Do Australian business leaders have what it takes?

Centre for Workplace Leadership launches largest study of Australian Leadership

The largest study of Australian business leadership in 20 years reveals that only 57 per cent of workplaces are achieving their profit targets. The Study of Australian Leadership (SAL), published by the Centre for Workplace Leadership at the Faculty of Business and Economics, also found that executive managers are over-confident in their leadership ability.

Australian businesses are facing unprecedented levels of change that will only continue to escalate. From the shift of global economic power to Asia, to intensifying disruption from technology, as well as key demographic and cultural changes, business, as it exists today, will be almost unrecognisable in as little as 10 years.

In the face of this, what do Australia’s business leaders think are the critical challenges for their organisations? How well equipped are they to respond to the emerging challenges? Which aspects of their businesses are doing well, which are lagging, and do these differences in performance reflect leaders’ own practices and capabilities?

The research team at the Centre for Workplace Leadership are using the data to inform workplace leadership across Australia.

The Study of Australian Leadership (SAL) provides answers to these and many other questions about business leadership and performance in Australia today. Conceived by the University of Melbourne’s Centre for Workplace Leadership (CWL), and supported by the Australian Government’s Department of Employment, SAL is the most comprehensive study of Australian leadership since the 1995 Karpin Report, and one of the largest studies of its kind in the world.

Watching me, watching you – views from the top to the coal face

Much is known about the Australian employee workforce, but little information is available about business managers. We have collected detailed information about how managers across the Australian economy view their responsibilities and go about their work.

We investigate all levels of employees from CEOs through to front-line staff, as well as non-supervisory employees, providing an advanced perspective on the organisation and a check on managers’ claims. Combined with detailed evidence on firm performance – hard numbers about income, expenditure and profits – SAL provides unique insights into the relationship between leadership, culture and performance.

Our sample included 2500 senior workplace managers and almost 4500 of their employees across a broad base of industry sectors and a mix of workplace sizes. This breadth allows comparisons between different types of workplaces, and will eventually enable us to develop benchmarks for high performance.

A mixed bag of workplace performance

SAL shows some surprising differences in workplace performance. We asked workplace managers whether or not they were meeting their performance targets, ranging from sales and profits to customer satisfaction and employee turnover.

Workplace Performance Figure 1: Workplace performance is mixed. Figures are percentages of Australian workplaces that were meeting or exceeding their performance targets. Workplaces that did not have a particular target were excluded (eg public-sector workplaces that did not measure profit).

A total of 97 per cent of Australian workplace managers said they were meeting or exceeding their target for customer satisfaction. However, only two-thirds of managers (66 per cent) thought their workplace was meeting its sales target. Satisfying customers thus does not necessarily translate to success in the bottom line. Even fewer Australian workplaces (57 per cent) are meeting their profit targets.

The news is better when it comes to employment relations and HR practices. Most managers (more than 80 per cent) are happy with their workplace’s performance in the areas of labour productivity, wage costs and absenteeism. So it seems that the reasons for under-\ performance in relation to sales and profits are not found in mismanagement of customers or employees. It may be that targets for sales and profits have simply been set too high in a difficult economy.

Take me to your leader, or maybe not

Just as managers’ perceptions of workplace performance are mixed, so too are the perceptions of leaders themselves. CEOs, workplace managers and frontline managers were asked to assess their own effectiveness at direction setting, gaining commitment and overcoming obstacles, which when combined equate to a ‘leader self-efficacy’ score. Employees also rated their leaders’ effectiveness. (Figure 2).

Employee Perception Graph Figure 2 – Employees’ perceptions of leaders versus leaders’ self-ratings. Figures are mean scores, measured on a five-point scale from 1 (Strongly disagree) to 5 (Strongly agree). Higher scores indicate more favourable perceptions of leaders.

There is a clear positive association between respondents’ seniority and their average assessments of leaders. CEOs have the highest self-ratings (mean of 4.14). Frontline managers are significantly less confident in their own leadership capabilities (mean of 3.87), but this may be a result of differences in job tenure and experience. More concerning is that non-supervisory employees reported the lowest ratings of leaders (mean of 3.67).

Employees consistently saw their managers as less effective at things like information sharing and gaining commitment than those managers typically perceived themselves.

