The Link Between Leadership And Sales: Perks Of Identifying Great Leaders

September 26, 2020

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I often read about sophisticated leadership assessments that are long and complicated and require highly trained evaluators to interpret results. They do have their place in the world and often identify new trends and insights, but for the most part, people know a great leader when they personally experience that leader. It does not take rocket scientists to do the calculations.

Several years ago, a retail company in Mexico contacted us with a desire to help them improve the effectiveness of their store leaders and regional managers. The company provided goods and services to the poorest people in the country. They had been very successful but knew that there were significant differences between different stores’ sales revenue. One of their theories was that the store manager’s effectiveness could be a source of much of the variability. We created a customized, short-and-simple 360-degree assessment and gathered data on 95 store managers. The store managers typically did not have any formal education beyond high school and were promoted from within. The employees at these stores had similar educational backgrounds.

On average, the leaders were evaluated by 16 people, including managers, peers, direct reports, and internal customers. In the data, we noticed a wide variance in the overall effectiveness ratings of managers (average of all survey items) ranging from 2.89 to 4.55. In each of the stores, we were able to collect sales results for the current year along with the previous year. We calculated the percentage of growth in sales versus the prior year. Overall, there was a 5 percent year-over-year sales growth in the organization. The graph below shows the results demonstrating the impact of leadership effectiveness on year-to-year sales in the stores. Using the overall leadership effectiveness index, we divided the leaders into five groups ranging from those in the bottom 10% to those in the top 10%. The lowest scoring leaders had only a 0.7 percent increase in sales, while the leaders in the top 10 percent had a 7.4 percent increase.

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These raters could easily tell the difference between poor leaders, good leaders, and extraordinary leaders. The difference not only impacted how employees felt about their employment, but it also contributed to a significant growth in sales.

After seeing these results, the organization wanted us to dig deeper to help them understand what contributed to the increase in year-to-year sales. We then looked at the turnover data across the different stores. In this analysis, we divided leaders into three groups based on their leadership effectiveness (e.g., bottom, middle, and top thirds). The least effective leaders had 81% turnover, while the best leaders had 68%. Having a 68% turnover is very high but much better than 81%. One of the biggest problems with turnover is losing talent. Poor employees rarely quit. Holding onto more talented employees made a big difference in the ability of a store to increase sales.

ZFCO

The One Person Who Can’t Identify Excellent Leadership

This study demonstrates that people who experience poor and excellent leadership quickly know the difference. But there is one group who has a difficult time predicting the best and the worst leaders. The group that has problems identifying poor and great leaders is the leaders themselves. The graph below shows the overall leadership effectiveness self-rating from the leader and the percentage increase in sales to demonstrate the problem. Interestingly, the group with the highest sales increase was the leaders who rated themselves as least effective in the bottom 10%.

ZFCO

To Know Where You Want to Go, You Need to Know Where You Are

When you are driving, it is challenging if you have a map with the destination clearly marked but don’t know where you are. GPS is terrific in that it give people an insight into their current location. For leaders to improve, they need to understand their “current location” in terms of their strengths and weaknesses—but their self-evaluation is often very flawed. In this blog, I have demonstrated the power of providing leaders with insights about their strengths and weaknesses. For the first 25 years, I believed that the information that would be most valuable to a leader was, “What’s wrong with you!” Doing that made giving people feedback a very negative experience. After several years, I got intrigued by the question of what made a leader great. Was it the absence of any weakness? When I examined the best leaders, I discovered that, unfortunately, none of them were perfect but what seemed to distinguish them was that they had a few strengths. When I looked at the worst leaders, I discovered they had something I call a “Fatal Flaw.” A “Fatal Flaw” is a devastating weakness. The big discovery from that research was that 70% of the time, leaders are better off focusing on developing their strengths rather than fixing their weaknesses. However, 30% of the time, leaders do have a trait that needs to be fixed.

How Are You Doing?

It may not take a lot of experience for someone to identify a good leader; you might only need to work with someone for a few days to form that opinion. But all leaders need feedback. They need others to help them know what their strengths and weaknesses are. This study from this one company recognized how valuable it is to have a great leader. Great leaders make a great difference.

-Joe Folkman

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