leader and the follower's performance. The evidence is consistent that leadership moderates follower performance. In a survey of 100 executives and middle management leaders in manufacturing and service organizations, effective leadership improved follower performance, job satisfaction, and organizational commitment.
Also, effective leadership is shown to significantly impact follower discretionary effort, known as organizational citizenship behavior (OCB). This is when employees voluntarily go beyond what is expected of them to benefit the organization. A study of 815 employees and 123 leaders found that effective leadership increased OCB and workplace climate.
Leadership Impact #3: Innovation
Fostering innovation within an organization is an increasingly important leadership behavior. No organization is looking to stay the same year over year. Innovation drives top-line revenues, creating a competitive advantage in today's volatile, uncertain, complex, and ambiguous marketplace. Evidence suggests that leadership is essential for driving innovation. A study involving over 400 executives from 48 companies connected effective organizational strategy and innovation performance with leadership habits.
Leadership Impact #4: Trust and Organizational Change
Trust is the currency of business relationships, and an absence of trust can bankrupt the organization and its employees. At an individual level, a lack of trust contributes to feelings of:
Frustration
Rejection
Stress
Anxiety
Depression
Leadership trust is directly connected to employee retention, organizational commitment, and support for organizational change. Unfortunately, trust in leadership is becoming rarer. Trust is given based on leadership competence and ethical behaviors. In their book The Leadership Challenge, authors Kouzes and Posner suggested that "credibility" is the foundation of effective leadership because employees must be able to trust their leaders.
Numerous studies demonstrate that leadership is critical to successful organizations and change. Whether a change is department-specific or company-wide, it benefits from executive engagement. Executive leadership teams provide vision, establish strategy, prepare the corporate culture for change, and motivate employees to change. This is important because trust has been shown to mediate employee openness to change and, ultimately, the outcome of change. When trust is present, organizations navigate and manage change with improved results. Change events heighten emotional responses, making communicating effectively challenging for the most skilled leaders.
Leadership Impact #5: Communication & Relationships
Leadership is a conversation. Like air, the words leaders speak can give life to a business. But words can also constrain and limit realities for individual employees, teams, and organizations. Leadership communication cultivates quality leader-follower and employee-organization relationships. In a study of 400 employees working in various companies with an average company tenure of 10 years, influential leaders increased:
Two-way communication
Creativity
Collaboration
Job attitudes
Organizational commitment
Key Points
Effective leadership makes a difference in the personal and professional results you achieve and the life you live.
Leadership effectiveness improves the bottom line.
Effective leadership improves follower performance and promotes higher business levels, job satisfaction, and organizational commitment.
Senior leadership is essential for driving innovation.
Senior leadership trust is directly connected to employee retention, organizational commitment, and support for organizational change.
Influential leaders increase two-way communication, creativity, collaboration, job attitudes, and organizational commitment.
Great leaders achieve great results and create great company cultures.
References:
Anderson, R., & Adams, W. (2016). Mastering leadership: An integrated framework for breakthrough performance and extraordinary business results. Wiley.
Day, D., & Lord, R. (1988). Executive leadership and organizational performance: Suggestions for a new theory and methodology. Journal of Management, 14(3), 453-464.
Collins, J. (2001). Good to great: Why some companies make the leap--and others don't. HarperBusiness.
Dhar, U., & Mishra, P. (2001). Leadership effectiveness: A study of constituent factors. Journal of Management Research, 1(4), 254.
Eisenbeiss, S., van Knippenberg, D., & Boerner, S. (2008). Transformational leadership and team innovation: Integrating team climate principles. Journal of Applied Psychology, 93(6), 1438-1446.
Hackman, J. Richard, and Ruth Wageman. 2007. Asking the right questions about leadership: Discussion and conclusions. American Psychologist 62, no. 1: 43-47.
Kouzes, J., & Posner, B. (2017). The leadership challenge: How to make extraordinary things happen in organizations (Sixth ed.). Jossey-Bass.
Madanchian, M., Hussein, N., Noordin, F., & Taherdoost, H. (2017). Leadership effectiveness measurement and its effect on organization outcomes. Procedia Engineering. Volume 181, pp. 1043-1048.
Men, L. (2014). Why leadership matters to internal communication: Linking transformational leadership, symmetrical communication, and employee outcomes. Journal of Public Relations Research, 26: 256–279.
Walumbwa, F., Hartnell, C., & Oke, A. (2010). Servant leadership, procedural justice climate, service climate, employee attitudes, and organizational citizenship behavior: A cross-level investigation.
Zhang, H., Ou, A., Tsui, A., & Wang, H. (2017). CEO humility, narcissism, and firm innovation: A paradox perspective on CEO traits. The Leadership Quarterly, 28(5), 585-604. doi:10.1016/j.leaqua.2017.01.003
