1660601238980 Moriarty

What is the cost of poor leadership?

Jan. 13, 2009
New 'Human Capital' columnist Tom Moriarty, P.E., CMRP, writes that the cost of poor leadership can be measured in dollars and cents.

In a previous life I was a Coast Guardsman, serving nine years carrying a toolbox as an enlisted machinery technician. I later earned a commission and eventually retired from the service as an officer.

A little-known fact is that the Coast Guard originally was formed as the Revenue-Cutter Service, under Secretary of the Treasury Alexander Hamilton, to collect tariffs on goods entering and leaving our fledgling nation. This was one of America’s few sources of revenue with which to begin paying our war debts to France. But I digress.

Perhaps the most enduring thing I’ve taken away from my time in the service has been the experience gained from working for and with others. The military process, based on best practices and culture, consistently transforms inexperienced people into competent, confident leaders. This is true of enlisted persons and officers.

The armed services have a constant need to promote competent people through ever-increasing positions of responsibility. People change assignments every two years to four years, and many leave the service after only one enlistment. The policies regarding how long one can stay on active duty typically mean one person can serve for no more than 30 or 35 years. This might be good for some, but it’s not necessarily best for the organization. Regardless of whether we’re talking about the military or industry, there’s a lot of knowledge and talent that vanishes from the organization when folks move on or retire.

After retiring from the Coast Guard and embarking on a new career, I noticed a common issue at nearly every plant or facility I visited. The issue is leadership. Many people are great supervisors, but many have never had best-practices training, and work in a culture that doesn’t encourage leadership excellence.

Leadership and management are both business issues and personal issues. In his book titled “Practice What You Preach,” Dr. Charles Maister quantified the effect of satisfied employees on business results. His research showed that financial performance is based on customer satisfaction; no surprise. In fact, in Dr. Maister’s study, the organizations that had a strong customer focus enjoyed a 42% advantage in financial performance.

Customer satisfaction is based on employee satisfaction and high standards; not too surprising. Employee satisfaction is a personal issue between supervisors and those who they supervise.

Every two years, the Gallup Management Journal conducts a survey to take the pulse of employees. The publication rates respondents as engaged, not engaged or actively disengaged. Engaged people come to work energized and mentally present; you love to have them on your team and they comprise about 25% to 30% of the workforce. Not engaged folks show up for work and do what they’re told, but don’t put in a lot of effort. This group is the largest, at about 55% to 60% of the workforce. The actively disengaged are those who not only don’t give work their all, but who grouse about things and stir up discontent — or worse. These people comprise 10% to 20% of the workforce.

The business side of dissatisfaction is important to understand: Dissatisfaction leads to more turnover, absenteeism and grievances. Turnover at a typical plant is about 15%. To keep the numbers simple, suppose you have 100 people in your organization. Depending on who did the study and its definitions, turnover imposes a cost of 25% to 150% of the position’s annual loaded salary. If we took a conservative-to-middle approach and said the turnover cost rate was 50% and the position paid $50,000 per year, those 15 positions turning over would cost the organization $375,000/year. How many unfunded projects could you get done for that?

Contact Tom Moriarty, PE, CMRP, Alidade MER Inc., at [email protected] or (321) 773-3356.

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