For instance, while 84 per cent of frontline managers believe they are effective in gaining employee commitment, only 50 per cent of non-supervisory employees agree that their manager involves them in decision making. Many Australian workplaces appear to have this sort of ‘perception gap’ between what managers see and what employees experience day to day.

Back to basics: Good communication counts

A key finding of the 1995 Karpin Report was that a few fundamental management practices go a long way to improving the effectiveness of leaders and their impact on performance. Twenty years later, we find that the leadership fundamentals, in particular communication, still matter.

In general, the more employees in a workplace who know about the designated targets, the better the performance of that workplace within its industry. In 21 per cent of Australian workplaces, performance targets are known only to senior managers.

These workplaces have the lowest average performance, when measured on a five-point scale from 1 (well below average) to 5 (well above average). Compare this to the 34 per cent of workplaces in which performance targets are known to all employees and have the highest average performance on the same five-point scale. Communication within workplaces is still critical for performance. The best-performing workplaces are those in which the targets are widely known. Figure 3.

Figure 3 – Good communication counts. The figure divides all Australian workplaces into four categories, according to how widely communicated are the workplace’s performance targets. The left axis shows the proportion of all workplaces in each category. The right axis shows the mean performance of workplaces in each category, on a five-point scale from 1 (Well below average) to 5 (Well above average). To measure performance, we asked managers: “Compared to other workplaces in the same industry, how would you rate your workplace’s [performance]?”

Can you learn to be a better leader?

We have seen that ratings of leaders are lower among non-leaders, and that better communication is related to better performance. So what can be done to bridge the gap in perceptions, and to give leaders the skills and understanding they need to be more effective?

One obvious route is through more and better types of leadership development programs, such as leadership qualifications, seminars and workshops, and executive coaching. We surveyed larger, multi-site organisations about their leadership development programs and found that 86 per cent had at least one type of program. Their direct impacts on workplace performance, however, appear to be weak (figure 4).

Figure 4 – Mixed effects of leadership development. Figures are mean scores, comparing workplaces with leadership programs to workplaces without leadership programs. The sample is senior workplace managers from larger, multi-site organisations. Higher scores indicate more favourable results.

We compared three performance outcomes – self-efficacy, workplace targets, and employee engagement – for workplaces that did and did not offer any form of leadership development. We find that leaders evaluate their own performance more highly when leadership development opportunities are available than when they are not.

Leaders thus personally believe that they benefit from taking part in leadership training. The impact on other workplace performance outcomes, however, is less encouraging. The workplaces with leadership programs are not more likely to be meeting or exceeding their targets (there is a small difference, but it is not statistically significant). Nor do we find significant evidence that employee engagement is higher in workplaces that offer leadership development programs.

Current leadership development practices in Australian workplaces thus seem beneficial for leaders, but ambiguous in their payoffs for workplace performance and employee engagement. Perhaps this signals that different approaches to leadership development are needed. Doing ‘more of the same’ does not seem likely to deliver the productivity dividend that Australian workplaces need.

Learning from SAL

SAL provides a unique national resource for business leaders, governments and researchers. It gives a new perspective on the role of leaders, the challenges facing Australian workplaces today, and the drivers of high performance. Most importantly, it provides opportunities for benchmarking, learning and developing strategies that will lead to higher future performance.

Here are some ways to engage further with the SAL findings, depending on your role:

For workplace managers: Consider how your own workplace stacks up. How many of your performance targets do you meet? How widely are these objectives known throughout your organisation? Do you offer leadership development training – and if so, does it deliver better performance outcomes where it counts?

For aspiring managers and business owners: Discover the main challenges and opportunities in your chosen industry. What are your potential competitors doing well, and where are they falling down? What would you offer or do differently to attract customers and employees?

For policymakers: Learn about the critical challenges facing Australian businesses. How much do these concerns overlap with government priorities? What else could governments do to cultivate a better business climate or eliminate some of the perceived barriers to success?

For researchers: Help us to build the evidence base from SAL. Our first findings report offers a glimpse of the key results, but there are many more analytical possibilities to explore. The SAL data will be made available in a confidential format to approved academic researchers.

Explore the interactive SAL website: sal.workplaceleadership.com.au

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