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Profits linked to employee happiness & strong leadership – smart company

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Profits linked to employee happiness & strong leadership – smart company

By , October 6, 2011

Small and medium businesses could become more profitable if they invest more time in training leaders, making their staff happy and by giving employees more leadership opportunities, according to a new Government-sponsored report.

The new Leadership, Culture and Management Practices of High-Performing Workplaces report, which is set to be launched today at the Future Jobs Forum, surveyed over 5,600 employees from 78 companies, mostly SMEs. The report found businesses that adhere to “high performance workplace” characteristics are generally more profitable than businesses that do not.

University of New South Wales senior lecturer Christina Boedker, who helped research and compile the report, says there is now a culture of organisations that are high performing – and SMEs can learn a lot from them.

“If you do this stuff right, it pays off, and in monetary terms as well. We’ve collected actual financial data, and we’ve seen that these high performing companies generally have a correlation with higher profitability.”

The study found that high performing companies spend 29.3% more time and effort managing their people than leaders, 25.7% more have clear values, 22.9% have a higher occurrence of giving employees the opportunity to lead work assignments, while 21.1% encourage employee development. 17.9% have clear vision and goals for the future.

High performing workplaces are also categorised as having higher levels of innovation with services and products, operational processes, managerial structures and strategies, and marketing methods, while they also generate 28.1% more new ideas.

They have lower levels of employee turnover (23.3%), with 22.7% having higher levels of job satisfaction.

But bigger financial were identified. The report found a considerable difference between the profits of low performing companies and high performing companies.

“The profit margin difference between high performing workplaces and low performing workplaces is large and reaches $8.8 million dollar per organisation, or $40,051 per full-time employee.”

“In other words, a low performing workplace could potentially increase its profit margin by up to $8.8 million on average if it were to successfully migrate into the higher performing workplace category.”

Boedker says there is also a correlation between profitability and happiness. In low performing workplaces, one in four employees had symptoms of depression, while in higher performing workplaces, that ratio was just one in seven.

“This correlation brings out the importance of considering people’s emotional stability at work. We are emotional beings and the report shows we get affected by all sorts of different things, and then bring that into work.”

“The higher performing companies have cultures where they care about the employees, and they have that emotional support in place, and it comes out in the financial data as well.”

Boedker says the report teaches SMEs to focus on leadership, and training leaders to empathise with staff, in order to promote higher performing workers.

Leadership skills has one of the strongest correlations with productivity, so focusing on those capabilities and management is a key characteristics of the higher performing companies.”

Boedker also points to higher levels of responsiveness to changes in stakeholder and customer networks, higher levels of employee participation in decision-making processes, higher level of behaviour and skills flexibility in employees, and effective use of quality IT systems as aspects of higher performing businesses.

“We pay attention to the business plan and finances and so on, and that is important, but leadership capability and emotional stability are just as crucial.”

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.