What Is the Definition of Leadership? Components and Example

What Is Leadership?

Leadership in business is the capacity of a company’s management to set and achieve challenging goals, take fast and decisive action when needed, outperform the competition, and inspire others to perform at the highest level they can.

It can be difficult to place a value on leadership or other qualitative aspects of a company, versus quantitative metrics that are commonly tracked and much easier to compare between companies. Leadership can also speak to a more holistic approach, as in the tone a company’s management sets or the culture of the company that management establishes.

Individuals with strong leadership skills in the business world often rise to executive positions such as CEO (chief executive officer), COO (chief operating officer), CFO (chief financial officer), president, and chair.

Key Takeaways

• Leadership is setting and achieving goals, tackling the competition, and solving problems decisively and quickly.
• Leadership also refers to the tone a company’s management sets in terms of the corporate culture.
• Some people with strong leadership skills in the business world rise to become the CEO, COO, CFO, president, or chair of their companies.

Understanding Leadership

Leadership provides direction for a company and its workers. Employees need to know the direction in which the company is headed and who to follow to reach the destination. Leadership involves showing workers how to effectively perform their responsibilities and regularly supervising the completion of their tasks.

Leadership is also about setting a positive example for staff to follow, by being excited about the work, being motivated to learn new things, and helping out as needed in both individual and team activities.

Leadership involves setting and achieving goals, taking action, and beating the competition, but it also relates to the tone of the company’s management and what kind of culture is built for the employees.

The Components of Effective Leadership

Effective leadership includes exhibiting a strong character. Leaders exhibit honesty, integrity, trustworthiness, and ethics. Leaders act in line with how they speak and earn the right to be responsible for others’ success in the company.

Strong leadership involves clear communication skills. Leaders speak with and listen to staff members, respond to questions and concerns, and are empathetic. Leaders use effective communication skills for moving the company forward and achieving new levels of success.

True leadership sees where the company is headed and plans the steps needed to get there. Visualizing what is possible, following trends in the industry, and taking risks to grow the business are all required of leaders.

Productive leadership shows optimism and provides positive energy for staff. Good leaders are supportive and are truly concerned about the well-being of others. Leaders find answers to challenges and reassure and inspire workers when things go awry. Leaders find ways for staff to work together and achieve maximum results in an efficient and effective manner.

Influential business leaders including Jack Welch, Warren Buffett, Bill Gates, and Steve Jobs have shaped their industries and the broader economy—Investopedia looks at how they developed winning strategies, inspired their employees, and achieved success.

An Example of Leadership

Jack Welch exhibited leadership as chief executive officer (CEO) of General Electric Co. from 1981 to 2001. He played an integral part in 600 acquisitions in emerging markets and increased GE’s market value from $12 billion to $505 billion at the time of his retirement. Because the world is constantly changing, Welch insisted everyone at GE embrace change. To continue evolving company operations and producing greater output, managers, and employees had to continuously reinvent themselves and their work.

Welch hired managers who shared his vision of GE, had endless amounts of energy, and were able to encourage employees to stay engaged in their work. He sought managers who created, developed, and refined ideas for the future and found ways to make them a reality. He also insisted that managers work side-by-side with employees as a way of understanding what they were doing and why.

As a result of Welch’s leadership style, managers and employees were more empowered, products gained higher quality, and customer satisfaction and profits increased dramatically.

What Are Some Qualities of an Effective Leader?

There are several qualities that a good leader should have. Among these include the ability to motivate individuals, a willingness to listen, being trustworthy, having competence, decisiveness, good communication skills, and selflessly understanding the goals of the team or organization.

What Are Some Negative Traits in a Leader?

Not all leaders are effective, and even good leaders can have their faults. Some negative qualities commonly found in leaders include selfishness, quickness to anger, impatience, rudeness, inconsistency, micro-managing, and incompetence.

What Are Some Different Leadership Styles?

There are different ways to be an effective leader. One is to lead by example, showing others how to proceed and coaching them. Another is to delegate tasks to others based on their skills and experience. A third is to direct others from a position of authority. Finally, a good leader can be supportive and help team members achieve their goals.