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Matt Tenney, Contributor

In the aftermath of The Great Resignation, The Great Retirement, and The Great Rethink, there has never been a more urgent need to recognize the impact of leadership and figure out how to get better at it. 

In fact, the future success of our organizations depends on it because leadership has such a substantial impact on how well employees do their work, which, in turn, has a substantial impact on business outcomes.

When we understand the effects—both good and bad—leaders can have on the teams they lead, we can become better leaders who help their teams achieve the business outcomes we want. 

This is because leaders not only have a significant impact on the teams they lead, but they also have the ability to have a profoundly positive impact on the lives of their team members. 

Leadership affects business outcomes in a number of ways by shaping the employee experience. Leaders affect employee engagement, employee retention, and profitability. Those who foster a positive employee experience and support a collaborative work environment can have a positive impact on these outcomes. 

In this article, we will explore the ways leaders affect business outcomes and how they can ensure that they are giving their employees the support they need to achieve positive outcomes. 

The Impact of Leadership

About 50-70% of an employee’s perception of their work environment is linked to the actions and behaviors of management.

The daily interactions employees have with leadership strongly impact their employee experience. This not only affects engagement and performance, but it also determines the likelihood a worker will stay in that position.

Leaders who lay the foundation for a positive employee experience by caring for their employees create the ideal conditions for their teams to produce positive business outcomes. 

A leader’s ability to build authentic relationships with their employees and create a great employee experience determines how engaged an organization’s employees are and how likely employees are to stay with the organization. It also helps them maintain a harmonious, respectful work environment in which employees can perform well. 

Employee Experience

Gallup defines employee experience as “the journey an employee takes with your organization.” This journey includes every interaction that happens during the employee lifecycle, as well as the experiences that involve an employee’s role, work environment, supervisor, and well-being.

Employee experience plays a significant role in employee motivation, employee engagement, and employee retention, but that’s not all. 

When an organization provides a positive employee experience, they see improvements in customer satisfaction, greater innovation, and generate 25% higher profits than organizations that do not provide a positive employee experience.

Leaders can support a positive employee experience by providing job clarity, opportunities for professional development, autonomy, an inclusive work environment, regular recognition of contributions, healthy feedback, a good work/life balance, and a shared sense of purpose. 

Employee Engagement

Leadership is the cornerstone of engagement because of the central role leaders play in shaping organizational culture, which, in turn, shapes employee experience. 

Employee engagement is an employee’s emotional commitment to their work, the organization they work for, and its goals. Employee engagement affects an employee’s job satisfaction and well-being, and we can also see its impacts in more tangible metrics such as retention, turnover, absenteeism, profitability, and productivity.

High engagement indicates that employees care about their work, are dedicated to the organization, and their attitudes and behaviors are aligned with the organization’s core values. 

According to Business Leadership Today contributor Laurie Sudbrink, “Leaders affect employee engagement the most. A leader’s ability to authentically build relationships with team members, their level of self-awareness, their sense of accountability, as well as their health and well-being, can all have a significant impact on employee engagement.”

Leaders authentically demonstrate their dedication to the organization’s core values through real, impactful actions and behaviors that help to build engagement. 

Employee Retention

Because leadership can impact the employee experience, the work environment, and its culture, and, therefore, employee engagement, leadership can strongly impact employee retention.

Employee retention refers to a company’s ability to prevent turnover and retain its employees. Employee turnover refers to the number of employees who leave a job, either voluntarily or involuntarily, during a certain period of time. 

Employee retention is driven by employee experience and employee engagement because an employee’s attitude toward their job and their level of engagement with the work they do determines whether an employee will stay or seek out other job opportunities. 

Toxic work cultures and poor leadership have been cited as one of the main drivers of the turnover we’ve seen with The Great Resignation and now quiet quitting. Strong leaders help their organizations avoid turnover by making their work environments inhospitable to toxic behaviors.

Profitability

Leadership can profoundly impact a business’s profitability due to the many ways that leaders affect the employee experience, engagement, and retention. When leaders are able to maintain high levels of engagement and retention on their teams, it improves customer service, performance, and productivity, which leads to better overall profitability. 

Having employees who can provide excellent customer service is crucial to staying profitable. According to a recent Harvard Business Review Analytic Services survey, 55% of executives said they believe it is impossible to provide great customer experience without providing great employee experience.

Losing employees with strong institutional knowledge and exceptional customer service skills can be devastating to an organization’s bottom line.

Recruitment is also a costly process. It costs more to recruit, train, and onboard a new employee than it does to retain one. Because the costs associated with recruitment can be so high, it can negatively impact an organization’s profitability. 

Though it can vary by role and by industry, the average cost of hiring an employee is estimated to be around $4,000, but the expense goes beyond salaries. Recruiting, training, and competitive benefits packages add additional costs. Organizations spent more than $92 billion in 2020-2021 on training alone.

In addition to the expense of replacing an employee that leaves, the employee shortages associated with high turnover can then lead to the remaining employees experiencing burnout and the stress associated with longer hours and more job duties. 

When you factor in the loss of productivity, the loss of institutional knowledge, and potential hits to morale turnover can cause, it can put a real dent in profits. To ensure the financial success of the organization, leaders should ensure they have sound retention strategies in place to avoid the costs of turnover. 

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Matt Tenney is an active CEO who aspires to create the best workplace culture in the world.  Matt is also the author of Serve To Be Great: Leadership Lessons from a Prison, a Monastery, and a Boardroom, and The Mindfulness Edge: How to Rewire Your Brain for Leadership and Personal Excellence.  Matt is frequently invited to present keynote speeches at leadership conferences and meetings.  His TEDx Talk has been viewed over 1,000,000 times since January, 2020.