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6 Reasons Bad Leadership Skills Are Costing Your Company Money
MARCH 1, 2021 | BRENDA VAN CAMP
Let me ask you something. Would you fly with an untrained pilot? Would you give an untrained person a scalpel to do surgery on you? Of course not. Why then, do we think it is acceptable to put people in charge of teams and departments without having received any training on how to effectively lead, influence, and impact people to accomplish organizational goals?
Maybe, you say, they get trained as soon as they are promoted. No, that’s not the case either: Research by Zenger/Folkman found that employees in leadership roles typically experience a 7 to 10-year training gap between when they become leaders and when they receive their first leadership training. That’s a lot of time during which they have to just “figure it out” and likely make many mistakes.
So then why? When we ask those at the top that question, they usually tell us that leadership training is expensive, and they don’t want to waste it on junior-level people who are more likely to leave for opportunities elsewhere.
Sounds reasonable, maybe on first blush, but it is a miscalculation of the greatest order. Poor management and leadership by untrained managers cost companies as much as 10%+ in wasted cost each year.
How? Below I have highlighted 6 ways in which untrained leaders hurt a company’s bottom line:
Table of Contents
Not knowing how to motivate
They’re not getting any effort back for 25% of your payroll. And given that payroll typically makes up about 25% of a company’s total cost base, they’re at risk of wasting 6.25% of their total expenses.
Not knowing how to make effective decisions
Managers and leaders are tasked to make many decisions, big and small - hiring decisions, purchasing decisions, budgeting decisions, work planning decisions, etc. And organizations obviously want them to make the best possible decision each time.
Many untrained leaders, however, struggle with decision making. Some fail to make timely decisions because they’re holding out for the perfect decision. Others make bad decisions because they rely too much on their intuition or mistakenly assume they are expected to make decisions unilaterally. And most are completely unaware of the potential negative impact of the many biases that can influence their decision making.
Now think about how many operational decisions your organization makes every year. Not those big strategic business decisions made by the executive team, but the many small operational decisions made by entry-level and mid-level leaders across your organization.
They make 100s if not 1000s of operational decisions, and they impact every aspect of an organization. Therefore, not training them in how to make better decisions comes at a serious cost to the organization’s bottom line. In fact, a study by Gartner in 2018 found that such poor everyday operational decisions cost companies upwards of 3% of profits.
Not knowing how to run effective meetings
So ineffective meetings are squandering organizations’ most precious resource: time. And using the data from the above-quoted research, one can calculate that this amounts to roughly 4% of total cost. Or to make it more real, an estimated $7,500 per employee per year.
Not leading with integrity
And this lack of trust is hindering output. In fact, research carried out by Sheffield University’s Department of Economics found that those organizations that do focus on establishing a high level of trust between employees and their managers saw productivity rise to around 5% above the industry average.
Lack of financial understanding
Not knowing how to delegate effectively
So the damage done by poor management and leadership skills of untrained managers and leaders costs organizations 20 -30 times more than the 0.5% - 0.75% of costs that organizations currently spend on just training their more senior leaders.
Investing in training managers and leaders across every level of an organization is not a perk. It's a must - unless you don't care about your bottom line.
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