Features

Published July 2009

How Extraordinary Leaders Double Profits

Jack Zenger, Joe Folkman and Scott K. Edinger

Decoding leadership reveals patterns that can be used to develop leaders that inspire and motivate employees to higher levels of productivity, and deliver profits as a result.

Observe a print by M.C. Escher long enough and a mysterious pattern becomes apparent throughout the piece. Not unlike deciphering an Escher work, decoding leadership trends reveals a pattern that’s likely to pique your interest: Extraordinary leaders can double profits.

This is a bold statement that will undoubtedly bring to mind a few questions, including:
• How does leadership drive profit?
• How do organizations and leaders maximize, if not double, profit opportunity?
• How do we capitalize on leadership as a means to profit and growth?
• What issues can leaders impact that will most effectively drive profit?
• What data supports the claim that extraordinary leaders double profits?
• How do we identify and develop extraordinary leaders?

The connection between leadership and the bottom line has to an extent been made. Yet, most of what we’ve seen is the result of closed-door boardroom brainstorming sessions and personal treatises of famous, successful executives. While interesting, we’re left confused by the variety of opinions on key issues involving leadership and the slew of contradicting leadership development models.

There is a growing body of research that supports the claim that leaders, good and bad, directly affect the bottom line of the organization. 360-degree feedback reports offer a useful tool. If you want to find out the effectiveness of a leader, ask those who are led.

Analyzing a database of 300,000 360-degree feedback reports on approximately 30,000 managers collected within hundreds of companies around the world, the authors identified concrete performance metrics that allowed them to compare measurable business results with leadership effectiveness. This data-driven approach revealed how we can identify extraordinary leaders and how such leaders develop.

Impact of Leadership Effectiveness on Net Income
In a study of a Fortune 500 commercial bank, the authors discovered evidence of the impact that leadership effectiveness has on net income. Fortunately, this was an organization in which the profit analysis was relatively easy. In this instance, they were able to isolate many of the exogenous factors that exist for most of its leaders and reveal the impact leadership had on its bottom line.

Starting with a 360-degree assessment of the leadership competencies that quantitatively make a significant difference in the effectiveness of a leader, the next step was to divide the leaders into three groups: The top 10 percent were the best leaders, the bottom 10 percent were the worst leaders, and the leftover 80 percent of leaders fell somewhere in the middle. This division revealed the significant contrast between poor and great leaders and the impact that leadership has when performed at its highest level.

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