Leadership Style and Profitability

A lot has been written on different leadership styles and how each one of them impacts the organizational culture; the performance of its employees and most importantly, it is profitability. In fact, no one is a born leader and everyone learns from his personal experiences and observing other leaders and entrepreneurs about how they organize, manage and lead their teams. In this regard, it is very important to understand what your particular style of leadership is and how it is impacting the outcome of your organization.

What is Leadership?
Before discussing about what the different leadership styles are, it is understandable to discuss what actually is leadership? Against common perception, leadership is totally different from management, although both of them overlap in almost all the organizations. Management is in fact, the use and control of limited resources including human and others. On the contrary, leadership is the quality of any person to maintain good relation with everyone and mobilize them to work collectively for the betterment of the company instead of forcing them to do so. Leadership basically has three levels that are, reactive, active or creative. A leader at level 3 creatively integrates the needs and aspirations of all the stakeholders.

The Connection between Leadership and Profitability:
It is often said that leadership is directly connected to profitability. In management, profit is normally equal to revenue less costs but it is not the case in leadership. In leadership, profit is the result of excellent relationships with the management, colleagues, staff, superiors, subordinates and clients. That is exactly why, Finance executive of any company will argue against investing in the leadership development. As discussed above, there are three levels of leaderships and the level 3 or creative level will be the most profitable in this regard.

The Six Styles of Leadership:
In addition to three levels of leadership, there are also six different styles of leadership. These styles were developed by world famous Daniel Goleman and first published in Harvard Business Review some years ago. Although, all these styles explain leadership quite comprehensively yet they only deal with relationship with the staff and are not concerned with other 360 relations. Following lines explain these leadership styles one by one.

• Affiliative Leadership:
Affiliative leadership is more concerned about promoting friendly interactions with staff. It does not emphasis much on goals and standards but on the personal needs and demands of others. Affiliative leaders tend to avoid performance related confrontations and reward personal characteristics more than job performance.

• Coercive Leadership:
As the name implies, coercive leaders demand immediate compliance of their orders, motivate by threat and most importantly, they rely on negative or corrective feedback to in a hope to improve the performance of their staff.

• Pace-Setting Leadership:
Pace-setting leaders can be termed as one of the best leaders present around. Instead of being coercive, they tend to lead by example and set high standards for others to achieve. However, they have one very major shortcoming that is they are apprehensive to delegating and will take responsibility away if they feel that the higher performance is not forthcoming.

• Democratic Leadership:
Democratic leadership is a very interesting style of leadership. Instead of taking initiative themselves, the democratic leaders trust and expect others to develop the appropriate directions and set standards for themselves and also for the business. However, they are always ready to listen to other concerns, hold regular meetings with others and encourage them to participate in the decision making process as well. Moreover, they rarely give negative feedback and reward everyone according to their performance.

• Coaching Leadership:
Coaches in an organization are really a blessing for the staff members and anyone responsible and accountable for the timely completion of the project. The “coaches” help others identify their weaknesses and strengths as well as encourage and empower them to set both short and long term goals for themselves. In this regard, they also provide continuous instructions and feedback to their staff to improve their performance with the passage of time. Their biggest trait is that they are willing to sacrifice or ignore immediate performance standards in a hope to achieve long term goals and targets.

• Visionary Leadership:
Visionary leaders are indeed the most brilliant, inspirational and helpful leaders for the staff for many good reasons. For example, they always manage to communicate a clear vision to others. They keep people engaged by explaining the collective purpose and goals and how these goals connect to their individual targets and inspirations. Finally, they set standards and monitor the performance of the staff by keeping a bigger and better picture in mind.

What is Your ‘Default’ Style?
According to this particular theory, individuals typically have two distinct default styles of leadership. Some leaders remain cool, calm and comfortable when they encounter any difficult situation whereas others fall back and panic when they are under pressure. Therefore, it is imperative for you to determine what your style of leadership is. Similarly, you also need to know how others around you perceive your leadership style if you really want to command compliance and respect from them. In this regard, going through the aforementioned six leadership styles will definitely help you to identify your leadership style and improve your leadership skills for the betterment of your own organization.

The Most Profitable Leadership Styles:
Almost all the leadership styles are profitable for the organization to some extent but some are definitely more productive and profitable than others. A research conducted by Hay Consulting indicates that 28% of variance in financial results of an organization can be explained by difference in organizational climate and 50-70% of variance in organizational climate can be explained in terms of difference in leadership styles. Following chart will explain the point more explicably.


Conclusion for Senior Managers:
The above article is the summary of webinar, “Leadership Style and Profitability” by John Mitchel who is the founding partner of Mitchel Leadership consulting. In his webinar, he clearly explains the relationship between quality leadership and the profitability of an organization. As a matter of fact, you can greatly improve the organizational climate, enhance the performance of your staff and increase your profits simply be raising the quality of your leadership. It is now time for you to invest in professional leadership development that will enable you to start a shift from leadership level 1 to level 3 and as a result, achieve a competitive edge in the market.

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