The True Cost of Poor Leadership
When companies think about their bottom line, operational efficiencies, investments, expansion, and new products are at the forefront of the conversation. It makes sense, as revenue drivers tend to be the predominant focus of companies of all sizes.
Suppose you’ve noticed that focusing on these aspects hasn’t had the expected financial impact on your organization. In that case, the answer to boosting revenue and productivity may lie in what you’re not doing.
The cost of poor leadership is an aspect that’s often overlooked. You may have a loyal staff, experienced middle managers, and execs with degrees from elite schools. Yet through it all, no true leaders have emerged. Exacerbating the problem is the concept of the “accidental leader or manager” — or those thrust into a leadership or management role out of necessity — financial or otherwise.
Regardless of your company’s unique situation, bad leaders can create a downtrodden, unmotivated staff, lower productivity, poor employee morale, and even active disengagement. All of these add up to a reduction in revenue, lackluster brand loyalty, and a loss in reputation. And worsening the situation even more is the utter inaction of leadership and management to adjust their processes and procedures.
Whether during times of uncertainty or confidence, shrinking revenues or rapid expansion, and recessions or booms, the cost of poor leadership is an unrelenting reminder that management leadership training is quintessential to a company’s success. It’s a competitive advantage you can’t afford to ignore.
The cost of leadership is real in dollars, cents, and human capital. However, the less tangible effects create a barrier to change throughout the entire organization. You need thought-provoking proof that poor leadership costs your company more than just profits.
Once you find out how much poor leadership is costing your company, you can take the next steps in amending it. Use these statistics to inspire change, persuade the right parties, and invest in your most important asset: great leaders.
The Cost of Poor Leadership: A Look at the Numbers
To truly grasp the idea of the cost of poor leadership and its negative impact on your bottom line, you only need to look at the statistics. Numerous studies and research have demonstrated the disastrous financial consequences of leadership-based inaction or poor leaders attempting to guide an organization:
- The cost of poor leadership can cost an organization as much as 7% of its total revenues.
- A single poor leader costs an organization an average of $126,000 each year.
- Poor leadership causes as much as $4,723 in lost wages each year due to a drop in productivity.
- Low employee engagement and total employee disengagement due to poor leadership cause an 11% drop in global GDP, tallying a whopping $7.8 trillion annually.
- A Gallup poll shows that employee turnover/lack of employee retention due to poor leadership practices costs American companies $630 billion per year due to employee productivity loss, recruiting, and other hiring costs.
- Around 82% of workers are actively seeking new employment due to bad managers and poor leadership. Hiring a single new worker can cost as much as $4,700 per employee, not counting the added training and onboarding to get them up to speed.
The high financial cost of bad leadership is far too drastic to ignore. Without good leadership, organizations are needlessly spending thousands of dollars each year if not more — underscoring the importance of initiating a leadership development program.
The Intangible Cost of Poor Leadership
Financial problems aren’t the only effect of poor leadership, although the intangible cost of poor leadership can readily translate to fiduciary downfalls. While these statistics aren’t necessarily monetary, they still have a bleak impact on the internal workings of a company. These costs include:
- A lack of training, know-how, and leadership skills creates a toxic work environment, leading to a lack of employee engagement, absenteeism, and staff turnover. According to the U.K.-based Chartered Management Institute, 82% of managers are “accidental” — pushed into roles based on necessity, the lack of money, or organizational indiscretion in decision-making. Ultimately, this has a cascading effect through the company and pushes talent out the door.
- Great leaders drive around 70% of employee engagement, but if an untrained or generally poor manager enters a leadership position, this can cause a massive dropoff in employee engagement — leading to lost productivity, lower morale, and burnout.
- A Gallup poll showed that 52% of employees leaving their jobs could have been persuaded to stay had they not had poor management.
- Poor leadership or leadership styles are so prevalent that 65% of employees would rather have a new manager than a pay raise.
- Leadership can have a profound impact on company culture, eventually resulting in a total breakdown. Whereas a good leader can foster a cohesive atmosphere and camaraderie between team members, poor company culture can increase turnover and absenteeism.
- Customer satisfaction and brand reputation are also at risk and are major costs of poor leadership. Companies face an uphill battle to gain new customers as opposed to retaining them — costing them five times as much in marketing and acquisition costs.
The Positive Effects of Great Leadership
Negativity surrounds poor leadership. They have a symbiotic relationship. But great leadership has the opposite effect. It creates cohesive units of workers, propels employee engagement, and produces a supportive and inclusive company culture.
Through a dedication to leadership training, companies craft an atmosphere where everyone has the support and direction they need to succeed from the ground up. A further look at the statistics of leadership investment uncovers even more reasons why it should be a prime focus of organizations and HR managers:
- According to a 2023 McKinsey report, top-performing managers and leaders produce five times more shareholder value than average or below-average managers over a five-year period.
- Research in France demonstrated that every Euro invested into leadership training for managers results in a return of 4 Euros.
- A joint research paper showed that managers undergoing leadership training improved their leadership knowledge by 25% and their overall performance by 20%.
- While 83% of companies state that leadership development is integral to their success, only 5% have organized leadership training programs. By utilizing a leadership training program, organizations and startups can create a competitive advantage through talent and human capital.
These are just some of the statistics surrounding the importance of great leadership. Not only does it diminish or eliminate poor leadership, but it also has a profound and positive effect at every level of an organization.
How Leadership Training Negates the Cost of Poor Leadership
Negating the cost of poor leadership is the goal of any high-quality HR manager. But uncovering why this is so important requires a deeper dive. While some of the ideas may seem self-explanatory, comprehension of leadership training benefits and the roadmap between poor leadership and great leadership is well worth the effort.
Here are some of the ways that leadership training can neutralize or nullify the cost of poor leadership:
- Employees who are allowed a degree of autonomy tend to perform better than those with poorly trained micromanagers. When leaders develop a culture of trust, employees can flourish.
- Training the next generation of managers should be a priority of any organization. Unfortunately, many companies don’t have the vision that the youthful talent will eventually become the decision-makers. Through leadership training, a potential C-suite executive is trained, groomed, and ready to take the next big step in their career.
- Building a culture of growth is another important facet of any company. When employees embrace the idea of a growth mindset, they believe in the ideas of work ethic and hard work. But leaders need to lead by example. By showcasing the need for constant improvement, leaders act as an inspiration and motivator — one that’s routinely visible to every employee.
Better Leadership Is the Key To an Increased Bottom Line
The importance of great leadership and the cost of poor leadership cannot be understated. It’s the force behind wins and losses, how your target market views you, and how you retain or hire top talent.
The good news is that poor leadership can only hinder your organization if you’re unwilling to realize its potential costs. Realization leads to actualization, which ultimately becomes the driving force for change.
However, not every company is equipped to make necessary changes on its own, whether due to a lack of human resources or capital. But the cost of poor leadership outweighs the investment in your staff.
Unicorn Labs uses proven methods, such as retreats, coaching, and online modules, to transform managers into leaders of high-performing teams — all at scale. As your company or startup grows, so does leadership's ability to maintain a healthy, vibrant company culture.
With the cost of poor leadership firmly implanted in your mind, indecision is akin to inaction and failure. Find out how Unicorn Labs can develop leaders without trial and error or other costly mistakes that dilute your bottom line. It won’t happen overnight, but any move to eliminate the cost of poor leadership is a savvy and efficient use of time and resources.