Change Management WalkMe TeamUpdated July 14, 2021

What Is the Impact of Transformational Leadership on Organizational Performance?

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What Is the Impact of Transformational Leadership on Organizational Performance?

The impact of transformational leadership on organizational performance should not be underestimated.

In fact, a company’s performance can depend almost entirely on its leadership.

The more powerful the leadership, the better the performance.

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Consider a few of the most iconic business leaders of the digital age: Jeff Bezos, Elon Musk, and Steve Jobs.

To even a casual observer, it is clear that these leaders’ performance defined the performance of their organizations.

In this article, we’ll explore the impact that transformational leaders can have on their organization.

The Impact of Transformational Leadership on Organizational Performance

Leadership quality can have a large impact on organizational effectiveness and performance.

For instance, according to the author Tim Rath, leaders who share positive emotions have workers with improved:

  • Moods
  • Job satisfaction
  • Engagement
  • Performance

Unfortunately, many workers find their organization’s leadership uninspiring – and their behavior reflects this.

Research from Barna Group, for instance, found that:

  • 2 in 5 Americans rank their bosses as “bad”
  • 90% feel that America is facing a crisis of leadership
  • At least 3 in 10 feel that their leaders lack clear direction and vision
  • 33% feel that poor leadership at work is the most stressful part of their job
  • 31% feel that their supervisors make them feel controlled, manipulative, or defensive
  • 25% feel that poor leadership obstructs their career goals
  • 61% of workers who work for bad bosses plan to look for a new job within a year

However, the same research revealed that good leadership has positive effects on the workforce.

Employees with good leaders, for instance, were more likely to enjoy coming to work each day (91%) and less likely to be on the lookout for new jobs (27%).

In short, strong leadership helps improve important employee metrics, such as employee productivity, satisfaction, and engagement … poor leadership, however, can hurt those same metrics.

How to Transform Leadership in the Workplace

According to David Kinnaman, Barna Group’s president and the director of the study:

“It’s impossible to improve what you don’t assess, so this research stresses the importance of self-awareness and feedback systems that allow leaders to face the truth about their leadership.”

Assessment, in other words, is a crucial step towards understanding the state of leadership in an organization.

That understanding can act as a catalyst for leadership development programs – the means by which an organization can improve its internal leadership.

According to Harvard Business Publishing, leadership development should operate in conjunction with L&D (learning and development).

There are a few reasons why:

  • Transformation has become the new normal for modern organizations. In one report, The 2018 State of Leadership Development, 54% of the survey’s respondents claimed they were in the midst of transformation. And another 32% stated they had completed a transformation within the past three years. The report claimed that this 
  • Leadership development programs are a “major driving factor” in organizations’ ability to successfully transform. Successful transformation requires leaders who step up early in the transformation process, inspire others, create new systems while maintaining old ones, and tap into the power of teamwork.
  • L&D-centered organizations perform better. In this survey, 66% of businesses that saw L&D as critical to their success had stronger market positions than their competitors. And 57% stated that L&D had a “major, positive impact on their organization’s ability to promote leaders from within.”

These findings strongly suggest that leadership development plays a powerful role in driving organizational performance.

However, most organizations don’t actually measure the returns on this business function. Only 24% of organizations assess the impact of their leadership development program.

Given the importance of leadership assessments, it is logical to conclude that assessments of leadership development programs are an equally valuable tool.

Takeaways and Lessons

The research covered here offers some valuable insights and takeaways for any business that wants to improve its organizational leadership and performance:

  • Leadership quality directly affects employee morale, performance, and behavior. As Barna Group’s research showed, leadership has an immediate impact on the workforce. Employees are happier and more willing to work for good leaders. Poor leaders, however, have the opposite effect.
  • To improve leadership quality, businesses should implement leadership development programs. Leadership development programs help leaders become better. Those improvements will translate into better workforce performance and organizational performance.
  • Organizations should commit to L&D. As we discuss elsewhere on this blog, employee training is a very important element in today’s workplace. Good employee development programs keeps employees proficient, productive, and engaged.
  • Assessments are essential for measuring the effectiveness of leadership, as well as leadership development programs. If leadership isn’t evaluated, then businesses will never know how effective the program is. And, as a result, organizations will not be able to improve the outcomes of those programs.

Naturally, not every leader is destined to be a “transformational” leader in the same vein as the iconic leaders mentioned earlier.

However, with the right leadership development program, an organization can substantially improve the quality of its leaders … and, as a result, the organization’s performance.

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