Explore why leadership is important in an organisation. Learn how leaders drive engagement, culture, strategy execution, and sustainable organisational success.
Written by Laura Bouttell • Wed 31st December 2025
Leadership is important in an organisation because it determines whether collective effort produces collective results. Research consistently demonstrates that managers account for 70% of the variance in employee engagement—meaning leadership quality matters more than virtually any other factor in organisational effectiveness. When organisations struggle, leadership is almost always implicated; when they thrive, leadership deserves substantial credit.
Yet leadership's organisational importance extends beyond engagement statistics. Leaders shape culture, execute strategy, allocate resources, navigate change, and build the capabilities that determine competitive success. They create the conditions that enable or constrain everything else organisations attempt. Understanding why leadership matters in organisational contexts reveals what distinguishes high-performing organisations from struggling ones.
Leadership serves essential organisational functions that cannot be accomplished otherwise:
Direction provision: Organisations need clear direction—where they're going, why it matters, and how they'll get there. Leadership establishes and communicates this direction, aligning diverse efforts toward common objectives.
Decision authority: Countless decisions require making daily. Leadership provides decision-making authority enabling resolution rather than endless deliberation.
Resource allocation: Organisations possess limited resources requiring allocation among competing priorities. Leadership determines these allocations, ensuring resources flow toward strategic priorities.
Coordination mechanism: Specialisation creates coordination challenges. Leadership provides integration ensuring specialists' work combines into coherent output.
Standard setting: Performance and ethical standards require establishment and enforcement. Leadership defines what's acceptable and holds people accountable accordingly.
Change navigation: Organisations must adapt continuously. Leadership guides adaptation, helping people navigate transitions while maintaining performance.
Culture shaping: Organisational culture doesn't create itself. Leadership shapes culture through demonstrated values, consistent behaviours, and reinforced expectations.
Organisations lacking effective leadership experience predictable dysfunctions:
| Dysfunction | Manifestation |
|---|---|
| Strategic incoherence | Conflicting priorities, inconsistent decisions, opportunistic drift |
| Coordination failure | Duplicated effort, contradictory actions, dropped handoffs |
| Engagement collapse | Disengaged employees, minimal discretionary effort, quiet quitting |
| Culture erosion | Standards decay, values become hollow, toxic behaviours spread |
| Talent attrition | High performers leave; mediocre performers remain |
| Change resistance | Adaptation slows; competitors advance; relevance declines |
| Innovation stagnation | Risk aversion dominates; creativity suppresses; improvement stops |
These dysfunctions compound. Strategic incoherence damages engagement; engagement collapse accelerates talent attrition; talent attrition weakens capability; weakened capability produces strategic incoherence. Without leadership intervention, negative spirals accelerate.
Leadership drives organisational results through multiple mechanisms:
Engagement leverage: Gallup's research demonstrates managers account for 70% of variance in employee engagement. With engaged teams showing 21% higher productivity, leadership-driven engagement represents perhaps the most direct path to performance improvement.
Decision quality: Leadership decisions compound across the organisation. Better strategic decisions, better resource allocation decisions, better personnel decisions—each improves organisational outcomes. Leadership quality determines decision quality.
Execution enablement: Strategy execution depends on leadership at every level translating strategic intent into operational action. Without effective leadership execution, even brilliant strategies fail.
Capability building: Leaders develop the organisational capabilities—talent, processes, culture, knowledge—that produce sustainable competitive advantage. Leadership investment in capability produces compounding returns.
Innovation fostering: Innovation requires psychological safety, resource allocation, and risk tolerance that leaders create. Organisations with innovation-supporting leadership out-innovate those without.
Customer focus: Leaders shape whether organisations genuinely prioritise customer needs. Customer satisfaction correlates with leadership effectiveness.
Leadership impact appears across measurable dimensions:
Financial performance:
Talent outcomes:
Engagement metrics:
Operational results:
Leadership shapes culture more powerfully than any other factor:
Modelling effect: What leaders do communicates more than what they say. Employees watch leaders' behaviour to understand what's actually valued versus what's merely claimed.
Reinforcement patterns: What leaders reward, recognise, and tolerate defines cultural norms. Leadership attention signals importance; leadership indifference signals unimportance.
Decision revelation: Leadership decisions reveal true priorities. When values conflict with convenience, leadership choices expose actual cultural foundations.
Story creation: Leaders create the stories that become cultural touchstones. How leaders respond to challenges, treat people, and handle crises becomes organisational legend.
Hiring influence: Leaders select people who become future culture carriers. Hiring decisions shape future culture more than current policies.
Departure impact: How leaders handle exits—voluntary and involuntary—signals what the organisation truly values.
Culture determines organisational capability:
Behaviour driver: Culture shapes how people behave—whether they collaborate or compete, innovate or comply, engage or disengage, take initiative or wait for direction.
Talent filter: Culture attracts people who fit and repels those who don't. Strong cultures become self-reinforcing through this selection mechanism.
Change enabler: Culture either enables or resists change. Adaptive cultures embrace necessary evolution; rigid cultures resist until crisis forces adaptation.
