Proof that the calibre of the boss rules

Quality leadership pays dividends, literally. High-performing workplaces with progressive leaders are up to 12% more productive and three times more profitable than their peers. That’s mainly because leaders of high-performing workplaces (HPWs) prioritise people management, have high levels of responsiveness to change and develop emotional connections with their colleagues, according to a two-year study, Leadership, Culture and Management Practices of High-Performing Workplaces in Australia.

“Leadership capabilities of managers at all levels of organisations have the highest correlation with profitability and productivity,” says Christina Boedker, a lecturer at the Australian School of Business who co-led the study focused on the services sector. Boedker worked on the research alongside Richard Vidgen, a professor in the School of Information Systems, Technology and Management at the University of New South Wales. “When we drilled down, one thing that stood out in terms of performance difference was people management,” she says. “We found that leaders in HPWs are spending more one-on-one time with staff, mentoring and encouraging team members and involving people in decision-making processes.”

Leaders in the high-performing organisations also showed themselves to be more responsive to customer and stakeholder needs, and made their staff feel valued by enabling them to take advantage of their skills and instilling a sense of pride in their job.

The research focused on the services sector for several reasons. Unlike traditional Australian companies, service firms rely on intangible resources – such as people, relationships with customers and other stakeholders, information and communications technology (ICT) and innovation – to produce economic output. This intangible aspect has implications for management and for operating successfully and profitably. The sector is also a large and growing part of the Australian economy, contributing A$845.2 billion in 2009-10, and employing more than 85% of all Australian workers.

Working with 78 organisations, the multi-disciplinary research team came up with a High-Performing Workplace Index, developed across six categories: profitability and productivity; innovation; employee experience; fairness; leadership; and customer orientation. Twelve of the 78 firms were labelled higher performing while 13 were considered lower performing workplaces (LPWs). The research team worked with chief executives (CEOs), chief information officers (CIOs), chief financial officers (CFOs), employees, managers and others to gain a broad range of perspectives.

The three most significant barriers for both higher and lower-performing workplaces included “motivating the workforce to assume greater responsibility; being able to retain highly talented individuals; and creating a flexible and responsive workplace culture”, according to project team member Julie Cogin, a management professor at the Australian School of Business.

However, the lower-performing organisations faced additional barriers to performance. They needed to improve by more closely linking employee pay with performance; providing employees with greater involvement in deciding how work is done; bettering the people management skills of managers and supervisors; securing resources to invest in developing employee skills and capabilities; and enhancing employee productivity.

Investment in innovation is another area where higher-performing workplaces excel, rating 25.3% higher in creating new products and services. More resources and mechanisms are also put in place to capture and encourage ideas from employees. “Innovation succeeds in organisations that make an effort to listen to their customers and to question their existing services, processes and methods,” the report finds.

Authenticity at the top

HPWs were found to not only enjoy better quality leadership, but were also linked with heightened levels of “authentic leadership”. “Authentic leaders are understood to know the goals for the future, to be clear about the importance of those goals, and to show integrity in how they conduct themselves and carry out their leadership activities,” the report says. They come across as credible individuals, who “walk the talk, live the values” and “practise what they preach”. Authentic leaders are also receptive to feedback, even criticism, and see this as a learning opportunity to improve their leadership skills and performance.

Of course, different managers have individual styles. Some emphasise results, their people or coping with change. The study finds all three approaches can make a high-performing workplace. The one style that doesn’t work is the ‘control’ culture.

Boedker was most surprised by the emotionality result: “We were keen to know how people felt about the workplace. We are emotional at home, with our partner and with our children. Emotionality is also something that exists in the workforce. We get hurt when the boss lets us down and excited when we get acknowledged.” The study used an emotionality index based on five positive and five negative emotions. In HPWs, 68% of respondents said they felt proud and 64% felt valued while 43% of those in lower-performing workplaces reported feeling proud and 47% felt valued.

“The more emotionally attached the employees are, the better the performance of the firm,” Boedker says. “Committed employees are willing to exert more energy and effort, they care about their work and spend more time in their jobs. Being able to really develop a sense of belonging,  feeling valued and being proud of the place you work for comes through as really important, and it pays off for leaders who manage to do this well.”

Depression and anxiety were more prevalent in lower-performing workplaces with 25% of respondents saying they felt depressed; in higher-performing workplaces, it was 15%. “So one in every four feels depressed in LPWs, whereas it’s one in every eight in HPWs,” Boedker says. “That’s quite a difference. For leaders and managers, that is something to reflect on.”

The study’s results are timely given Australia is in the middle of a debate on boosting productivity. Traditionally, interventions have focused on training and skills investment, infrastructure development and regulation. However, this report highlights the need to add leadership, culture and management practices of the workplace into the mix. “The workplace is at the heart of the productivity debate because it is the performance of people at work that determines much of the productivity performance and output rates of the Australian economy,” Boedker says.”These findings offer an opportunity for government to look at productivity impacts and leadership and management practices. If the result is 12% higher productivity, if we can lift the tail by even a few per cent, then the overall productivity gains to the Australian economy are significant. It is an opportunity for policymakers to give more consideration to this area and encourage more firms to develop their leadership capability.”

What’s not to like?

Reactions to the report, published by the Society for Knowledge Economics (SKE), has been a mix of surprise, joy, disappointment – and rejection.

“Some were disappointed, some have taken it to the board and others are developing strategies to address their weaknesses,” says Mark Runnalls, project manager at SKE and a lecturer at Macquarie University’s School of Accounting and Corporate Governance. “One firm scored badly in leadership and is starting to look at programs to improve matters. Others have completely rejected the findings. Many are keen to re-survey in 12 months when we run the diagnostics again. There is a lot of value to participating firms, who receive over 100 pages of benchmarking information, showing their performance relative to the rest.”

The final phase of the study is to work with a smaller group of firms from the lower and mid-performing categories to implement a series of change initiatives. The aim is to help them transition into a higher performing group. “The key message for under-performing workplaces is awareness and generating that knowledge is the first important step,” Boedker says. “The second step is having the courage to have the hard conversation and reflect on the areas that offer the greatest opportunity for improvement.”

For government and policymakers, Boedker urges a national action plan to drive the agenda forward and support businesses along the way: “It is not an easy journey and they will need encouragement, handholding and inspiration. But there are relatively obvious productivity gains to be won,” she says.

In December, Steve Vamos, founding president of the Society for Knowledge Economics, is hosting a two-day conference on improving productivity at a managerial level with the aim of establishing best-practice guidelines for Australian workplaces. What’s needed now, he says, is “an action plan that can accelerate, develop and translate best management practice across more workplaces in Australia”.