There are those who say the only measure of leadership effectiveness must be financial results—revenue and profits, for instance. Yes, effective leaders maximize shareholder value, dominate markets, and increase profits. Given this definition, it appears the common denominator for measuring leadership is “data.” After all, it was management and operations legend W. Edwards Deming who once said “In God we trust. All others must bring data.”
But if there is one thing we have learned in the past few years is that effective leadership means far more than consistently posting stellar financial performances. Indeed, if financial performance was the only factor defining leadership effectiveness, Travis Kalnick might still be the CEO of Uber.
So, can effective leadership be measured? Are high employee retention and employee engagement a result of effective leadership? How about reflecting the company's core values? Maybe.
Measuring Leadership Effectiveness
From an article titled Can You Measure Leadership, published by the MIT Sloan Management Review, the authors found that Caterpillar Inc. measures senior leader performance in three areas:
- Culture of execution: How well do they achieve results through others. Do they have a “can-do” attitude and inspire their teams to meet goals no matter the challenges?
- Core values: How do they achieve results. Do they exemplify the values of integrity, excellence, teamwork, and commitment?
- Employee engagement: How is the feedback from their team members around competency, style, and company commitment?
You can argue that Caterpillar doesn't technically measure leadership effectiveness, but it has widened the horizon of traditional performance metrics for its senior executives by considering softer skills, attributes that Daniel Goleman calls emotional intelligence. These are qualities such as teamwork, collaboration, empathy, social awareness, listening, self-awareness, and emotional balance.
Leadership Scorecards & Principal Outcomes
Sonoco Products uses a scorecard to rate general managers on a scale of 1–5 for a range of "personal leadership attributes, the quality of their successor pools, and their ability to build an organization to support the company's business strategy," writes the authors of Can You Measure Leadership?
At Sonoco, these management ratings are public, which communicates to company executives the "importance of leadership and the accountability of general managers."
Right Management, the career consulting company, suggests a similar radical alternative to measuring leader effectiveness. It eschews financial metrics for the impact a leader can make through "human motivation and commitment."
According to Right Management, effective leaders must focus on four principal outcomes:
- Increased level of employee engagement
- A more humane organizational culture
- A heightened sense of purpose, both for individuals and for the organization
- More meaningful careers and attention to career management
Additionally, says Right Management, effective leaders exhibit the following qualities:
- Accelerate performance through building organizational capacity and agility, building connections and networks, and navigating conflicts.
- Unleash talent by creating opportunity, seeking and providing feedback, building trust, and demonstrating integrity.
- Lead with confidence by making courageous decisions, challenging the status quo, and building a culture of innovation
It’s true that when it comes to measuring leadership effectiveness, the methods, or results, may not be as black and white as a balance sheet. But don’t let that dissuade you. To invoke the wisdom of W. Edwards Deming once more:
“It is wrong to suppose that if you can’t measure it, you can’t manage it—a costly myth.”
For additional reading on leadership effectiveness, check out our companion article How Are You Evaluating Leadership Skills at Your Company?
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