The Cost of Bad Leadership: How to Choose the Right Leaders for Your Business
Employees are often selected for promotion into leadership positions based on their track record of success in their current position. However, an employee's excellence in one position doesn't necessarily mean they'll make an excellent leader.
For example, a person's ability to consistently achieve top marks in a sales position doesn't always mean that the same person possesses an innate ability to lead a sales team. While they could use their sales savvy to improve department protocol, they might not possess the qualities that make a truly capable leader. As a result, you could wind up with a highly discouraged, unmotivated, unhappy sales team.
In business, you’ll quickly find that past performance doesn't always indicate leadership quality. If you don’t know the qualities to look out for, you might promote a high-performing employee into a leadership position that will wind up costing your company big-time.
Why Poor Leadership Is So Expensive
Breakdown in Company Culture
Whether it's an under-qualified vice president, a department supervisor, or a project leader, poor leadership causes a breakdown in company culture that can spread like a contagion of dissatisfaction throughout your company.
When a person in a leadership position doesn’t have the right qualities to lead, fails to communicate effectively to rally their subordinates around strategic goals, fails to recognize hard work, or simply has a bad attitude, you'll find that they have a toxic effect on your bottom line.
"Leadership is an action, not a position"- Donald McGannon
Production Lags and Missed Opportunities
Under poor leadership, different departments tend to work in different directions or operate in continuous disagreement. This could cause missed opportunities to work well together, lags in productivity due to unclear direction, and failure to achieve goals with little collaboration and not getting valuable feedback for continuous improvement.
This also trickles down to the service provided to clients because employees won't have the leadership support and clear direction to help them live up to your client's expectations, which will have a detrimental effect on future revenue.
General and High-Level Employee Turnover
The breakdown in company culture will ultimately lead to low employee morale. This not only slows productivity but also increases your rate of employee turnover.
The direct and indirect costs of turnover are exceptionally high. When replacing a low-skill, low-knowledge, low-level employee, it can cost you about 50% of the employee's salary. When replacing a higher-level employee like a supervisor, you can expect to spend up to 150% of the person's annual salary to replace them.
Direct costs of replacing employees include:
- Automatically paid-out PTO
- A staffing agency or recruiter fee
- Advertising expenses associated with listing the position
- Risk of increasing salary demands with external hires
- Cost of diverting your attention and that of other high-level employees to the hiring process
- Overtime pay to remaining employees who are picking up the slack
Indirect costs of replacing employees include:
- Reduced income and profits over the time it takes to fill the position and for the new employee to get up to speed (typically 3 months!)
- Losses associated with redirecting top employees' attention to training new recruits
- Costs (monetary, time, effort, and attention) expended on salvaging your company culture and employee morale after the loss of a co-worker or after the detrimental effects of having the wrong person in a leadership position
10 Profitable Qualities to Look for in Your Leaders
At every level in business, there are several leadership styles (visionary, laid-back, democratic, top-down, bottom-up, etc.). Each of these styles has its benefits and drawbacks. As a result, the most important factor in leadership is choosing people who have positive qualities who will be able to draw out the best of your company's culture while inspiring success.
When choosing your leadership team or considering how you can improve your own leadership style, look for the following leadership qualities:
1. Fits the Company Culture
A good leader must be able to fit in with the company culture and help establish or improve the culture. Businesses with a strong company culture attract the best employees, keep them around longer, and foster a positive work environment where employees feel more like friends than co-workers and they care about the success of the business.
With a great company culture that pulls employees together rather than pushing them apart, your business will naturally become more successful.
If you appoint the wrong people to leadership positions (people who tend to spread negativity), your business will most likely suffer a breakdown in culture, morale, and motivation that starts at the top. Instead, look for individuals who spread positivity, drive, and excel at cultivating working relationships.
2. Growth Mindset
While it's important to recognize past success and understand past failure, it's more important for a business leader to be future-focused and always operating with a growth mindset. So, rather than dwelling on the past, they should be asking questions like "How can we replicate or improve our past success?" and "How can we avoid repeating past mistakes?" In other words, business leaders need to constantly consider how they can do better.
With a growth mindset, business leaders seek out new challenges, treating every experience – failure or success – as a learning experience that can be used to better direct your business toward its goals.
"Successful leaders see the opportunities in every difficulty rather than the difficulty in every opportunity” ~ Reed Markham
3. Has Business Acumen
Business (understanding of accounting, finance, marketing, and operations) + Acumen (ability to perceive, discern, and discriminate) = Business Acumen (ability to lead a business to success).
Business acumen is the je ne sais quoi of successful business leaders. It's a can't-lead-without combination of skills, business know-how, and a dash of good instinct. Business acumen equips leaders with the business know-how to avoid pitfalls, overcome challenges, and make better decisions for your company. As a result, you'll avoid the problems that usually put companies out of business (cash flow problems, insufficient management, marketing mistakes, and operational issues).