White Papers

The High Cost of Doing Nothing

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P E R S P E CT I V E S The High Cost of Doing Nothing: Q u a n t i f y i n g t h e i m p a c t o f l e a d e r s h i p o n t h e b o t t o m l i n e Most executives instinctively know that strong leadership is essential for overall organizational success. However, in most organizations, there is a lack of urgency to improve leadership skills driven by a belief that an organization's current leadership capacity—and subsequent performance—is good enough. But is it? Analysis by The Ken Blanchard Companies ® shows that the average organization is forfeiting over $1 million per year in untapped potential because of less-than-optimal leadership practices.* In a recent article titled, "How Extraordinary Leaders Double Profits," authors Jack Zenger, Joe Folkman, and Scott K. Edinger make the extraordinary claim that there is enormous potential for organizations to improve their bottom lines by developing leaders who, for example, inspire people to perform at higher levels and who can recognize and remove obstacles to employee productivity. In fact, their research shows that good leaders can double profits. 1 Similarly, Laurie Bassi, cofounder of McBassi & Company and a former professor of economics at Georgetown University, has shown that organizations whose leaders eliminate barriers, provide feedback, inspire confidence, share information, and welcome new ideas outperform those that don't. In comparing the average three- year compound annual growth rate in income for high versus low sales offices in a major business, Bassi found that the growth rate for the higher-scoring offices ranged from 60% to 130% higher than the growth rate for offices with low human capital management scores. 2 Strong leadership is not only important to the overall success of an organization; anything less has significant financial implications. In this white paper we will explore the impact that leadership has on employee productivity, employee turnover, and customer satisfaction. By looking at the effect that leadership has in each of these three areas, we believe it is possible for executives to begin to recognize and quantify the impact of average versus best-practice leadership in their organizations. E M P LOY E E P R O D U CT I V I T Y The connection between leadership practices and employee productivity is well documented and presents the largest opportunity for most organizations today. In a 1995 study of nearly 1,000 firms, Mark Huselid of Rutgers University found a statistically significant correlation between high-performance work practices and intermediate employee outcomes such as turnover, productivity, and overall corporate financial performance. The factors that impact employee productivity include selection, performance management and appraisal processes, as well as development strategies that include training, coaching, and mentoring. 3 * Based on initial results of participants using Blanchard's Cost of Doing Nothing Calculator (www.costofdoingnothing.com) The average organization is forfeiting over $1 million per year in untapped potential.

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