When the head is sick, what happens to the rest of the body? Well, in this case when the leadership fails or there is no leadership at all, what happens to the business? This here is the answer to the question, “Why is leadership important?”
Even the biggest corporations go under and, more often than not, the competition isn’t particularly to blame.
Corruption, lack of innovation, and strategic failings—these can ruin a company’s future, no matter how stable it may seem at the moment.
What’s common about all those negative factors?
They’re all linked to leadership.
Enron: A Case Of Collapse
To properly discuss the importance of leadership in business, we’ll have to first look into a few real cases of corporate collapse [business failure].
And of course, we are going to start with Enron.
The company used to be among the biggest in the industry.
It was tagged as ‘America’s Most Innovative Company’ at one point.
Enron expanded into different industries, including power, steel, transportation, and water.
During the late 90s, the Texas-based company even aimed to control the internet by becoming the main bandwidth supplier in the United States.
Clearly, its leaders had grand goals in mind.
But, as you know, with innovation comes risks.
Given the market’s ability to change suddenly and regularly (in part due to the dot-com bubble), Enron became vulnerable and suffered losses in various ventures.
The company never became a major player in bandwidth distribution, eventually cutting ties with its biggest partner, Blockbuster.
It didn’t make any profits through that particular business deal, despite the millions they spent on it.
Enron‘s CEO’s approach to handling losses sealed its downfall.
Instead of showing the company’s real financial status, the CEO chose to hide everything through underhanded means.
He recorded projected revenue as actual profit and used off-the-book corporations to shoulder failing assets.
With the company’s reported revenue becoming too good to be true (seeming better than those of similarly sized firms), regulators and investors grew doubtful.
Shortly after, they made investigations, alongside an already falling stock value.
Unable to survive the public disgrace, Enron filed for bankruptcy (loss of income) and its stock was at a mere quarter of dollar before 2001 ended.
A Look Into Nokia’s Downfall
When it comes to leadership in business, integrity is clearly of significance.
However, corrupt undertakings aren’t always the reason why established businesses crumble.
Nokia practically owned the mobile phone market worldwide back in the 90s.
At present though, people barely mention it whenever they talk about the latest mobiles.
So, what happened to this great company?
Nokia originally did business in four separate industries, namely cable, paper, rubber, and electronics.
It was only in the early 90s that those running the firm chose to focus on the mobile market, selling all other divisions.
This seemed to be the correct approach, as Nokia managed to sell 41 million phones in 1998 alone.
Despite Nokia‘s release of classic after classic (such as the 6110 and the 3210), the company started to face problems in the early 2000s.
Reduced demand for mobile phones and faulty batteries caused a drop in both profits and sales.
Despite occasionally managing to pull the numbers up, Nokia failed to regain its former glory.
With the release of Android and Apple’s rising revenue, Nokia’s handsets grew less known and less important.
Despite the Finnish mobile maker’s release of its full-touch model, the 5800 XPress Music.
Unfortunately, it wasn’t enough to compete with other smartphones of its time, offering touch-experience that lacked brilliance to a market that prioritizes that particular aspect.
Although having formed a partnership with Microsoft (to which it was eventually sold), the company had lost most of its chances to catch up.
Nokia’s reluctance to make the necessary changes, as well as its unimpressive offerings, led to its downfall.
And of course, in these kinds of issues, those leading the company are mostly to blame.
Value Of Effective Leadership
Why is leadership important?
From those cases alone, it’s clear that leaders play a number of key roles in any company or organization.
They’re the ones who provide guidance, influencing everyone’s approach in getting things done.
It’s them who should steer the company away from potential corruption.
It’s also among the duties of a leader to determine the course of the company, keeping track of trends in the industry and taking risks to stay relevant.
Likewise, they’re expected to push through and continue with a plan whenever necessary.
To further appreciate and understand leadership, here are three other responsibilities associated with it:
Teamwork is crucial in ensuring that the company meets its goals.
However, it isn’t something that simply exists and grows in every company—it’s promoted through proper leadership.
Leaders are the ones who create strategies that encourage working together such as by involving each team or division in making key decisions.
When people realize that their leadership takes their views into account, they begin to feel important and start to become more involved in the company’s deals and interests.
