What's Killing Your Profitability?
Organizations of all sizes invest significant amounts of time, money, and energy in improving their processes with hopes of becoming more profitable. Sometimes this is based on the goal of becoming best-in-class, but sometimes it is just to stay competitive with customers or to attract talent. All too often, though, the things that can have the most immediate impact on profitability (as well as the lives of everyone involved) are overlooked or entirely written off because those things are considered to be intangible. What are those things? Those are the skills needed to build an organizational culture that produces world-class results and makes the best people in your respective industry beg to be part of your team! Those skills tie back to a word that's frequently misused: leadership...
If you're responsible for the results of a team, be it a small department or a giant organization, there's never a shortage of issues demanding your attention. With more than three decades of experience covering multiple industries, I can share one thing with absolute certainty[Editor1]. If you genuinely care about running a profitable company, the investment you make into becoming an effective leader and building a team of solid leaders around you will yield a higher return on investment than any other thing I've seen. And that investment alone will play a critical role in driving better results in any other initiative your team puts in place!
One word of caution, though: don't be that person who has a title (owner, CEO, president, manager, or whatever) and believes that automatically makes you the leader. For over twenty years, I've heard John Maxwell say, "Leadership is influence. Nothing more, nothing less." A title may carry a certain amount of authority to make things happen, but it will never yield the results over the long haul that can be achieved through the effective leadership that only comes from genuine influence. The challenge is that choosing to lead through influence rather than managing through authority can seem harder on any given day. But if you hang with me, I'll make a business case like you've never seen for why making the decision to serve your team as a leader will give you far more juice from the squeeze than you'll ever get with the because I said so approach. I'll also share examples I've experienced personally and lay out steps so simple to take action on that you'll question my sanity!
Before we get started, here's my challenge: give it a shot and see if you can prove me wrong! If you're willing to pull just a few ideas from what follows and turn those into behaviors your team sees from you daily, I don't believe it's possible to prove me wrong. The question boils down to whether or not profitability matters for your organization. We'll soon see!
The Cost of Leadership
Before we begin unpacking any specific action steps you or I need to consider to capture even the slightest bit of that profit lost due to poor leadership, it's critical to quantify what we're likely leaving on the table. I mean, I've heard countless executives suggest that leadership is intangible, so I'm going to take a big swing at the head of this myth now; then I'll follow with some solid body shots tied to each specific profitability killer we look at as we move forward.
An article on Forbes.com called "Leadership And What It's Costing Your Business" put it this way:
Poor leadership is a financial cost. When you have poor leadership in management positions, it affects not only the morale of your business and the productivity of your team but also your bottom line in your business. Your profit line suffers from poor leadership.
I found another article on LinkedIn called "The Real Cost of Poor Leadership" that made this point before the author shared several personal examples they had experienced:
After a lot of research and reflection, it begins with the knowledge that cost isn't just monetary. When you look at the definition of cost, it talks about "outlay or expenditure." Sure there are countless examples of where the outlay or expenditure of poor leadership was millions if not billions of dollars...
I was recently asked to speak with a group of business owners and executives in a specific industry about "the value of nontechnical personnel development." The gentleman who contacted me about doing this provided me with a list of seven different topics they wanted me to address in ten to fifteen minutes as part of the group's monthly video conference. Interestingly enough, Cindy (my wife & business partner) [Editor2]and I had written at least one lesson dedicated to each topic! I was glad I had several weeks to prepare, because condensing more than ten hours of material into something that would leave a lasting impression in such a short time took some work.
One key point I knew I needed to emphasize with that group-and one I believe will be just as crucial for us to keep in mind here-is another stat I found in an article from the Harvard Business Review about the impact effective leadership can have on gaining buy-in and engagement from our team members, stating that "increased commitment can lead to a 57% improvement in discretionary effort...which produces, on average, a 20% (more) individual productivity." In talking with that group, I explained that I've been involved in continuous improvement initiatives since 2000. I've seen companies invest tens of thousands of dollars for just the chance of achieving a 3-5 percent productivity improvement.
The primary difference often lies in understanding what to look for to capture productivity improvements. When we provide training for technical skills, we can generally see whether or not a participant applies what they've been taught. In many cases, we struggle to do the same for training on the skills we view as "soft" or more intangible. But if we have a shot at capturing even half the additional productivity that the HBR article suggested (just 10 percent) by developing the leadership skills we use with our teams, that's twice the impact of even the most successful [Editor3]continuous improvement project I've ever participated in. The best part is that the majority of the cost lies in our decision to take action; we just need to have a clear picture of what that action looks like!
A Clear Picture...
If we want to have any hope of capturing even the slightest bit of the profit we're currently throwing away by not developing the most authentic influence we possibly can with our teams and eliminating all the waste that's so often tied to miscommunication, we need to have an extremely clear picture of the specific behaviors we'll need to implement. Having a plan can serve as a decent starting point, but putting it to paper will likely be the easiest part. If we're not absolutely sure of how we'll take action, even the best plan won't amount to much.
