In 2006 The Ken Blanchard companies embarked upon a year-long study to look at how Leadership affects organisational success over the long term. They came out with some interesting findings in the form of the ‘Leadership-Profit chain.’ How relevant and current is this research a decade on?
First lets review the key elements of Blanchard’s study. They identified 5 key tiers within an organisation:
Strategic Leadership – organizational direction encompassing mission, vision and values
Operational Leadership – How the strategy is embedded within the organization by its managers ie. how they manage their staff to accomplish company goals
Employee Passion – how engaged the staff are – their commitment to the organization, job satisfaction
Customer Devotion –how focused the organisation is on providing outstanding customer experiences
Organizational Vitality – the degree to which an organization is successful in the eyes of its customers, employees, and shareholders, as well as its economic stability over time.
The results of the study clearly showed that both strategic and operational leadership are of primary importance for setting the tone and direction for a service-quality culture that keeps staff engaged in order that they provide exceptional customer experiences leading to organizational vitality. Hence the concept of the ‘Leadership-profit chain’.
Let’s fast-forward to more recent research that still seems to support Blanchard’s conclusions.
In 2012 Right Management conducted a study of engagement among 28,000 employees across a broad range of industries from 15 countries including Asia-Pacific. Respondents were asked to report on their perceptions of leadership effectiveness in elements such as:
- developing people
- providing on-going feedback on performance
- leading by example
- managing change effectively
- explaining the link between work and the organization’s strategy.
Less than 50% rated their immediate managers and senior leaders as effective.
The Australian Management Capability Index conducted by AIM in 2013 found that one of the areas 67% of Australian CEOs and senior managers assessed their organisations as being least capable in was ‘People leadership’
There seems to a be a common theme coming through…
According to Saratoga Institute, a leading authority on turnover and retention, between 9% and 32% of the cost of staff turnover is directly attributable to poor management practices. In research conducted through anonymous exit interviews with 19,000 people leaving organizations, Saratoga Institute found that people leave organizations for a variety of reasons closely related to leadership competencies including:
- Lack of respect/support from supervisor (13%)
- Supervisor’s lack of leadership skills (9%)
- Poor employee relations with a supervisor (4%)
- Lack of recognition (4%)
- Supervisor incompetence (2%)
If we don’t provide adequate leadership and management training to these pivotal people, how can they set the tone for a service-quality culture that keeps staff engaged, and in turn increases organisational vitality?
The Leadership-profit chain is still highly relevant in 2016 particularly in these difficult economic times. There is a high cost in not investing in our leaders and managers in the form of staff turnover, unmet potential and loss of experience and expertise.
For WA in particular, the economic downturn presents an excellent opportunity for businesses to consolidate and equip their managers with the skills and abilities necessary to engage their staff and increase their organisational vitality.