March 13

Does Leadership Effectiveness Drive P&L?

How does leadership effectiveness impact your P&L?  Great question!

From my experience as an executive and coach, the main issues that may arise from poor leadership effectiveness are:

  • The organization’s culture is negative, often characterized as “low trust” and doesn’t engage people. Additionally, employees describe the culture as “political” because those in power look out for themselves. And they will throw others under the bus to save themselves
  • Employee turnover is higher than similar-sized companies and competitors
  • Employee engagement is lower than comparator companies
  • Productivity is lower (employees don’t ever go the extra mile)
  • New products and services are less frequent than competitors

Poor business results can be caused by a low level of effectiveness. But there are plenty of examples of businesses with successful results with poor leaders.

So, what is the truth?

I believe we can learn from Jim Collins’s research in Good to Great. The researchers who worked for five years on this project defined “Greatness” as a financial performance. It’s several multiples better than the market average over a sustained period. Collins’s research team identified a set of companies that created great results and sustained them for at least fifteen years.

I think it’s possible to measure financial success in the short term. And in that case, poor leadership can generate good results.  But if we look at organizations over the long haul, it looks like leadership effectiveness is critical.  Only the “Level 5” leaders that Jim and his team researched could successfully lead their organizations out of difficult situations and sustain performance.

I like to say; “if better is possible ‘good’ can never be good enough!” Do most people apply this concept to their leadership effectiveness?  If not, why not?  Maybe it’s because the business is successful. Therefore, there is not a strong case for change.

If you could double your leadership effectiveness, would you do it on the principle of the idea? Or because it would drive better results?

The business owners and executives who say yes to this question don’t wait for their results to turn for the worse.  They look at balanced scorecards and not just their P&L: employee engagement results, analysis of employee turnover, analysis of productivity -is there room for improvement?  How many new products and/or services has the company successfully launched in the last year?

Having said this if you don’t precisely know the level of your leadership effectiveness and your leadership teams, there is no way to determine how it is impacting your organization.  Second, a leadership ‘program’ is not usually a strong enough tool to increase leadership effectiveness.  So, you will need a development system that is designed to change behavior and increase effectiveness.

Leadership effectiveness is a driver of P&L.  From your experience, do you agree or disagree?


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