Strategy enabler: Strategy and culture must align for execution to succeed. Cultures inconsistent with strategy undermine execution regardless of planning quality.
Performance amplifier: Research shows organisations with strong leadership and positive culture outperform competitors by 20%. Culture multiplies or diminishes other organisational capabilities.
Engagement represents the discretionary effort employees contribute:
The engagement equation: Engaged employees invest effort beyond minimum requirements. Disengaged employees do what's required but no more. Actively disengaged employees may actually undermine organisational objectives.
Current reality: Only 23% of employees globally are engaged. 62% are not engaged—showing up but doing the minimum. 15% are actively disengaged—potentially working against organisational interests.
Economic impact: This engagement deficit costs the global economy approximately $7.8 trillion annually in lost productivity. Each organisation bears its share of this cost.
Leadership connection: Managers account for 70% of engagement variance. Leadership quality—not compensation, benefits, or facilities—primarily determines engagement levels.
Effective leaders build engagement through:
Clear expectations: Employees need to understand what's expected. Ambiguity breeds anxiety and disengagement.
Resources provision: Employees need resources to succeed. Leaders who equip teams enable engagement; those who leave teams underequipped frustrate engagement.
Recognition delivery: Employees need recognition for good work. Leaders who notice and acknowledge contribution maintain engagement.
Development opportunity: Employees want to grow. Leaders who develop their people build engagement; those who ignore development lose it.
Voice enabling: Employees want their opinions to matter. Leaders who listen and respond build engagement; those who dismiss input destroy it.
Connection creation: Employees want purpose connection. Leaders who link daily work to meaningful purpose sustain engagement.
Trust building: Employees who trust leadership engage more fully. Trust comes through consistency, competence, and genuine care.
Strategy without execution remains aspiration. Leadership enables execution:
Translation function: Senior leadership creates strategy; leaders throughout the organisation translate it into operational action. This translation requires leadership at every level.
Alignment creation: Strategy requires aligned effort. Leaders align teams with organisational direction, ensuring coherent rather than fragmented action.
Priority enforcement: Strategy implies priorities. Leaders enforce these priorities, preventing tactical convenience from overriding strategic discipline.
Resource direction: Strategy requires resource allocation. Leaders at every level direct resources toward strategic priorities.
Obstacle removal: Execution encounters obstacles. Leaders remove obstacles that would otherwise stop progress.
Progress monitoring: Execution requires tracking and adjustment. Leaders monitor progress, identify deviations, and course-correct as needed.
Momentum maintenance: Strategic initiatives lose momentum without leadership attention. Leaders sustain focus ensuring completion rather than abandonment.
Research demonstrates strong connection between leadership and execution:
Execution capability: Organisations with strong leadership development are 1.5 times more likely to achieve high performance. Leadership capability translates directly to execution capability.
Change navigation: Nearly every strategy requires change. Leaders' change management capability determines whether strategies successfully implement or fail during transition.
Coordination effectiveness: Complex strategies require coordination across organisational boundaries. Leaders' coordination capability determines whether specialised efforts combine effectively.
Adaptation agility: Strategies require adjustment as conditions change. Leaders' adaptive capability determines whether organisations adjust effectively or persist with outdated approaches.
Organisational effectiveness requires leadership throughout:
Senior leadership: Sets direction, allocates major resources, shapes overall culture, ensures strategic coherence.
Middle management: Translates strategy to operations, coordinates across functions, develops next-generation leadership, maintains organisational cohesion.
Front-line leadership: Engages employees directly, executes operational processes, identifies improvement opportunities, represents organisational culture to employees.
Individual contributors: Demonstrate informal leadership, influence peers, champion improvement, model desired behaviours.
Each level's leadership quality affects those above and below. Weak links anywhere constrain overall organisational capability.
Leadership gaps at different levels produce different problems:
| Level | Gap Consequence |
|---|---|
| Senior | Strategic confusion, cultural drift, resource misallocation |
| Middle | Translation failure, coordination breakdown, development neglect |
| Front-line | Engagement collapse, execution failure, culture erosion |
| Individual | Innovation stagnation, peer dysfunction, improvement absence |
Current research indicates 77% of organisations report leadership gaps. This widespread deficit constrains organisational effectiveness across industries and sectors.
Effective leadership development encompasses:
Selection improvement: Leadership quality begins with selection. Hiring for technical skill while ignoring leadership capability perpetuates the "accidental manager" problem affecting 56% of managers who receive no training.
Systematic development: Formal programmes build leadership capability systematically. Research demonstrates 25% learning increase and 20% performance improvement from structured development.
Experience provision: Experience develops leaders. Organisations should deliberately provide developmental experiences—stretch assignments, cross-functional exposure, challenging projects.
Coaching integration: Individual coaching amplifies development. Executive coaching delivers 580% average ROI within the first year.
Feedback mechanisms: Leaders develop through feedback. 360-degree assessment, performance feedback, and coaching observations enable self-awareness and targeted improvement.
Succession planning: Development should build succession pipelines. With 77% of organisations lacking leadership depth, succession planning addresses critical vulnerability.
