Written by Dave on March 25, 2012
Can leadership prevail in a profit first organisation? Understanding the fundamental differences between leadership and management goes some way to explaining the nature of what I call the Leadership Profit Conundrum.
Though relatively simple the following succinct definitions and broad principles assist in illustrating the conundrum. Firstly, leadership is fundamentally about inspiration, motivation and direction and manifest more in terms of influence and guidance. Secondly, management is fundamentally about control, co-ordination and organisation and manifest more in terms of functional regulation. I believe it is unwise to interchange the meaning and use of the words leadership and management.
In business, leadership is inextricable from organisational performance; by which I mean increasing the bottom line and looking after the shareholders interests first. This is well enough for those at the most senior levels in a business who benefit from performance related bonuses. However, company profit generally does not motivate and influence staff engagement and performance throughout an organisation. In fact, growth linked to actualisation of profit and proportion of profit distributed to workers wages is disproportionate see http://www.bbc.co.uk/news/business-17033039 In essence, profit growth has become detached from wages with shareholder dividends and the highest echelons’ bonuses increasing whilst wages have stagnated and regressed in real terms. Those who are producing growth and ergo profit are receiving a decreasing share. This cannot be very motivating for the majority of individuals who are tasked with improving performance.
By definition, management restricts performance by setting limits, controls and regulation; furthermore, you cannot manage the way to achieving exceptional performance above and beyond expectation. On the other hand, good leaders influence and motivate others to perform successfully and achieve exceptional performance. Three questions come to mind here; is business leadership as we have come to know it really just business management? What is the place of customer service in businesses placing priority on profit return to shareholders? Which approach, leadership or management, is most likely to deal best with the challenges of an ever changing and demanding business environment?
The Leadership Profit Conundrum is management will continue prevail whilst profit is ‘king’ even though the enduring economic climate requires good leadership to prevail in order to succeed. Try this exercise to illustrate my point. Draw three columns on a sheet of paper and in the middle column write a list of words and phrases describing the current economic environment. In the left hand column write a list of words and phrases from definitions of management and in the right hand column do the same for leadership. In order to succeed and thrive in the environment of your middle column you can choose only to go left or right – which path would you choose and why?