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The Economics of Empathy

Having empathetic leaders makes smart business sense.
The Economics of Empathy

In the world of business, empathy is a hot topic. Articles on empathy have appeared in the Harvard Business Review, The Wall Street Journal, Huffington Post, Time, and many other outlets. Empathy has also proven to be a popular theme of recent commencement addresses—last spring’s graduates of the University of Michigan and Howard University, where President Obama did the honors, heard speeches about the importance of empathy.

Why all the interest? In a word: technology. Every job that can be automated is, or will be in the not-too-distant future. As a result, organizations are shifting focus to the jobs and interpersonal skills that machines and software will never replace. A study published in the August 2015 issue of Harvard Business Review reports that, since the 1980s, occupations enjoying the highest job and wage growth are social skill-intensive. Work is becoming more team-based and requires the flexibility and adaptability that computers cannot deliver. Social or “soft” skills are now critical differentiators that distinguish organizations as both employers and competitors.

Empathy, as this article will show, is the most important of these soft skills for effective leadership. Unfortunately, while there is growing recognition of empathy’s importance, many organizations are unsure how, and if, empathy can be developed.

To bring greater clarity about empathy, we offer new research. Specifically, this research addresses the importance of having empathetic leaders, the developability of empathy, and the impact empathetic leaders can have on organizational performance.

What do empathetic leaders bring to the table?

Based on data from a recent DDI meta-analysis on the impact of leadership training (Proof that DDI's Leadership Development Pays Off), leaders rated high in empathy by direct reports were 2.5 times more likely to set clear performance expectations, hold others accountable for maintaining high performance, and address performance issues in a firm, fair, and consistent manner. They were also nearly four times more likely to impose formal consequences when employees failed to take corrective actions.

The data suggest that being an empathetic leader is not about being lenient or laissez-faire, or avoiding confrontation. Showing empathy is actually a sign of leadership maturity—the ability to manage performance from a place of understanding and respect, rather than one of authority and power.

In addition to being the critical driver of overall leadership performance, "listening and responding with empathy" is the interaction skill most predictive of a leader's abilities to coach, engage, and make sound decisions. Empathy is, as indicated by this finding, at the heart of many more complex and familiar leadership skills.

Can empathy be developed?

Skeptics will always raise an eyebrow when it comes to leadership development. You're either born a great leader or you never will become one, right? Wrong. An overwhelming amount of research has shown that successful leadership can be resolved into a series of behaviors. With reinforced training, these behaviors can be acquired and integrated to the point where they become habits. The same is true for empathy. When leaders learn how to demonstrate empathetic behavior, they can consciously engage in that behavior until it becomes ingrained. (See “Developing Empathy” below for guidance on how to design a development program.) For instance, a leader who repeatedly, but unconsciously, interrupts other speakers can be taught how belittling his behavior is and how stifling it can be to open communication. Once the leader understands the behavior, he or she can proactively practice new behaviors (e.g., active listening) that will, with time, become second nature.

DDI’s meta-analysis also looked at how often leaders displayed empathy before and after behavior-based development. Results from more than 2,000 direct reports revealed that the number of leaders who frequently displayed empathetic behaviors (six months after the program) rose by 25 percent. Much to the delight of those on the receiving end, the data show empathy can indeed be developed!

Does empathetic leadership drive organizational performance?

Perhaps the most important question is the one that addresses business performance.  Here we look at the impact of empathetic leadership on both individuals and the organization’s bottom line.

Empathy Drives Employee Engagement

As Kevin Kruse, author of Employee Engagement 2.0, writes, employee engagement is “the emotional commitment the employee has to the organization and its goals.” When employees are engaged, they put forth greater discretionary effort and provide higher levels of service (quality and productivity). This leads to higher customer satisfaction, increased sales, and greater profit.  Recent research by Gallup confirms that engagement has a significant impact on a number of other crucial business outcomes, including turnover, absenteeism, safety incidents, product quality, customer satisfaction, productivity, sales, and profitability.

DDI’s meta-analysis also demonstrates how big a role empathy plays in leaders’ abilities to engage their employees. Direct reports who rate their leaders as high in empathy (“often” or “almost always” displaying empathetic behavior given the opportunity) are also more likely to report that their leaders have increased their level of engagement (Figure 1).

Figure 1. The Relationship Between Empathy and Engagement (as reported by leaders' direct reports)

Economies of Empathy

Why is there such a strong connection between leader empathy and employee engagement? The answer has to do with “emotional reciprocity.” When leaders—the de facto representatives of the organization—show they care, employees feel an obligation to reciprocate by putting forth more effort.  It’s human nature to give back in-kind, even when employees are less than passionate about their jobs. Consequently, organizations that invest in empathetic leadership are likely to reap the financial rewards of a more engaged workforce.

Empathy Drives Business Outcomes

Let’s look more closely at the before-and-after results from empathy training.  Data from the DDI meta-analysis disclose the relationship between empathy training for leaders and improvements in business-related outcomes.  Based on leaders’ level of improvement, they were categorized into three groups: those with no, moderate, or substantial increases in displaying empathy. The data below show how each of these groups improved on business outcomes within one year of training (Figure 2).

Figure 2. Relationship between Improvements in Empathy and Business Outcomes

Economies of Empathy

The results suggest that in cases where leaders’ empathy showed no improvement, their performance was enhanced by other soft skills (e.g., delegation) included in the behavior-based training. And, although development programs in the meta-analysis focused on different sets of soft skills, empathy was a key driver of business outcomes—across over 100 unique research studies.

Empathy as the Secret Ingredient

Despite investment of billions of dollars each year in leadership development, only four in 10 organizations report having high-quality leadership—the same percentage recorded in both DDI’s 2009 Global Leadership Forecast and the 2014 | 2015 edition of the study.  In the same time period, employee engagement also remained flat (at 13 percent according to Gallup). Given our research evidence, we can suggest that the failure to focus development on the skills that matter most—most notably, empathy—has contributed significantly to this sad state of affairs. With tried and true training, leaders can increase their ability to be empathetic, amplify employee engagement, and help their organizations outperform the competition.

Mike Kemp, Ph.D., is a senior research consultant in DDI’s Center for Analytics and Behavioral Research (CABER).

Richard S. Wellins, Ph.D., is senior vice president at DDI.

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