Leaders are almost universally judged on their ability to generate revenue. A prospering business must generate enough income to support development and growth. Even nonprofits must secure donations, user fees, grants, or similar streams of revenue to retain talent and achieve real-world results.
But how do leaders best secure that revenue?
Years ago a group of Harvard Business School faculty considered this question in a paper entitled Putting the Service-Profit Chain to Work. Widely read and highly influential, this research sought to establish a clear chain of cause-and-effect relationships linking leaders and profits.
The bottom several links of the chain were quite intuitive. What drives profit? Customer loyalty. What drives customer loyalty? Customer satisfaction. What drives customer satisfaction? Quality of service or product.
But beyond this, misconceptions begin to set in. If quality is a necessary prerequisite for profits, leaders often assume they must be the ones to ensure that quality. In effect, they behave as if the service-profit chain ended at quality: leadership creates quality, which creates satisfaction, which creates loyalty, which creates profit.
With this mindset, leaders set out to “manage” quality directly, through things like oversight, supervision, quotas, and tolerance levels. But while such tools have their place, they can easily lead to micromanagement and the kind of rigidly risk-averse environments that, paradoxically, lead to more mistakes, not fewer.
The reason this approach fails is that it overlooks one fundamental truth: quality depends most directly not on leaders, but on employees.
Quality, the Harvard research suggested, is driven by employees’ productivity, loyalty, and (most of all) ownership over their work. These are shaped by employees’ satisfaction with their job and position. And that, in turn, is shaped by the organizational culture created by leaders themselves.
The end result looks something like this: Leadership -> organizational culture -> employee satisfaction -> employee loyalty/productivity/ownership -> quality of service or product -> customer satisfaction -> customer loyalty -> profit.
Leaders want to generate revenue and achieve results. Many also want to provide quality to their customers or constituents simply for its own sake. But in their eagerness to take immediate action, to “do something,” many leap directly from leadership to quality, short-circuiting the human-centric links of of the service-profit chain — culture, employee satisfaction, and employee ownership.
This can be fatal, for the results they seek are best achieved not through the eagle eye of managerial oversight, but by creating a culture in which excellence is cultivated and nurtured. It is achieved first and foremost through people.
This is a theme that received significant focus in the Harvard paper. “Anyone who looks at things solely in terms of factors that can easily be quantified,” remarked one CEO quoted in the research, “ is missing the heart of business, which is people.”
It is people who design products, people who produce them, people who sell them, and people who purchase them. And because business does not merely involve humanity, it is humanity, the more clearly leaders understand how feelings, perceptions, attitudes, and beliefs (their own included) impact organizational performance, the more effectively they can build cultures of excellence.