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The High Cost of Poor Leadership in An Organization

Updated: Sep 27, 2020

In all things business, effective leadership is the crux of any industry and its overall success. I have experienced first-hand the unfortunate outcomes of poor leadership and the overarching effect it has on the bottom line of an organization. Not only does the leadership set the tone for the culture and morale of the organization, but their leadership style directly correlates to the organizational culture and profit margin.

More often than not I see leaders fall into their roles because they were a good producer, but lacking leadership training or the understanding of their real responsibility as a leader. The problem with this strategy is that their production skills do not necessarily translate into leadership skills and therefore their impact, be it short or long, can have long lasting ripple effects throughout an organization. Most leaders are focused on reaching the goal and fail to understand that their first responsibility is to those they lead, and that the goals will be reached as a byproduct of their effective leadership skills. Although leadership includes all tasks necessary to meet the organizational goals and objectives, it also means empowering their team by setting realistic goals and providing the tools they need to effectively do their jobs in line with their skills sets.

Leadership style is the way in which a leader leads their team, and it is in alignment with their personal view of their role as well as their values. The old industrial revolutionary idea that leadership is some kind of “lording over” the team is long gone. In today’s growing global economy, and with today’s educated workforce, this leadership style simply does not work. Today’s leader must develop a team mentality and remember that they are leading by example (servanthood) and motivation rather than intimidation and control. Developing a level of trust between them and their team, along with ensuring their team that there is a level of respect and transparency among them, is the only effective way to develop a strong devoted workforce. When a leader creates a homogeneous work environment, they can be sure that they have a better chance to meet their organizational goals and objectives because their team is working with the grain rather than against it. In addition, when a leader has a team that is synergized, their team will go above and beyond because they have bought in and have a level of personal commitment to their leader and teammates.

The organizational culture is as real as any culture, and every organization has one that is a direct reflection of its leadership. Whenever I am called into an organization to solve issues, I always look to the top for answers for what is not working. Most times leaders tell me their teams are not functioning or the bottom line is not being met and tend to blame it on their team rather than look to themselves for the answer. I learned early on in my professional career that things roll down hill and it always starts with the leaders who have the most impact. This rolling down is what creates the organizational culture. Effective leaders understand this and work hard to ensure they create an organizational culture that encourages positivity and growth among their workforce in connection with their organizational goals and objectives.

There are numerous psychological theories on leadership, and many good leaders incorporate various aspects of them to create their individual style. Those leaders understand a few basic rules that create a positive work environment and get them the results they want. I’m not referring to manipulation, but rather motivation of individuals through five key leadership skills. These skills are 1) creating an environment of trust; 2) developing a solid communication chain among leadership and their workforce; 3) providing workers with the resources they need and the freedom to do their jobs without micro-managing; 4) creating an environment that develops personal confidence on ownership among their workers and; 5) develop a system of accountability among workers in a way that fosters respect and personal growth. Leaders who follow these key principals can create a culture and work environment that fosters the flow they need to get the job done while eliminating the costly impact of turnover among their workforce.

One reason the old industrial perspective of leadership fails an organization is because today’s workers, no matter where they are on the planet, are more educated than ever before. Technology allows workers to “do their homework” and provides them with options in regards to their work life. Workers know they are competing with the rest of the world for work and leaders also need to understand that the world is in competition with them for those qualified workers. Remote access also has created the opportunity for workers to live anywhere on the planet and do their job, and just a pay check alone is not enough to keep them. Effective leaders understand that their behavior has a global impact on their work teams and their organization.

There is no doubt that poor leadership takes a huge toll on an organization and its bottom line. The cost of losing a valued employee and retraining new ones puts a strain on the organization, its budget, its level of production and its strategic plan. Poor leadership can create a work environment that is not conducive to high employee retention rates, and the negative impact on moral, productivity are just some of the pitfalls.

The cost to rehire and retrain an employee depends on the organization, but research has shown that a basic formula is that on average an employee making $40K per year will cost $50K to replace and retrain. In a study conducted by the Center For American Progress found that the cost to replace a $10 per hour employee is approximately $3,328.00 while the cost to replace a highly educated and experienced CEO making $100K is approximately $213K. Most notable is the power of social media and the ability for bad news to travel fast and tarnish the organization and its reputation as an employer. The potential for a bad reputation can have a global impact and is not necessarily contained on a local level.

It is for all of these reasons that an organization must carefully consider those it puts in leadership roles and if they indeed have the skills needed to create a positive work culture, motivate their team and produce the desired outcomes for the bottom line of the organization. Simply having one skill set does not guarantee that a person in a leadership role will have the skills they need to be the best leader. This, and the overall cost to the organization as a result of bad leadership, solidifies the need for continued leadership development training. A combination of hard skills, soft skills and advanced leadership development, be it group or with a coach, are key in avoiding the costly outcomes of a poor leader on an organization.

Simply put – an organization cannot afford not to train its leaders and provide them with the support they need to be the best they can be. Leaders must learn and understand that everything they do directly impacts their team and the organization as a whole. It is only through training, education and strategically creating an effective organizational culture that the leadership and organization can ensure they retain employees while obtaining their strategic position. As they say, great leaders are born, good leaders can also be made, but either way their behavior trickles down to those who serve below them.

Dr. Robin is an Industrial Organizational Psychologists and Dean of Curriculum and Program Administration at Western Education Institute. She also is an Executive Coach and Trainer at Dr.G Consulting.

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