Compelling evidence indicates that leadership moderates company performance and results. But, maybe you feel the importance of effective leadership is often overstated and are somewhat skeptical of the real impact leadership has on a business. One research study suggests that followers contribute on average 80% to the success of an organization. Given the lack of a standard definition for leadership and seemingly contradictory evidence, it is no surprise you may feel skeptical. It could be that you are entirely on board with the value of leadership and are curious about how much it matters. Whatever situation you find yourself in, the undeniable question is, does effective leadership really matter?
Great leaders achieve great results and create great company cultures. While working with a large Forbes Top 25 Private Company, we quantified the value of leadership using internal key business metrics and various cognitive and behavioral leader assessments. A controlled study involving leaders across different markets found a positive correlation between the leader's effectiveness and employee retention, sales, margin, labor costs, and net profit.
Here are five more proven ways that effective leadership impacts individuals, teams, and organizations.
Impact of Leadership on Business Performance
Good leadership can make a success out of a weak plan, but ineffective leadership can destroy a business with a great strategic plan. According to a study of over 2,000 firms and leaders using a 360-degree survey, effective leadership accounted for a 38% increase in an organization's overall business performance. This same study then looked at the leadership effectiveness scores of the top and bottom performing 10% of companies. The results revealed that leadership effectiveness was at the 80th percentile in the top-performing companies. And leadership effectiveness was at the 30th percentile in the lowest-performing companies, lower than 70% of the norm leadership effectiveness scores.
Impact of Leadership on Followers
Several research studies have investigated the connection between the leader and the follower's performance. A study of 100 executives and middle management leaders in manufacturing and service organizations demonstrated that effective leadership improves follower performance, promotes higher business levels, follower job satisfaction, and follower organizational commitment.
In addition to increased productivity of expected behavior, leadership impacts a follower's discretionary effort, also known as organizational citizenship behavior (OCB). Discretionary effort contributes to the bottom line beyond the formal job requirements of the follower. A study of 815 employees and 123 leaders found that effective leadership increases OCB and workplace climate that benefits the organization.
Impact of Leadership Transitions
In the review and analysis of four separate studies on the impact of executive leadership transitions, it was discovered that leadership effectiveness could account for up to as much as 45% of an organization's performance. According to Jim Collins in the book Good to Great, a review of 1,435 companies studied over more than forty years revealed that leadership effectiveness accounted for up to 6.9 times greater financial returns than market averages.
Impact of Leadership on Innovation
Fostering innovation within an organization is an increasingly important leadership behavior. Innovation drives top-line revenue, and it creates a competitive advantage in today's volatile, uncertain, complex, and ambiguous marketplace. Senior leadership is essential for driving innovation. A research study involving over 400 executives from 48 companies connected effective organizational strategy and innovation performance with leadership habits.
Impact of Leadership on Trust and Change
As the world changes, so must organizations. Senior leadership trust is directly connected to employee retention, organizational commitment, and support for organizational change. According to the Edelman trust framework, trust in leadership is given based on competence and ethical behaviors. Similarly, in their book The Leadership Challenge, renowned authors Kouzes and Posner suggested that "credibility" is the foundation of effective leadership because employees must be able to trust their leaders. When executives are trustworthy, it increases change readiness.
Impact of Leadership on Internal Communication & Relationships
Leadership is a conversation. Like air, the words leaders speak can give life to a business. But words can also constrain and limit realities for individual employees, teams, and organizations. In a study of 400 employees working in various companies with average company tenure of 10 years. Influential leaders increased two-way communication, creativity, collaboration, job attitudes, and organizational commitment. The study provided evidence of how leadership communication cultivates quality leader-follower and employee-organization relationships.
A review of contemporary research reveals that leadership effectiveness makes a difference in the life of the leader, those they lead, business performance, and communities. The best organizations are made up of the best leaders.
Bad leadership habits and ineffective leadership approaches are not destiny, and all leaders need to continually develop at a pace consistent with the change in the leader's world. One of the core philosophies in my new book, Breaking 10 Leadership Bad Habits, is that leaders must continually transform and adapt or fall behind. Sign up to be the first to know when the book is available and begin receiving weekly leadership tips delivered to your inbox now.
Key Summary Points
Effective leadership makes a difference in the personal and professional results you achieve and the life you live.
Leadership effectiveness improves the bottom line.
Effective leadership improves follower performance promotes higher business levels, follower job satisfaction, and follower organizational commitment.
Senior leadership is essential for driving innovation.
Senior leadership trust is directly connected to employee retention, organizational commitment, and support for organizational change.
Influential leaders increase two-way communication, creativity, collaboration, job attitudes, and organizational commitment.
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