bad leadership

The high costs of misdiagnosed leadership problems

Thought Leadership on Execution Strategies presented by Simple Solutions.

Poor leadership practices are the root cause of employee turnover and loss of productivity, and can cost organizations millions of dollars each year.

In fact, most organizations operate with a 5-10% productivity “drag” that more effective leadership practices can eliminate.[1]

  • TURNOVER: Poor leadership is responsible for up to 30% of the reasons why people leave their organizations according to exit interviews conducted by The Saratoga Institute.[2], [3]
  • CUSTOMER SATISFACTION: Poor leadership negatively impacts employee satisfaction, which in turn negatively impacts customer satisfaction. An annual MSN survey reports that the customer experience is entirely driven by how employees treat customers.[4], [5]
  • PRODUCTIVITY: Poor leadership negatively impacts employee satisfaction, which in turn negatively impacts employee productivity.[6]
  • CULTURE: Chronic employee turnover and low productivity are dangerous to long-term profitability because the organization learns to produce below its capacity as a standard operating procedure.[7]

Strong leadership and management practices can close the gap in all of these areas. Companies that have good leadership practices outperform companies that don’t.

What can leaders do?

Leaders often misunderstand their role in an organization’s day-to-day processes by believing that key responsibilities belong to others and by not knowing how to engage in ways that can make them more successful.

  1. Accept responsibility. Organizations often experience turnover, poor culture and low productivity, but rarely diagnose and treat them as leadership problems. Instead they either 1) tolerate them as a common part of organizational life, or 2) mistakenly attribute them to other causes. The cost of doing nothing is the most expensive option of all.
  1. Fulfill your role as the creator and leader of the organization’s culture. Customers experience a company’s culture simply by talking to and interacting with employees via telephone, email, or face-to-face. The culture customers experience comes directly from the behavior of the leader. The leader is responsible for creating a cultural vision for the company and spending time to involve, inspire and steer the whole organization in the right direction.
  1. Demonstrate and formally reinforce the behaviors you want your customers to experience:
  • Trust and respect
  • Listening skills
  • Relationship skills (considerate of, and helpful to others)
  • Initiative and personal accountability.

Employees will generally stay with a company and have an easy time treating their customers well if they are treated fairly, given legitimate challenges, and feel their contributions are recognized. In turn, profits are the applause your company earns by creating inspired employees who “wow” their customers every day.

  1. Personally provide strategic AND operational leadership. Strategic leadership provides clarity of vision, values, and the opportunities the company chooses to pursue. But leading is more than thinking big and inspiring people with a vision. Operational leadership is how day-to-day activities support company strategy. It includes creating and maintaining policies and procedures, the technology and communication infrastructure, performance evaluation systems, and efficient business processes.

Leaders are responsible for providing employees with the tools, resources, and support they need to perform and for removing the systemic organizational obstacles that might be present in the work environment.

  • Everyone understands what’s expected of them and behaves accordingly and consistently as a result
  • Systems and processes are built to create and support consistently great customer experiences and to reinforce a culture of:
  • Knowledgeable staff
  • Friendly staff
  • Readily available staff
  • Excellent service after a sale
  • People are engaged, empowered and encouraged to deliver quality customer service
  • People are rewarded and recognized for high performance.

These factors are the keys to creating a highly productive work environment. When any of them are missing, the result is less-than-optimal productivity.

  1. Get assistance to improve leadership practices throughout the organization. Leadership effectiveness doesn’t happen casually. Because leadership is such an important intangible, organizations must ensure leaders, managers, and supervisors receive the assistance they need to consistently educate, support, delegate, inspire, celebrate, and challenge their staff to perform at the highest level. Leadership Coaching and Organizational Development professionals can look at the impact that less-than-optimal leadership practices have on an organization and can help remove persistent drains on financial performance.

Good leadership is the key to retaining good employees, and bad managers will only drive them away. Imagine the positive impact that consistent, effective leadership behaviors can have on your organization’s people, passion, performance and finances!

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[2] Poor leadership costs average organization over $1 million dollars annually, David Witt, 2011.

[3] Turnovers cost an average of between $20,000 and $80,000 annually for 10 employees (or more per non managerial employee to recruit, on board, training and get a new hire up to speed, depending on the job or industry. These numbers do not include “ramp up” costs, indirect costs, performance costs, and risk. Cited in Chris Ortiz, 2011.

[4] Poor Leadership Practices Cost You Customers, S. Chris Edmonds, 2012.

[5] Research published in Harvard Business Review calculated that every 5-point change in employee satisfaction scores caused a 1.3 point change in customer satisfaction scores, an amount equal to as much as 7% of total annual sales. Cited in David Witt, 2011.

[6] Companies reported a 14-point employee productivity gap between target employee output (86%) and actual output (70%),

[7] Habitual under-production erodes the organization’s effectiveness and creates additional costs that are much harder to eliminate:

  • Opportunity costs are incurred from losses to higher-performing competitors.
  • Unsuccessful launches of programs and initiatives
  • Resources misapplied to solve the organization’s problems.
  • Future performance capped at a rate below the cost of investment.
  • Loss of sales from a devalued brand that customers associate it with less than desirable service.