18 Sep The Cost of Poor Leadership
We often talk about the outcomes of positive, ‘transformational’, extraordinary leadership in organizations.
And when those of us focusing on leadership development in organizations, specifically working with The Leadership Challenge®, hear about the wonderful changes in the lives, especially the working lives, of team members and others when leaders change their behavior, when the leaders actively increase the frequency of The Five Practices of Exemplary Leadership, it confirms our belief in what has been repeatedly validated for over 30 years.
In getting to the point where organizations commit to investing in leadership development, we share with the decision-makers all the positive aspects that we, as leadership development practitioners, see has happened with our clients as a result of helping embed leadership development, of having leaders move along the path to becoming extraordinary leaders.
Sometimes, however, the cost of the investment to bring about the change in leadership behaviors becomes a barrier, or at least a point of resistance.
Often, the benefits of leadership development are difficult to quantify. We know that poor leadership can lead to reduced engagement scores, lower productivity, increased absenteeism and more.
But what about the cost – in dollar terms – of poor leadership?
In my workshops, whenever a representative of HR is present, I ask “How long does it take to ‘replace’ someone who has left the organization?” By replace, I mean ‘to bring the new person to a level where they’re performance is at the same level as the person who has resigned’.
Clearly, there are a number of cost factors in replacing staff and the time factor is just one.
Typically, the responses range from 1 to 2 years. Recently, a participant who was the Group HR Director said “Six years.”
Two years seems to be the most often quoted time frame. Now, of course, it could be argued that the time taken is dependent of a number of factors. And it could also be observed that sometimes the ‘new’ person is better, smarter, faster, younger, older….and more quickly takes up the performance expectations.
Let me share an example of the cost of poor leadership.
In doing so, I first need to set out some contextual details:
The company, based in Australia and part of a multinational group, was in the business of providing professional services.
Cath was a Senior Manager who had two teams each of around 8 people reporting to her.
Each year Cath was given sales targets which she would often describe as ‘impossible’.
Because of her commitment to succeed, each year she exceeded those targets, often by 15 or 25%. In 2016, her target was increased by 35% from the previous year. “Impossible!” At the end of the year, she reached 45% above the previous year.
So much for an impossible target.
Her staff loved her. They were committed and highly engaged.
But Cath had a problem: her manager.
After working long hours to achieve great results and to have a high-performing team responding so well to her leadership, she finally decided she had had enough of the poor ‘leadership’ and consistently negative behavior from her manager.
After nine and a half years with the company, she resigned.
I asked her how her team responded when they heard the news.
“Four of them resigned.”
As a result of Cath’s departure, there are number of impacts: the office she worked in had to re-structure, significant organizational ‘intelligence’ has now left the company with the departure of 5 staff, and it’s likely that some clients with whom Cath – and the other four team members – had a successful relationship with, may move to another provider or at least question their loyalty to this organization, now that key relationship partners have left.
In my initial, somewhat conservative assessment of the cost of her resignation I had suggested a figure of $200,000.
I revised my estimate up after learning that Cath’s business unit in 2016 contributed over $2 million to the company’s bottom line, that Cath was the top performer in the country, in terms of revenue generation, and that FOUR of her staff also resigned as a result of her resignation.
Based on these additional facts, the cost to the company is likely to be closer to $1 million.
But let’s be conservative. Let’s say it’s only half that. Even multi-national companies would feel the cost of $500,000. All brought on by poor leadership.
Sure, this example is at the higher end of possible costs. Even if the cost of replacing any staff member who leaves because of poor leadership is $100,000 or $50,000, this can be avoided through developing leaders, at all levels.
There is another outcome to this case study: Cath’s manager also resigned.
Join The Leadership Challenge workshop to learn the key strategies of becoming an effective & transformative leader!