At a time of unprecedented access to information, with books being published at higher rates and hundreds of articles published each day on topics related to business leadership, there still seems to be something missing. Despite all of the available data, a skills gap looms large. Perhaps the most concerning skill left off the table in the modern business world is leadership. In their book Leading People, authors Rosen and Brown compiled findings from more than a dozen leadership studies and found that current American leadership is costing companies more than half of their human potential.
The costs of poor leadership can be seen in many performance metrics, from lost productivity to increased turnover rates to low engagement levels. Research done by the Blanchard company demonstrates that poor leadership cost the typical organization an amount equal to as much as 7% of their total annual sales.
A productive workforce is an essential element of a successful organization. Research repeatedly demonstrates that productivity levels have a positive correlation with the quality of the leadership this person receives. The better the leadership, the more productive the employee. Building teams of productive employees should be a top motivation for any type of business, because productivity is tied to lower operational costs, greater profitability and increased innovation. The Blanchard Company determined that the majority of organizations are operating with a 5-10% “productivity drag”, which better quality leadership practices could turn around.
It’s a well-established fact that most employees leave managers, not jobs. And as the cost of replacing the average employee typically ranges from 40% to 50% of the person’s salary, the loss of a top performer can amount to even more- sometimes as much as 213%! And these are just the hard, direct costs of losing the employee, and do not account for other areas where the loss may be felt, such as productivity, engagement levels, and even profitability. Many of these costs can be alleviated with stronger leadership; according to the Blanchard Company, at least 9% and possibly as much as 32% of an organization’s voluntary turnover can be avoided through better leadership skills.
Engaged workforces are productive, innovative workforces. In Gallup’s 2017 report on the State of the American Workplace, the introduction makes a powerful claim: “managers from hell” are costing the US economy roughly $500 billion annually. Leadership and engagement have consistently shown to be strongly correlated, with some of the most telling engagement markers linked directly to healthy management practices such as feedback and development.
Currently, 70% of the American workforce is “not engaged” or “actively disengaged”. The longitudinal study tracked metrics of engagement alongside nine other organizational performance metrics, such as profitability, turnover, customer ratings, safety incidents and even product quality and found time and again that engagement levels were correlated to every one of these outcomes.
Transforming poorly performing managers into exceptional team leaders requires preparation, training and development, but it can be done. And it must be done for businesses to get the most out of their human potential. Equipping the next generation of your organization’s managers with the tools to effectively lead, keep and engage top talent is the strongest differentiator to have in today’s market.