Their sense of responsibility continues to grow, which then, in turn, leads to better output, individually and as a group.
Raising Company Morale
Confidence in those running the company boosts employee morale.
Even when faced with difficulties, good leaders are capable of rallying the troops.
Mainly because everyone’s positive about the company’s direction.
And yes, overall work satisfaction leads to improvements in morale as well.
There are various ways of boosting morale through leadership.
Some leaders focus on staying fair and respectful to the entire workforce.
Others carry out recognition programs and provide growth opportunities.
There are also those who maintain open communication, allowing staff to raise issues freely.
An informal leader is someone the employees perceive as a leader, despite not being in a position of power.
Although not having formal authority, an informal leader does hold great influence over other employees.
While not always harmful to the company, informal leaders may not share the same vision as that of the management.
If the workforce sees the management as weak or untrustworthy, they may instead choose to follow these informal leaders.
As to be expected, this results in problems that greatly reduces productivity and prevents the organization from meeting its goals.
By showing proper leadership, those in positions of power effectively prevent this outcome.
One can see the importance of leadership from the role of a leader, which isn’t as simple as delegating tasks.
A firm that doesn’t have the right person at the helm will struggle when it comes to teamwork and morale.
Conflicts between employees and the management will arise, and corruption may spread through the ranks.
Even if these problems do not occur, weak leadership makes a company open to shifts in demand.
Strong leadership often associates staying relevant in a particular industry to being flexible yet tough.
Leaders who do not know when to stay on course and when to change or adapt face the risk of making their firms outdated.
The Five Types Of Leaders
Although the value and core duties of a leader barely change across industries, there are actually different types of leaders.
As you would expect, these types don’t have the same degree of effectiveness.
Partly due to whether they allow the company to meet its key responsibilities.
So, instead of merely listing the types, we’re going to assess and compare them.
Democratic leadership is all about accepting inputs and insights.
This style of leadership isn’t about following a person of authority, although someone still has to make the final decision.
This leadership focuses on collaboration and shared accountability.
Meaning that the lowest ranking employees can influence the firm’s direction.
The problem with this approach, however, is that things become time-consuming.
Here, they need to assess and discuss every decision, so they are not able to handle urgent issues quickly enough.
In addition, due to the number of different inputs, lack of proper decision-making can become an issue.
Autocratic leadership, on the other hand, puts all the power on the top management.
The workforce doesn’t have any say in the path to be taken by the company, neither do they have any choice but to follow what they’re told.
Surely, you can see how this works against encouraging teamwork and raising morale.
Given how the value of leadership is often emphasized in those two factors, it shouldn’t come as a surprise that autocracy is considered among the least effective of leadership patterns.
And truth be told, it isn’t that different from the bureaucratic style of leadership.
This approach in leading employees puts emphasis on existing company policies as well as established practices.
While leaders allow employees to voice their opinions or even provide recommendations, they won’t give any of that much thought if they go against what’s currently being done.
Anyone who wishes to influence the company’s direction and future will have to come up with ideas within very limiting characteristics.
Is this leadership style really any better than the autocratic approach?
Well, they both put little importance on effective leadership and thus, rarely work well for modern companies.
Arguably better than their autocratic and bureaucratic counterparts, transactional and transformational leaders appreciate the value of morale.
Transactional leadership is what many call a carrot-and-stick approach. In other words, leaders reward employees for good performance.
Transactional leaders are those who give out cash bonuses to employees who have reached sales targets.
They’re also the ones who offer free trips to employees who generate a certain number of leads within an agreed upon period.
It’s easy to see why this style helps in keeping morale high.
Unfortunately, however, this can have an opposite effect in the long run.
A part of the workforce may no longer be tempted to go for the top rewards upon repeatedly failing to do so.
Alternatively, settling for the bare minimum of what’s necessary to qualify for rewards may become the norm even among the competitively inclined.
Transformational leadership raises morale in a different way.
Companies under this approach have employees who are undergoing continuous growth.
Leaders openly communicate with employees and encourage them to find new ways of improving the system—no matter how out-of-the-ordinary the idea may be.
Moreover, in addition to handling their daily tasks, the leader gives employees challenges that stimulate their minds and intelligence.
