Can We Afford Not To…?

effective leadership employee development employee retention high performers leadership productivity professional development profitability return on investment soft skills technical training turnover why is leadership development important Mar 12, 2021
Why is Leadership Development Important

I closed the last post by mentioning how many organizations view “soft skills” training as something that’s nice to do when there’s time but far less critical to the day to day operation of the business than any technical training tying directly back to their specific industry. But is that the right decision?

In chapter 16 of Leadership Gold, People Quit People, Not Companies, John Maxwell says “Some sources estimate that as many as 65% of people leaving companies do so because of their managers… The ‘company’ doesn’t do anything negative to them, people do.” In many cases, these are the same managers that have risen through the ranks of that company as they’ve developed strong technical skills and became some of the organization’s top producers. But as we discussed in the last post with regards to just how that can impact communication, being great at doing doesn’t always translate to being effective in delivering a message to the team members that person ends up managing. We also looked at how much poor communication alone can impact productivity…

Why is leadership development important? In the book Cindy and I were invited to contribute to a few years back, Discover Your Team’s Potential, Chris Rollins shared that the term “soft skills” originated with the US military in defining the training they saw having the most impact in keeping soldiers alive in battle. During a conversation with Carly Fiorina a while back, she compared soft skills to computer software. She said that even with the best hardware on the marker, a computer is basically a paperweight without the right software. She went on to say that someone attempting to lead with great technical skills but little or no soft skills is much like a computer without software…

I mentioned the study showing that poor communication can result in $26k of lost productivity, but does it stop there? If only…

A study shared by shared this:

“The US Bureau of Labor Statistics has found that the US voluntary turnover rate is 23.4% annually. It’s generally estimated that replacing an employee costs a business one-half to five times that employee’s annual salary. If 25% of a business’ workforce leaves and the average pay is $25,000, it could cost a 100-person firm between $428,000 and $4 million a year to replace employees.”

Remember that 65% Maxwell mentioned? The ones who left because of their manager… I’ll ask the question again: Why is leadership development important?

A quick internet search shows that the average small business generates around $100k in revenue per employee where larger businesses are close to $200k per employee. Let split the difference and say a company with 100 employees does around $15 million per year in revenue. Let’s also use the conservative numbers from the Gallup study, $438k per year to replace employees who leave voluntarily. Then let’s add the cost of lost productivity due to poor communication, $530k annually based on that SIS International Research study we looked at last time. That’s close to six percent of the entire company’s annual revenue, and we’re just using the low numbers! How much is that impacting the actual profit? I’d argue that this is almost ALL profit that’s being lost since the fixed costs aren’t likely to change.

If effective leadership development could reduce this by only one-third, could you find a better use for $350k in profit? I’m guessing most owners and executives could… But what does effective leadership development even look like? When begin defining leadership development in a way that ensures the rubber actually meets the road in the next post. Until then, there’s still time to reserve a spot for Building Buy-In Around a Clear Mission & Vision on Monday at 11a EST!