How the Leadership-Profit Chain Works

For years I have said that profit is the applause you get for taking care of your customers and creating a motivating environment for your people. My son Scott worked on a project with one of our founding partners, Drea Zigarmi, who heads up our research team, to learn the relationship between leadership, employee passion, customer devotion, and what they call “organizational vitality,” which has to do with profit, performance, reputation and other observable and memorable indicators of organizational success.

            When Scott and Drea looked at leadership, they looked at two aspects of leadership: Strategic leadership, which is all about vision and direction—where your organization is going. When I talk about servant leadership, I say that strategic leadership is the “leadership” part of servant leadership, because leadership is about going somewhere and  if people don’t know where you are going, your leadership doesn’t really matter. The second aspect of leadership is operational leadership, which is when you say, “Okay, now we know where we are going—how do we make it happen?”  In talking about servant leadership, I say that’s where you turn the traditional hierarchical pyramid upside down and that’s the “servant” part of servant leadership.

            Scott and Drea found that strategic leadership—which is really important because it starts the whole process—only had an indirect relationship with organizational vitality and success. The biggest impact came from operational leadership. I think that’s because when operational leadership is done well, the hierarchy is turned upside down, leaders are working for their people and empowering and encouraging them to accomplish the vision and the goals that have been set. What happens when you empower and involve your people? They get passionate about what they’re doing because they know you care about them and you think they are important. And what do passionate employees do? They go out of their way to serve your customers. What happens then? Your customers get blown away by the legendary customer service and become raving fans—devoted customers who start telling stories to their friends about you and your people. Then that comes back and remotivates your people.

            Scott and Drea’s research found that this interaction between passionate employees and devoted customers impacts organizational vitality more than anything else. That relationship really drives the bottom line—and that part is driven mainly by operational leadership. I don’t want to diminish the importance of strategic leadership, because that’s what starts the process. But as a leader, once you set that vision and those goals, don’t turn your back and run away. Stay around as a servant leader and support, encourage, and build your people up. Because they’ll be passionate, they’ll blow away your customers with their service, and—I’ll use a phrase we used back in the day—your cash register will go “Ca-ching! Ca-ching! Ca-ching!”

2 thoughts on “How the Leadership-Profit Chain Works

  1. Ken,
    Thanks for sharing this study. I see organizations moving fast and leaders really struggle with these two pieces. Some struggle with slowing down enough to articulate the vision, and others wear themselves out by doing/directing the operational piece. What I see from this is that it is important to set the vision (not surprising to anyone), but what you do after that will have the biggest impact on engagement and success.

    I was wondering in your study if you had any organizations that stood out as doing this well or that had learned to do this well over time and what specific things did the leader there do?

  2. Ken:

    We see the same thing! In fact, we’ve found that great companies – the ones where customers are proud to do business and employees are proud to work – have mastered what we call The Promoter Flywheel. They have found that employees feel more fulfilled and enthusiastic about their jobs when they get the pleasure of knowing they are enriching their customers’ lives. In turn, that enthusiasm and creativity helps them find more ways to do great things for those customers, so it results in more customer loyalty. It is a virtuous cycle.

    The mistake we see so often, however, is the one you imply: we see companies focus narrowly on employee satisfaction as an end in itself. Great leaders, however, understand that the path to creating a remarkable company requires differential investment in fostering an environment in which employees can successfully enrich their customers’ lives – and get the fulfillment from knowing they’ve done it.

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