The Leadership - Profit Chain

The Leadership - Profit Chain by Drea Zigarmi and Scott Blanchard   A specific sequence of events links leadership effectiveness to employee passion, customer devotion and organizational vitality.   Most executives know that leadership plays a key role in the success or failure of an organization, but little research has been compiled about the long-term impact of leadership on organizational productivity and profitability. In response, The Ken Blanchard Companies embarked on a study to answer some important questions about leadership and its role in supporting the overall success of an organization.   The study found that there is a specific chain of events that begins with strong strategic and operational leadership practices that drive employee passion. This, in turn, drives customer devotion, which leads to improved organizational vitality. This model is called "the leadership-profit chain," and it provides learning executives with a way to take a closer look at these connections within their own organization.   You Can Never Break the Chain   At its heart, the leadership-profit chain is a model that describes the impact that leadership has on profits in a commercial enterprise. Looking at a wide variety of studies published between 1980 and 2005 showed that leadership can impact organizational vitality in several ways, both directly and indirectly.   The research found that when employees are happy and are clear on how the organization wants them to treat customers, they provide a better customer experience. If they are not happy or are unclear, they take poorer care of their customers. The research also indicated that there is a reciprocal relationship between customers and employees. If customers are happy with a company's product or service, they create a more favorable environment for employees to work in. Conversely, if customers are dissatisfied, they take it out on front-line employees, which starts a cycle of decline in employee passion.   If a company is not systematically geared to focus on an increase employee passion and customer devotion through its managerial practices, then it is making a costly mistake. These two populations strongly influence overall organizational vitality.   Understanding the Human Element   A prudent business leader needs to carefully understand how the organization's customers and employees are feeling, because it is these emotional evaluations that drive economic value one way or the other for the business. People - whether they are customers or employees - care about what is being done to them, and they have strong feelings about the way they are treated.   Sometimes leaders run organizations as if they have lost sight of the human element within employees and customers. Leaders need to remember to see employees and customers as more than just assets and targets to be maximized and retained. It is also important to remember that people use an appraisal process to look at their environment, and this determines both how they feel about what they are experiencing and what they intend to do about it.   If an organization treats employees badly or without much care, then employees are going to respond with lower levels of performance and satisfaction. If an organization doesn't treat customers well, then the customers are going to see the organization as just another vendor. When that happens, customers expect more from a pricing standpoint. They also tend to be harder on front-line employees when things are not exactly right.   Many organizations today are focused mainly on profit. While turning a profit certainly needs to be a part of an organization's overall goals, research shows that the pursuit of profit to the exclusion of everything else is shortsighted. Profit is best seen as a byproduct of serving the customer and providing a motivating environment for employees. Leaders should look first to create a wholehearted sense of passion in employees and devotion in customers, and the profits will follow. Organizations have to keep their eye on the ball - serving the customer - and not become fixated on the scoreboard: profit.   Understanding Customers   Customers stay with an organization for complex emotional reasons that go beyond low prices. They are constantly making appraisals about an organization's entire system, looking for a product or service provider that offers the whole package: They have a good price, are easy to do business with, are flexible enough to adapt to changing customer needs and also provide faithful service.   Customers are looking for a company that they perceive as good, faithful and fair. They stay with organizations that provide good products but also show character, leadership and a focus that may not always be perfect, but that builds faith in a customer's mind. For leaders, this means creating an emotional attachment in customers' minds that makes them think they have selected the right company - one that will rectify any mistakes that arise, whether on the part of the customer or the service provider.   Organizations don't achieve that kind of feeling with price alone. Leaders at successful companies realize that price is just one component of a customer's evaluation process and that many other things also need to be addressed as part of the total customer experience.   Where the Rubber Meets the Road: Customers and Employees   The research determined that leaders need to be constantly aware of their employee base, the appraisals they make about the work environment and how they feel about management. Research also shows that leaders need to take care of the people who are taking care of the customers.   An additional element of the leadership-profit chain is the factors that drive employee passion. Leaders need to understand what these factors are and to what degree employees feel that their needs are being met. The good news is that many of these needs are low cost. Some of the factors include doing meaningful work and participating in a collaborative versus a competitive environment. Other needs include a sense of growth and the feeling that that a job is not a dead end.   Organizations that are not meeting these needs or are not systematically delivering on them end up creating conditions that will limit future productivity. The research shows that organizations can't just treat people poorly, put pressure on them and expect them to perform at high levels.   Recommended Leadership Behaviors   Leadership keeps an organization working well. If leaders do not provide employees with the support they need, organizations start to see wear and tear. When that happens, the organization has to stop and repair things. Here then, in general terms, are some of the good leadership behaviors that allow things to run more smoothly and efficiently.   a) Provide strong strategic leadership that includes setting an overall vision for the organization, coordinating the efforts of employees toward that purpose and keeping them prepared to adapt to changing conditions as necessary.   b) Identify and focus the organization on key strategic imperatives that have purpose for the customer or meaning for the greater community.   c) Send consistent messages based on a clear vision and the type of culture the organization wants to create. Behaviorally define the values that guide the way employees interact with customers and each other.   d) Focus on the operational leadership behaviors that translate strategy into daily practice throughout the organization. Identify employee needs and strive to meet them. These operational leadership behaviors have a big impact on the organization because they create the environment in which employees live. These factors influence employees' passion and how excited they are to work for the organization. Operational leadership is a linchpin and it has a huge influence on the ways that employees engage with clients.   e) Keep the organizational focus on the areas where leadership has the most impact. When managers focus their attention and emphasis only on organizational indicators of vitality such as profit, they have their eye on the scoreboard and not on the ball. Profit is a byproduct of serving the customer, which can only be achieved by serving the employee.   f) Don't fall into a trap of thinking that an organization can't focus on both people and results. Organizations can focus on both at the same time and should.   Benefits of Good Leadership   If leaders create the right environment and engage in the right behaviors, employees will think well of the organization. This leads to a sense of well-being, which translates into positive intentions to contribute to the organization's overall vitality.   Meeting people's needs unleashes higher levels of productivity that occur when people feel that someone cares about them. In an organizational setting, caring means creating a collaborative environment and making sure work is tied to purposeful endeavors that benefit the customer.   Leaders who are successful in creating this feeling can look forward to lower levels of turnover, waste and shrinkage and higher levels of productivity. In addition, leaders can also expect greater amounts of collaboration, which translates into better service.   Creating an organization that is successful and effective is an inside-out proposition. The quality of the culture and management practices and the alignment of these practices to key strategic initiatives rests with leadership.   Leaders who hold people accountable and ensure effective, productive behaviors in their employees can be the most effective influencers and drivers of organizational results. Equally important is a leader's ability to affect the mood, attitude and engagement of employees and the culture of the organization overall through a specific chain of events that is implicitly linked.   The key to organizational vitality is creating an environment that allows employees to win and be passionate about what they do. By taking care of employees, leaders establish an environment in which employees take care of customers at a level that causes customers to want to return year after year. The result is a strong, vital and profitable organization.     [About the Authors: Drea Zigarmi is a founding associate and Scott Blanchard is executive vice president for The Ken Blanchard Companies, a provider of training and organizational development services.]