Leadership capability requires sustained investment:
Financial commitment: Organisations investing in leadership development see $7 return for every $1 invested. This ROI justifies substantial investment.
Time allocation: Development requires time. Organisations must protect development time from operational pressure.
Senior attention: Senior leaders must visibly prioritise leadership development. Their attention signals organisational importance.
Process integration: Leadership development must integrate with talent processes—selection, performance management, succession planning.
Culture support: Organisational culture must support development. Cultures that punish learning attempts undermine development investment.
Patience: Leadership development produces results over time, not immediately. Organisations must maintain commitment through the development cycle.
Leadership neglect produces predictable organisational consequences:
The untrained manager problem: Almost 60% of first-time managers receive no training when transitioning to leadership roles. These untrained managers damage engagement, make preventable mistakes, and establish problematic patterns affecting everyone they lead.
The succession crisis: With 77% of organisations lacking leadership depth, every leadership departure becomes crisis. Organisations scramble for replacements rather than transitioning smoothly.
The engagement collapse: Without leadership development addressing the 70% engagement variance, organisations operate with disengaged workforces contributing fraction of potential.
The culture decay: Without leadership reinforcing values and standards, culture erodes. Expedient behaviour displaces principled behaviour; mediocrity replaces excellence.
The competitive disadvantage: While some organisations build leadership capability systematically, others fall behind. The capability gap compounds, eventually becoming insurmountable.
Organisations should monitor leadership health through:
Engagement metrics: Track engagement scores by manager. Identify leaders producing exceptional engagement and those producing disengagement.
Retention data: Monitor turnover by leader. Leaders with excessive turnover warrant attention.
Performance patterns: Track team performance by leader. Identify capability gaps limiting performance.
360-degree feedback: Gather multi-source feedback on leadership effectiveness. Identify development needs and concerning patterns.
Succession readiness: Assess bench strength for critical roles. Identify gaps requiring development attention.
Development participation: Monitor development engagement. Leaders avoiding development may be avoiding needed growth.
Leadership is important in an organisation because it provides direction, coordination, decision-making authority, culture shaping, and change navigation that organisations require for effectiveness. Research shows managers account for 70% of variance in employee engagement, and organisations investing in leadership development achieve 25% better business outcomes. Without effective leadership, organisations experience dysfunction across every dimension.
Leadership's role in organisational success includes setting strategic direction, allocating resources, building capabilities, shaping culture, engaging employees, executing strategy, and navigating change. Leaders at every level contribute to organisational success through their decisions, behaviours, and the conditions they create. Leadership quality largely determines whether organisations thrive or struggle.
Leadership affects organisational culture through modelling (demonstrating values through behaviour), reinforcement (rewarding and recognising desired behaviours), decisions (revealing true priorities through choices), storytelling (creating cultural narratives), hiring (selecting future culture carriers), and standard setting (defining expectations and accountability). Leaders shape culture more powerfully than policies or statements.
Organisations lacking effective leadership experience strategic incoherence, coordination failure, engagement collapse (only 23% of employees globally are engaged), culture erosion, talent attrition, change resistance, and innovation stagnation. The global cost of disengaged employees approaches $7.8 trillion annually. Leadership absence or weakness produces cascading consequences undermining organisational effectiveness.
Organisations can improve leadership through better selection (assessing leadership capability alongside technical skills), systematic development (structured programmes showing 25% learning improvement), experience provision (developmental assignments), coaching integration (580% average ROI), feedback mechanisms (360-degree assessment), succession planning (building leadership depth), and senior leader attention (signalling priority).
Organisations need leaders at all levels because each level serves distinct functions: senior leaders set direction and shape culture; middle managers translate strategy and coordinate execution; front-line leaders engage employees directly and execute operations; individual contributors demonstrate informal leadership influencing peers. Gaps at any level constrain overall organisational capability.
Poor leadership costs organisations through disengaged employees (contributing to $7.8 trillion annual global productivity loss), increased turnover (each departure costing approximately $18,591), execution failures, culture degradation, succession crises, and competitive disadvantage. Research indicates 25% of organisations experience profit loss due to ineffective frontline leaders alone.
Leadership is important in an organisation because organisations are fundamentally human systems requiring human coordination. Strategy exists on paper; leadership makes it real. Culture exists in policy documents; leadership makes it lived. Capability exists in potential; leadership realises it.
The statistics confirm this reality: 70% engagement variance controlled by managers, 25% better outcomes from leadership investment, 4x engagement multiplier from trusted leadership, $7.8 trillion cost of engagement deficits. These numbers reflect leadership's foundational role in organisational effectiveness.
For organisations, the implication is clear: leadership capability is organisational capability. Investment in leadership selection, development, and support represents perhaps the highest-leverage investment available. Organisations that prioritise leadership build sustainable competitive advantage; those that neglect it build sustainable disadvantage.
The question isn't whether leadership matters in your organisation—it demonstrably does. The question is whether your organisation is building the leadership capability required for the challenges ahead. Those that do will thrive; those that don't will struggle.
Leadership is not one of many organisational priorities. It is the organisational priority that enables all others.