Leadership is about getting results so it’s nice to be able to see an industry mature and the growing leadership skills begin to bring better results and in particular, better productivity.

Foosball and free food still exist but long gone are the days of mindless spending and large losses in the software industry. The post-bubble era is seeing dramatic increases in productivity for software companies. It looks like the industry is really maturing.  Our little baby is growing up.

• Average revenue per employee has increased to $287,000 from $195,000 in 2003.
• Average net income per employee is now $3,700 (which sounds anemic but represents huge improvement over the average net loss of $61,600 per employee back in 2003.)
• 62% of the companies are now profitable versus only 46% back in 2003.
• The average market cap per employee increased from $600,000 to $1,129,000.

You can get a full copy of the report here.

Not surprisingly, trust is often cited as a hallmark of successful relationships. What might not be so apparent is that it also works for teams. When the level of trust in the leader is increased, teams perform better.

One study attempted to look at trust by examining the level of trust in basketball teams. Originally published in the Journal of Applied Psychology, “Trust in Leadership and Team Performance: Evidence from NCAA Basketball” was written by Kurt T. Dirks. His hypothesis was that: “ Trust in leadership will have a positive effect on team performance.”

Dirks examined the level of trust in 31 NCAA basketball teams. What he found was that the two teams reporting the highest levels of trust in their coach at the start of the season excelled. One ended up being ranked as number one for most of the season and other played but lost in the championship game. The team with the lowest level of trust won only 10% of their games and the coach was fired.

I was preparing for a speech on Monday and looking for examples of great leaders who founded great companies. To do this I looked for the largest technology companies I could find figuring that would be the path to finding great leaders. The thing that jumped out at me was that for the most part, the largest technology companies overall and in their sectors had been led for a long time by their founders, not by so-called experienced managers. (Jobs, Gates, Dell, Bezos, Ellison, Zuckerberg, Page, Moore, Hewlett etc)

When I looked some more I found that in a few cases (Jobs and Dell) the founder had to come back in as CEO to rescue the company. It made me ask the question:

Do companies do better with their founder than with professional managers?

Funny thing is the answer is yes. The private equity industry has a habit of investing in companies doing poorly with bad management. In those cases, replacing the CEO is usually a good idea and the reason the firm invested.

Unfortunately, the venture capital industry has followed this practice. In the name of adult supervision, the CEO is usually gone within 3 rounds of VC investment.

According to this blog: “When I analyzed 212 American start-ups that sprang up in the late 1990s and early 2000s, I discovered that most founders surrendered management control long before their companies went public. By the time the ventures were three years old, 50% of founders were no longer the CEO; in year four, only 40% were still in the corner office; and fewer than 25% led their companies’ initial public offerings.”

However, other research shows that on average “Shares of companies that retain their founders as CEOs, even after they become large corporations, have enjoyed gains that top the market by four times on average, according to a USA TODAY database study.”

You Can’t Buy Passion

The moral of the story is that the founder brings a passion for people or a passion for product that is priceless. The company often loses this passion when the founder is replaced by a professional manager. (Think Sculley) Unfortunately these often MBA trained technocrats have a passion for process and this isn’t what makes great companies. (Although perhaps it makes great banks, insurance companies and conglomerates.)

Companies need these professional managers to complement a founder’s skill set but they should be in roles such as COO or CFO. You can’t buy passion and you can’t create great companies without it.

There is a great article in the Gallup Business Journal today on The Business Impact of Human Emotions. It’s an easy read so do read it. The most amazing part of it is the statistic at the end that says “that when organizations engage their customers and their employees, they experience a 240% boost in performance-related business outcomes compared with an organization with neither engaged employees nor engaged customers.”

I thought they needed an infographic to make them think further about this issue so here are my thoughts on the subject of engagement:

The growth of the knowledge economy has resulted in fundamental changes in the nature of business. As we moved from a manufacturing economy we have moved away from its foundation of rationality, order, and predictability towards an economy that values change, innovation and creativity.

This has been accompanied by marked increase in conditions of ambiguity. When is an idea right or wrong? When is it  complete? How much knowledge on a subject is enough?

The nature of leadership has changed with the changing economy as one of the prime requirements for leaders today is to be able to resolve ambiguity.

David Wilkinson, a lecturer at a number of UK universities has identified four different leadership styles for dealing with ambiguity and complexity.

1. Technical Leadership. These leaders usually deal with ambiguity by denial or creating their own certainty. They are also more dictatorial and are very risk averse by nature.
2. Cooperative Leadership. The aim of these leaders is to disambiguate uncertainty and to build teams around them to mitigate risk.
3. Collaborative Leadership. Collaborative leaders have a tendency towards consensual methods of leadership. They prefer to work towards aligning team members values and getting agreement. Their approach to ambiguity is for the group to examine it.
4. Generative Leadership. These leaders use ambiguity to find opportunity. They tend to be inveterate learners and innovators.