Why is the Cost of Poor Leadership Underestimated?
Updated: Dec 4, 2018
To answer this question I’ll talk briefly about statistics. I’ll keep it simple. And for the non-mathematically inclined I assure you it’s necessary to dispel a common misconception about the spread of low and average leader performance.
Leadership Performance Follows a Paretian Distribution The ‘Bell Curve,’ in the image below, represents a ‘Normal Distribution’. It is a sample with an arithmetic average and an equal or symmetric distribution above and below average. This model assumes that there are groups of people one standard deviation above and below the mean. We call these low or high performing and each group makes up around 16% of the population. There will also be a very small number of people two standard deviations above the average. Typically we call these ‘hyper performing’ and they make up between two and three percent of the sample population.
But human performance research across a range of sporting, business, government and political professions shows 94% of groups fall into what is called a ‘Power Law,’ ‘Paretian Curve,’ or ‘Long Tail’ distribution (O’Boyle Jr. and Aguinis 2011 and 2012). We’ve found the same in our work modelling experts and expertise. As roles and competencies shift towards greater levels of complexity and information density - like leadership - the result is a shift towards Paretian performance distributions.
In the Paretian Curve statistical model there are a small number of people who are ‘hyper performing,’ a broad swath of people who are ‘average performing’ and a smaller number of people who are ‘low performing.’ It has very different characteristics from the Bell Curve. It essentially accounts for a much wider variation in performance among the population. In the Power Curve most people fall below the mean. Roughly 10% of the population are far, i.e. more than two standard deviations, above the average, a large population are below average, and a small group are far below average. So the concept of ‘average’ becomes meaningless and the familiar Pareto 80:20 rule gives us the long tail image.
Paretian Distributions Have Profound Enterprise Consequences
The Paretian Curve Implications for the Enterprise Cost of Poor Leadership Nobel Laureate P. W. Anderson, in 1997, said, “Much of the real world is controlled as much by the ‘long tails’ of distributions as means or averages: by the exceptional, not the commonplace. We need to free ourselves from ‘average’ thinking.” The recognition that around 95% of leadership performance follows a Pareto distribution appears to be a much deeper insight than you might realise. There are two components to this. One is the step size of the potential performance improvement. Two is that the bulk of the population can improve. Paretian performance distribution is significant concept.
The Bell Curve performance distribution sets expectations that moving from average to high leadership performance delivers one standard deviation improvement. Likewise moving from poor to high leadership performance delivers two standard deviations in performance improvement. But our experience with clients has mostly been the Paretian Curve prediction. Namely a shift from average to high leadership performance results in two to three standard deviations improvement. While moving from poor to high leadership performance yields between four and ten standard deviations of performance improvement.
What Does it Mean for the Cost of Poor Leadership?
Whatever the cost per individual leader, the Paretian distribution increases the total organisation cost by six times that of a Normal (Bell) performance distribution.
I invite you to begin to perceive that there is the potential for leadership performance improvement to deliver far more significant business outcomes than the expectations you’d have if you’ve been using the prevailing Bell curve belief set. Effective leadership performance improvement project ROI’s can run well into the triple digit digit percentages.
By definition low performance is two standard deviations or more below high performance. With a Bell Curve spread of leadership performance you’d normally expect around 16% of managers to be low performing. With a Paretian Curve performance spread the difference between the hyper performers and average performers is more than two standard deviations. So, even the average performers are low performing. With a Paretian distribution you expect 80% managers to be poor performing relative to the hyper performers.
The Paretian spread of leadership performance has profound enterprise implications. Whatever the cost per poor leader, the Paretian distribution increases the total organisational cost by large multiples.