Article -> Success Rests on the Quality of Your Leaders
Date Added: July 2006
There is a common assumption that if companies perform well, they must have good leaders. According to a recent study, the decisions of leaders are more important to how companies are managed than other items such as business lines, government policy and geography combined.1
The study looked at the relationship between leadership and performance in more than 700 mid-sized companies. There was a solid link between how well leaders adapt proven best practices such as lean production with how well a company performs. In addition, employees in companies that are better managed are more likely to experience a more satisfactory work-life balance.
Productivity is often linked to good leadership. Good leadership practices should not be kept secret as these practices have the ability to lift a sector’s overall productivity. For example, lean production, which incorporates techniques such as improved material flows, just-in-time production, and reduced inventories; has become best practice worldwide. However, the thoroughness of companies in adapting these best practices varies widely.
The best-managed companies scored highest on productivity, market share growth and market capitalization. In addition, these companies scored highest on other key business metrics including sales per employee, rate of revenue and market share growth, and market capitalization. These results confirm a link between not only leadership practices and productivity, but also between leadership practices and return on capital employed (ROCE).1
Statistical analyses cannot prove that better leadership results in improved performance, but it is difficult to imagine improved performance resulting in leadership that is more effective. While there are some poorly managed companies that perform well, these are atypical situations where they have a unique advantage, such as a particular niche. This led to the proposition – good leadership drives effective performance.
These poorly managed companies, generally older companies, have survived for years because of a lack of competition and restrictive labor laws. The more protection offered, the less likely poorly managed companies are to adopt advanced leadership techniques. Newer companies and good leadership go hand-in-hand. The newer a company is, the greater the incentive is to innovate, learn and put strong leadership strategies in place.
This does not mean that leaders must clock endless hours on the job. Good leadership is about process, style and skill. The research found that leaders in well-managed companies work smarter rather than harder. ”Working smarter” is directly tied to the employees’ readiness to accept change. Conducting an annual Voice of the Employee process closes the gap between what an organization perceives employees’ needs to be versus what employees’ needs truly are. For example, telecommuting, leeway in caring for sick children, and offering a choice of part-time or full-time work are all benefits offered to employees that increase morale. In addition, better-managed companies not only invest more time in training their staffs, but also recruit degreed employees.
Good leadership is more than a business priority − it is a global priority. Your organizational strategy should drive the leadership of your people, resulting in maximum productivity and profitability. Better-managed companies, which are more likely to be bigger and multinational, can then spread best practices throughout the world.
1 Dorgan, Stephen, John Dowdy and Thomas Rippin. “The Link between leadership and productivity.” The McKinsey Quarterly. March 3, 2006.