How Leaders Impact Profits

The tagline for Progressive Leadership Group is “cultivating leaders, growing profits”.  It’s a pretty bold statement, I know.   Is there really a through-line that shows the bottom line impact of leadership?  My answer is a resounding “yes”.  Let’s take a look at some of the main areas where leadership impacts the growth (or decrease) of your profits.

TurnoverEmployees join companies, but they leave managers.  Some of the main reasons they leave: they feel undervalued; the job doesn’t use their skills; no communication; no growth opportunities; no feedback; lack of relationship with their manager.  Salary and benefits come in way down the list, so why do managers always try to pay people more when they submit their resignation?  It’s the easy way out, because it takes the focus off of the manager’s inadequacies.

Recent surveys show how turnover impacts profit.  For entry-level jobs, paying under $30k, the replacement cost is 16% of annual salary.  Positions paying under $50k, cost 20% of annual salary to replace.  Management up to senior management positions can cost 100% to 200% of annual pay to replace.   If you’re up to it, take out a calculator, or better yet, have your CFO estimate how much turnover cost your company last year.

DisengagementThe latest Gallup survey shows that 7 out of 10 employees are disengaged.  This should be the first thing a CEO works to improve if they hope to grow and remain profitable.   When employees are engaged they care about the company, are willing to work harder, and believe that their work makes a difference. Disengaged employees are not productive.  They are present, but they don’t contribute to the achievement of the department or the company’s goals.  If they are actively disengaged they are causing harm by spreading negativity and sabotaging the efforts of co-workers.   Engagement has a bottom line impact.  Work units scoring in the top 25% had significantly higher productivity, profitability and customer ratings.  Organizations with a higher percentage of engagement had 147% higher earnings per share as compared to their competitors.  Gallup estimates that disengagement costs the U.S. somewhere between $450 billion and $550 billion per year.  I realize that’s a wide range, but even at the lowest figure, that’s a lot of profit and productivity out the window!

Managers can increase engagement by:  focusing on employee’s strengths; giving them a vision and mission to work toward; building relationships;  and investing in their growth.  Leaders have the responsibility to create the conditions for employee engagement – it is not an HR initiative.

Healthcare CostsBad managers make employees sick.  It’s not easy to hear, but it’s the truth.  The work environment is one of a few key factors that affect an employees’ health.  When employees feel undervalued, or they don’t understand how to perform to the manager’s expectations, it has a real effect on their physical and mental health.   The company is impacted by higher healthcare costs and lost productivity, due to increased absenteeism and leaves of absence.

A leader must understand how to engage employees, motivate them, and create an environment where they feel a valued part of the work unit.  By leading in this way, you will reduce absenteeism and increase productivity.

If leaders reduce turnover, increase engagement, and create a healthier workplace environment, profits will increase.  Good leadership is good for the bottom line.

Let us know your thoughts.

Deneen Grant is a Leadership Strategist and founder of Progressive Leadership Group.  We partner with CEOs and Senior Executives to put the Right Leaders, in the Right Roles, with the Right Skills – creating a thriving and profitable company.

Posted in Business Failure, Culture, Growth, Leadership, Management, Profit, Strategy, Success