Don’t underestimate the cost of poor leadership!

Don’t underestimate the cost of poor leadership!

2023. February 20.

An average company loses around 7% of its annual revenue due to leadership shortcomings.

The three side effects of ineffective leadership are increased turnover, reduced customer satisfaction, and low employee productivity, says David Witt, program director at Ken Blanchard Companies.

Witt draws his conclusions from data from those who completed Blanchard’s survey on the subject. According to Witt, both smaller (under 100 people) and larger (over 10,000 people) organizations report similar loss rates. „When you consider that this loss represents a loss of more than $1,000,000 for an average company size, it’s surprising that more attention is not being paid to addressing leadership issues,” says Witt.

Reasons may include the crises of recent years, which may have created a loss of focus for companies in this area. „Managers are becoming busier and simply don’t notice or can’t be bothered if their staff’s engagement is declining and they are about to quit.”

„Indeed, they are physically staying with the company,” Witt asserts. „But the reality is that many of them have quit in the spiritual and mental sense of the word. In essence, they ‘quit and stay’. This can be even more damaging to a company than actually leaving, as their negative attitudes and work habits can break down the morale of others.”

According to a Gallup survey, 15-20% of employees fall into this category. Accordingly, in the US, there are approximately 23 million workers who are currently actively destroying the atmosphere and spreading negativity within the company.

And Blanchard’s own research on the Leadership-Profit Chain and Employee Passion has shown that the way employees perceive their work environment strongly influences their intentions and consequent behaviors.

According to Witt: „Previous research has revealed a strong relationship between employee satisfaction indicators and the resulting customer satisfaction rate, and both are strongly related to the quality of leadership. The bottom line: leadership methods matter! Companies that have good leaders outperform those that don’t – and this is reflected in both customer satisfaction and employee satisfaction.

What about productivity?

The quality of management also affects company performance through the productivity of employees. If we look at Blanchard’s Cost of Doing Nothing survey, we find that companies expect productivity to be around 80-90%. So firms are not expecting their employees to put in 100%, they are hoping to see their employees in the 80-90% range.

Witt says what’s interesting about this is that the same firms say their staff productivity is around 65-75%. At first glance, this data is surprising, but the truth is that other surveys have produced similar figures.

The problem is compounded by the kind of chain reaction that occurs when companies do not reinforce their management practices. According to Witt, this starts with the relationship between the leader and his or her direct reports.

„If this relationship is not as strong as it could be, the result is reduced engagement on the part of the employee. Add to this the 11 other employee engagement factors we’ve studied, which are also eroded by poor leadership, and it’s easy to see the negative impact that all of these combined have on an employee’s willingness to stay with our company, perform at a high level and be a good ‘corporate citizen’.”

„Companies that don’t solve leadership-related problems operate in a constant feedback loop that stifles performance. In good times, this choke can be manageable, but in tough times it is crucial that everyone does their best, especially in terms of creativity, innovation and breakthrough thinking. These are the types of results that can only be delivered by a highly committed, highly motivated team of people.”

What can managers do to improve the situation?

Most importantly, managers need to increase the frequency and quality of conversations with their employees, says Witt.

„At Ken Blanchard Companies, we recommend that managers meet with their employees at least once a month, but preferably weekly, to discuss how things are going. We recommend that the topics of these meetings are primarily determined by the employee, i.e., leave it up to them to set the agenda and the topics. This gives them the opportunity to discuss the things they are working on, in addition to informing their boss. It is also a good opportunity to ask for direction if something is not clear or to discuss new ideas.”

By regularly scheduling some structured time at least once a month, you can lay the foundations for regular discussions on performance-related issues. This works wonders for sharing information, building a spirit of partnership and ensuring that we are not caught by surprise. It’s also a great way to fine-tune what’s needed at the beginning of a process so that there are no harsh interventions later on, due to misunderstandings or unclear expectations.

Leadership matters

Beyond the financial benefits of lower turnover, higher customer satisfaction and productivity rates, there are also benefits that are harder to quantify in financial terms. This of course makes the impact tangible. When people feel that they are working together as a team in close partnership towards a common goal, we will experience positive intentions and a stronger work ethic, resulting in closer cross-functional collaboration, a shared search for win-win solutions and a sense of organizational cohesion. When all this happens, we will have an organization that is more focused, more efficient and better able to meet customer needs. It’s an environment that brings out the best in our people, serves customers at a higher level and ultimately generates greater profitability. It’s a win-win-win situation in which everyone benefits.


Companies need to ensure that they get the best out of their employees. The most important way to do this is to provide strong, consistent and inspiring leadership. Increased employee engagement and a more satisfied customer base will clearly translate into higher revenues and profitability.

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