Does Leadership Development Actually Drive Profitability?

The amount of content on leadership available today is mind-boggling. From books, articles, white papers, professional publications and TED talks the topic has certainly been thoroughly covered. What is astounding however is how little is covered on the subject of how leaders actually improve – how they become better leaders.

In their outstanding new book How Leaders Improve: A Playbook for Leaders Who Want to Get Better Now, John Gates, Ph.D., Jeff Graddy, Ph.D. and Sacha Lindekins, Ph.D. answer this exact question. While there is plenty of material out there on the qualities, characteristics and behaviors great leaders typically embody in order to lead teams to greatness, what does that mean for the rest of us?

The best leaders are life-long learners who are never truly satisfied with the status quo, much less their own ability to lead effectively. Especially in this modern age of constant disruption. Great leaders are students of leadership who learn, apply, accept feedback, adjust and re-apply.

So how does highly effective leadership actually drive growth and profitability? And how do leaders improve their ability to lead in order to achieve the lofty goals they set for their organizations? In chapter one, Gates, Graddy and Lindekins reference a fantastic business book The Service Profit Chain by Heskett, Sasser and Schlesinger. In their book, the authors began with the question: What makes companies profitable? Based on their research, the core driver of long-term profitability is customer retention. While new sales are critical for growth, it requires far fewer resources to put mechanisms in place to retain current business than hunt down new customers.

They of course then asked the question, what fuels retention? The answer to this question seems obvious. Service and quality. So what ensures consistent quality and great customer service? Their research uncovered that the most important factor driving service and quality is employee satisfaction – more commonly referred to today as employee engagement?

Employee engagement is a hot topic these days, but unfortunately, few organizations make this a top managerial – and cultural – priority. According to recent global Gallop research, only 15% of the workforce can be defined as “engaged.” Engaged team members are emotionally connected to their work and understand exactly how their job function connects to mission success. They go above and beyond in their approach to teamwork and collaboration. All of which is fueled by their manager’s approach to leadership.

Sixty-seven percent of the workforce is disengaged. These employees are often hard to identify because they can actually be relatively satisfied in their role – but they do the bare minimum. This is a problem but also a great opportunity for leaders and managers who can learn to master the art and science of managing culture and prioritizing engagement.

What actually drives employee engagement? At the end of the day it all comes down to culture. And culture is reflective of leadership, which means leadership drives engagement for better or worse.

But again, leading through change and disruption in today’s volatile and uncertain business landscape is exceedingly difficult. Leaders are forced to attempt to grow faster with fewer resources often leaving less time to focus on the fundamental elements of what drives lasting health and profitability: a culture that aligns with the strategic vision of the organization.

The best and most profitable companies typically put culture management and employee engagement at the top of the priority list. And that’s a long list!  Business leaders and managers are pulled in a million different directions every day dealing with everything from shareholders and a board of directors to emerging technology, competitors and an endless array of people problems.

But by becoming better leaders, we can learn how to properly prioritize, delegate and execute. We can focus on improving culture and engagement to drive a healthier EBITDA. By putting our people practices at the forefront of the strategy we are in a better position to improve quality and customer retention.

So how does leadership development play an impactful role here? Gates, Graddy and Lindekins also reference an article by leadership expert Jeffrey Pfeffer in the January 2016 issue of McKinsey Quarterly. Pfeffer cites a study showing that somewhere between $14 billion and $50 billion a year is spent on leadership development in the United States alone!

But what is the return on that investment for most organizations? There seems to be a pretty big disconnect in what leaders actually do in organizations and how they actually improve. If we can’t directly connect the leadership development programs we invest in with actual business results, we could be wasting a ton of money.

Shortfalls in leadership development are generally explained as two critical leadership mistakes. They promote people into leadership and management roles because they were subject matter experts but had no leadership or management training. And when they invest in professional development, they invest lightly and in the wrong areas. And they definitely don’t take a data-driven approach to linking that investment to actual business results.

Effective leadership development all starts with the leaders willingness to improve. In How Leaders Improve, they refer to this as RIPENESS. This is an acronym but also a perfect analogy for assessing how accepting of change someone is – how ripe they are for making significant improvements. A leader or emerging leader who is ripe for change is also accepting of feedback and constructive criticism – which makes most people uncomfortable.

In the military, terms learn quickly to get comfortable being uncomfortable. The military culture is based in large part on peer to peer learning and brutally transparent feedback. Something not typically well-replicated in most corporate organizations. But by first assessing a leader’s (or potential leader’s) ripeness, commanders have a better understanding of where to begin. If a strong desire to constantly improve isn’t part of the individual’s nature, the professional development programs should start with ripening that person. For example, improving emotional intelligence.

What are the drivers of the RIPEN model?

Readiness: This refers to the leader’s ability and desire to improve. The leader in our example had been a high achiever throughout her career and was not used to hearing “you are not doing well” in a given area. Feedback that she needed to improve at having “difficult conversations” was in conflict with her long-standing identity as an achiever, and by focusing on her desire to close this gap, the coach helped foster the leader’s readiness for improvement.

Inspiration: This refers to internal motivations and external consequences related to improvement. In our example, the leader was the primary financial provider for her family, which increased the leader’s “Inspiration” to change. The leader and the coach openly acknowledged that if she did not address her issue, negative consequences (losing her job) might result.

Possibility: This refers to identification of behavioral change options. In our example, the coach and the leader noted the various options available to address the change, and together they identified action steps.

Execution: This involves the leader establishing goals and decision points. In our example, the leader identified a difficult conversation that needed to take place and set a deadline for the conversation.

Notice: This deals with the leader seeking ongoing feedback and involving others in the change process. In our example, the leader put people on “Notice” by stating exactly what she would be working on. She also actively solicited ongoing feedback and course-corrected as needed.

The mission of UC Berkeley Corporate Education is to connect forward-thinking leaders and organizations with the leading edge faculty of UC Berkeley to solve strategic problems.  We leverage the world-renowned faculty of the University of California Berkeley and their network into the vibrant ecosystem of Silicon Valley to enable client organizations to innovate, re-calibrate and thrive in the ever-changing economy of the future. Contact Us if you would like to discuss how your organization is looking to grow and how the knowledge of UC Berkeley can help you reach that goal.

Adapted from Does Leadership Actually Drive Profitability by Brent Gleeson in Forbes, May, 2018.

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