The problem with this though, compared to other leadership patterns, is that it doesn’t always yield results.
Ideas, no matter how many, may remain as such without the necessary tools to carry them out.
Also, without proper planning and analysis, rare concepts may prove to be dangerous to a company that’s yet to establish itself in the industry.
Informal leadership may likewise form if conflicting recommendations come up and their leadership only considers a few without enough justification.
As you’ve probably noticed, there’s no ideal Leadership type or style, proving the need for an approach based on the situation.
While many say that the role of a leader is to inspire and motivate, as discussed, there’s more to it than that.
Leaders innovate and strategize, promote a healthy workplace, keep the company unified: and the priority among these depends on the situation at hand.
Results Through Leadership
It’s through effective leadership that businesses stay afloat and even flourish during the most challenging times.
When a leader manages to stay focused yet flexible, the effects of good leadership can be seen and felt throughout the workplace.
To better explain that point, here are a few real-world examples in which those who lead have truly proven their worth:
Costco’s Low Turnover Rate
Whenever massive retail chains are mentioned, people think about poor work environments and soul-crushing work hours.
There’s also the management that views their employees as highly replaceable tools.
Well, Costco, CEO Jim Sinegal, made it clear that it doesn’t have to be that way at all.
He chose not to be seen as just another CEO, staying humble and relatable in his actions.
More interestingly, he decided against being paid as much as other CEOs in the industry.
Moreover, everyone knew that there’s a clause in his contract that puts him at risk of termination if he’s not being productive.
Employee satisfaction soared and everyone saw him as a true leader.
Through his leadership, Costco’s employee turnover rate sharply dropped.
Wal-Mart’s turnover rate, in comparison, was at least five times more.
Jim Sinegal proved that a modern approach, with a focus on teamwork and togetherness, can change things for the better.
TDIndustries: Saved by Trust
Sometimes a company doesn’t have enough money to keep things running, which it often solves by coming up with another agreement on loans and laying off employees.
Jack Lowe, TDIndustries’ first chairman as well as president had a different idea when faced with challenges in acquiring air conditioning equipment. Instead of looking outside for help, he chose to tap into the business’ lifeblood.
The management offered employees shares of stock, whereby it informed them that this was to help the firm achieve the necessary capital value without going in debt.
Having faith in those leading TDIndustries, the employees obliged.
In mere days, the company managed to increase its capital value, reaching record numbers.
You’re probably wondering why the workforce had so much faith in Jack Lowe and the entire TDIndustries management.
Well, the management made evident to the workforce that it valued them.
Ten months after they formed the company, the management made a retirement plan for the benefit of employees.
There was also a profit-sharing trust, which grew annually and can be collected by employees who’ve been in service for at least five years.
It’s no wonder that today, TDIndustries is often listed among the top firms to work for.
From Demise To Dominance
These days, Apple is arguably the greatest name in consumer technology.
However, back in 1997, it almost ended up facing bankruptcy, with sales having reached record lows.
Microsoft had Apple beat in every possible way. All that changed when Steve Jobs entered the scene as CEO.
He knew that the company had too many projects going on, leading to slow progress and poor fund assignment.
And so, he made it his goal to scrap as many projects as possible, which he did.
Initially cutting the number from 350 to 50, and later on, setting the limit to a mere ten.
Of course, he didn’t pick projects at random.
He chose to keep those he believed, at the time, to be the next big thing.
Through this, Apple managed to produce the iPhone, the iMac, and the iPod.
The company was also able to develop and release the iTunes software, thanks to this streamlining strategy.
Those products were a hit.
So much so that they made some competing technologies obsolete.
As expected, Apple’s stock value skyrocketed, even reaching a 9,000 percent growth at one point.
Steve Jobs’ understanding of what his company needed from him as a leader allowed him to come up with and carry out such a quick yet effective plan.
The Need For Effective Leaders
Why is leadership important?
One way of answering that is by looking at the effects of good leadership.
Leaders ensure growth and, at times, prevent collapse.
Also, with their help, employees find meaning in their duties and learn to appreciate teamwork.
Simply put, leaders and effective leadership are not just important—they’re vital to success.
With the above, do you now understand the importance of the right type of leadership a business needs to keep going strong?
Please leave your comments!
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