I worked with one of my mentors about a decade ago in a goal-setting session. He challenged me to list things I hoped to accomplish within the first ten years we were in business. As I discussed those goals with him, he continued to challenge why I had listed each specific item-which resulted in my crossing a few off the list entirely! Once I had a list that I was truly confident about, he started poking even harder, pushing me to picture what achieving each goal would look like. He was adamant that I imagine each future goal with the same level of specificity that I would have when thinking about my favorite meal or vacation spot. That was far more difficult than settling on the actual list! But it also yielded far more results.
As I share this with you, we've moved way beyond anything I had even considered listing as a goal back then. I don't mention any of that to boast; we've worked harder along the way than I could have imagined, but I'm confident we would not have made the majority of that progress without a crystal-clear picture of what we were working to achieve.
Here's why I share that... All too often, we attend events, read books, or work through lessons and take pages of notes. Unfortunately, that's where things tend to stop. We get back to work and have to dig our way out from the time we missed while juggling all the urgent issues that keep coming at us. Before we know it, all those notes are buried under a pile of tasks demanding our attention immediately, and we rarely get time to circle back.
Having experienced this so many times, Cindy and I have intentionally built steps into every session we provide for any group to help them avoid that same trap. I always point out that taking notes is excellent, but identifying one specific action step that can be applied right away will deliver significantly more value than pages of notes that get stuffed into a drawer! Then, I poke harder by pressing participants to define the results they expect to achieve by taking that action. In a group setting, my goal is to provide each participant with tangible items they can work with their manager or the business owner on moving forward. In cases where we provide Strategic Leadership Coaching for individuals, we press them even more by challenging them to detail the specific behaviors their teams see from them as they apply the action steps they've defined.
Think back to what I referenced before about being able to immediately see how someone applies the technical training we provide them with... If we expect to capture any of the profit we're losing because of poor leadership or ineffective communication, we've got to develop a clear picture of what the behaviors we're putting in place will look like, both to us as well as to our teams. And we need to have just as clear a picture of the results we're working to achieve. Without doing this, we're simply ignoring the issue-and that comes with a cost too!
Ignore It at Your Own Risk...
If we're not intentional about actively developing the leadership skills of each key individual on our teams, the areas where we're likely hemorrhaging profit have very few bounds. Even the leaders who are incredibly strategic in defining exactly how they'll implement each new skill they learn understand that an investment will need to be made in the process. We certainly have the option to neglect making that investment. There won't likely be someone holding us at gunpoint to make us do any of this, but the price we pay for that decision has tremendous potential to be much higher!
In considering just how much impact leadership (or the lack thereof) can have on an organization's bottom line, check out the numbers shared in a 2016 Ivey Business Journal article called "The Rising Price of Bad Leadership":
Bad leadership is clearly expensive. Fraud resulting from mismanagement at Wells Fargo, for example, has already cost the bank about US$300 million in fines and pre-settlement investigative costs while wiping out something like US$6 billion in shareholder value. Ex-employees, meanwhile, are seeking at least US$2.6 billion in a class-action lawsuit related to the Wells Fargo corporate culture that rewarded employees who created multiple accounts for customers without permission.
While I realize it's tough for most of us to wrap our heads around close to $10 billion on lost profitability because of poor leadership, I don't believe those numbers even scratch the surface of the total impact the Wells Fargo scenario had on the customers they should have been serving. Cindy and I had our mortgage with them during that time. We fought through billing and processing errors for several months, costing us thousands of dollars before working with a local organization to move our mortgage. We did receive a bit of restitution several years later, however. If memory serves, a check for between $10 and $20 randomly showed up in our mailbox with brief details about the class-action suit referenced in the article. And I don't think for a moment that we were the only ones impacted that way!
The Ivey article went on to share this:
When recruiting leaders and directors, organizations have long invested time and money to ensure they are managed and governed by people with appropriate levels of experience and competencies. But all that time and money can be wasted when leadership character isn't also given the attention it deserves because costly failures in decision making can often be traced back to character-based issues such as closed-mindedness, impatience, and lack of accountability, empathy, humility, and courage.
We certainly have choices about how we invest our organization's resources. We can write off the idea of leadership as being intangible, some touchy-feely thing that doesn't show up on a P&L. I'd tell you to ignore it at your own risk, but it's not just you who will be impacted when you do! By making that choice, we lose opportunities to capture profit in many categories. That does indeed affect us, but it also hurts each team member we've accepted responsibility for leading. Moving forward, we'll look at some of the areas we can work to capture that lost profit and specific steps we can take to do it.
[Editor1]To avoid a misplaced modifier
[Editor2]I'd clarify who this is for the reader since this is the first mention
[Editor3]To avoid using "best" twice here
