As a sophomore in college it was required for me to take Accounting 101. I remember the first day of class thinking, “Finally, I am done with general studies!” What a relief to no longer be bored with English, Biology, Algebra, and History. No offense meant to the general studies folks- it just wasn’t my cup of tea no matter the flavor. This class represented what I came to college for- to learn something I could use to get a job! I wanted to make money.
It was in that class that I first understood compounding interest. Compounding is connecting the principle investment to the interest earned and then having that amount continue to rise over time because of the impact. That’s a terribly simple explanation. Although the principles of compounding are naturally associated with finance, I believe they are also associated with leadership. Here’s what I mean.
Think of the managers in an organization as a principle investment. The more valuable your principle investment, the greater potential you have for higher returns resulting from interest over time. Make sense? Good.
Speaking of interest, we know that the higher the rate the higher the return. Let’s use the customers of a business to represent the interest rate. Do you see why? When customer engagement is high the return to the business is increased sales. When it’s low the sales are decreased. Time is another significant factor in compounding. The longer the better if you’ve got a good principle investment and a good interest rate. Let’s let the employees who work for a manager represent time. Your customers interact with these employees and that interaction is a significant factor on your returns, right?
Here is the math: sales are the returns on the business’s principle investment (managers) and the impact of time (employees of the business) and interest (customer engagement). Some call this the snowball effect. It just keeps getting bigger! This is where it gets interesting. How does this connect to your business?
Managers who demonstrate care for team members are the highest principle investment your business can make. When your employees direct supervisor creates a work environment characterized by care the by-product is an engaged workforce. When the workforce is engaged, the result is a more committed, dedicated, and motivated group of people determined to make the organization a success. This creates an atmosphere of concern for the customer and produces customer engagement. The engaged customer is the paying customer: and he or she pays many times over through initial sales, extended sales, larger sales, repeat sales! You get the point, right?
The opposite is also true. If you make a small investment you’re going to get a small return. Managers who are ill equipped to create a caring work environment with their direct reports pay the price. And so does their organization. Follow the strand with me here. These managers foster disengaged employees who aren’t deeply committed to the success of the organization. Why would they be? If you said because of the paycheck they receive, that’s not a good answer. We aren’t working with robots folks. People will check out on you if this is your reasoning, and when they do they are also going to check out on your customers. This means no marketing campaign, sales incentive program, product line extension, new product introduction, or threat of punishment is going to cure your sales revenue problem. You can’t solve people problems without dealing with people and the people you need to start with are your managers.
The more you invest in your managers by providing them with tools and resources to grow and become experts at creating a culture of care for their employees, the greater the return in revenue to your business. Your investment (or lack thereof) is compounding. The real question is are you getting the returns your looking for with your current investing habits?
What does it mean to be stable? In leadership, it means you are competent in your role, consistent in your character, and you are connected to those who follow you. When each of these attributes are operating at their peak in your leadership behaviors, the potential for productivity in your team goes through the roof! Let me illustrate.
Suppose you were working for a leader who has a pattern of erratically jumping from one potential solution to a problem to another. Not fully disclosing all of the facts, you learn bits and pieces about what you're really up against as the work progresses. Without understanding the situation or clearly defining the facts, this leader has a history of making 3 bad decisions for every 1 good decision. How likely are you to believe this leader is stable? How confident are you in achieving results that make a difference?
Knowing his or her instability makes its way into your mindset and the next thing you know, you begin to doubt your own next steps in a goal, project or task. Now, if your doubting next steps then that means you are taking away time from actually doing work and spending that time looking to validate what work is the right work for you to do. Not only are you spending less time on doing things that result in acquiring new customers, supporting internal customers, or serving your existing customers but you are also tying up the time of others in your organization, preventing them from doing the same! Lost productivity for you equals lost productivity for the organization.
Contrast that with a leader who consistently defines the problem and supports it with facts. This leader invites you into the conversation to co-create solutions and defines clear next steps once you've had a chance to lend your expertise, You're then empowered to accomplish your part of the work with an understanding of when to check in for clarity or to receive direction for next steps. Naturally, the likelihood of this leader making a good decision is increased because of his or her process for reaching decisions. How confident are you in this leaders ability to make good decisions? How likely are you to spend more time working and less time worrying about whether or not you'll be making an impact on the bottom line? How productive would you and your organization be compared to your level of productivity in the previous scenario?
Take time today and reflect on the two scenarios and answer these questions.
W. Shane McKenzie is an Executive Coach and Mentor who specializes in helping successful leaders leave their job to own a business using proven strategies to minimize risk.