Better leadership and management leads to better business performance

It is intuitively obvious that better leadership and management leads to better business performance, but can it be proven?

There are numerous academic research studies that endeavour show this and some are summarised below. For most pragmatic business leaders, it simply has to be a judgement call. Which is why we invite potential members to attend a meeting as our guest. They are then properly informed and can make that judgement call for themselves.

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“Management quality seems to matter a lot. It’s very closely correlated with labour productivity, and labour productivity is, in the long run, about as important a number as exists in an economy. It explains why a typical Tanzanian worker producers in a month what an American worker producers in a day, even given the same equipment. We can’t prove that better management is responsible for the entire gap, but it seems highly likely to be part of the story.”
The Undercover Economist – Tim Harford
“When we first started out, the top of the Olympic podium seemed like a very long way away. Aiming for gold was too daunting. As an MBA, I had become fascinated with Kaizen and other process-improvement techniques. It struck me that we should think small, not big, and adopt a philosophy of continuous improvement through the aggregation of marginal gains. Forget about perfection; focus on progression, and compound the improvements.
How 1% Performance Improvements Led to Olympic Gold
Harvard Business Review interview with David Brailsford

The following are some largely academic papers exploring the extent to which leadership impacts upon business performance. Click the links for the original papers.

Stanford University, published by London School of Economics : A good boss improves performance by over 11% and retains good staff 12% longer.

Harvard Business Review: CEOs need mentors too
(What better mentors could you have than fellow real leaders, like you dealing with the ups and downs of business life?)

 

The correlation between Productivity and Management

Deloitte reported in the Wall Street Journal that investment analysts routinely factor the quality of a company’s senior leadership team into their valuations and that effective senior leadership can add 15 percent to a company’s value.

Economists have consistently found both large and persistent differences in productivity. The size of these differences is striking: the plant at the 90th percentile of the industry’s productivity distribution typically obtains almost twice as much output with the same measured inputs as the plant at the 10th percentile of productivity.

Royal Bank of Canada implemented a programme to transform leadership behaviours which Boston Consulting Group found led to a doubling of their stock price, far outstripping their peers in the same period.

About a quarter of cross-country and within-country productivity gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively.