Latest trends / Current scenario of business leadership

Investing in diversity and inclusion

The importance of embracing diversity, equity, and inclusion (DE&I) and prioritizing it at the leadership level will help unleash the potential of your employees, helping to create a better and more engaged workforce. It also helps to increase the company’s earnings.

Addressing inequality within your culture

According to Gallup’s recent report, Employee Burnout: Causes and Cures, “76 percent of employees experience burnout on the job at least sometimes, and 28 percent say they are burned out ‘very often’ or ‘always’ at work.” And the top factor causing burnout? Unfair treatment at work.

Leaders have the responsibility to ensure that the workplace is as fair and equitable as possible. It isn’t easy to know where to get started, and I suggest you start with pay. Complete a full assessment of employee compensation, looking at it from all angles such as gender, role and the gap between individual contributors, mid-level managers and executive leadership. Then address the inequalities. There is no reason a CEO should make 350 times more than that of the typical worker or that the sole purpose of your company is to maximize value for its shareholders. These are some reasons we find ourselves in this situation of staggering inequality and deep distrust of our leaders.

Learning to lead several generations

In today’s professional environment, baby boomers, Generation X, Generation Z, and millennials are all working side by side in a multigenerational workforce that boasts different values and working styles. And as people live longer, they’re working more too: Senior employees can easily be 50 years older than a company’s youngest workers, resulting in the need for leaders who are able to adjust their leadership style according to who they’re managing.

Fostering emotionally agile leadership

The frequency of burnout in a business is based on factors that rise and fall on leadership, such as constantly changing or unclear instructions, an unrealistic workload, and low emotional reserves. Burnout has been even more abundantly clear since the COVID-19 pandemic, with an increase of engagement to 40 percent for those working in an office and 41 percent for those working remotely before abruptly crashing. Employee well-being and engagement seem to be connected and correlated with causation: engagement decreases burnout, with an increase in productivity and well-being, but when engagement and well-being decrease, burnout increases.

Embracing an experimenter’s mindset

There is no doubt that more disruption lies ahead; it’s the new norm. What you did yesterday will most likely not work tomorrow. Yes, it can change that fast, just as we experienced in March 2020. To be future-ready, you must be willing to try new things, to experiment.

At our company, we are experimenting in all facets of our organization: product development, customer success, digital customer experiences and employee training and education. We have banned the words, we are the expert, and are teaching people how to embrace the learner’s mind and not fear failure. Possessing a learner’s mind does not mean taking significant risks.

Importance of Leader in Organisation Culture

Leadership influences company culture heavily. Leaders can reinforce organisational values by helping their people grow and develop through goal setting, opportunities, and recognition. Elevate employees through frequent one-on-ones and regular two-way feedback. When employees have open and ongoing dialogue about their work, their trust in their leader strengthens.

Leadership culture is important to building organisational culture. Leadership culture is how leaders interact with one another and their team members. It’s the way leaders operate, communicate, and make decisions. And it’s about the everyday working environment: their behaviors, interactions, beliefs, and values.

Leaders must understand their role in shaping an organisation’s culture, and organisations must make intentional efforts to help develop their leaders. Effective leadership development goes beyond training classes, adding on to your organisational structure, or even determining the right cultural fit when hiring new leaders. The best way to ensure your leadership culture is positively contributing to your organisational culture is to create modern leaders.

Organizational Culture and Leadership is hand in hand together in building, controlling and enhancing organizational performance, but the question is how far the relation is between both.

The contingent reward of the transformational and transactional leadership is more prominent than culture. Also, some researchers supposed that leadership is a simple component of organizational culture, they assumed that by shaping the organizational values and constructing the social reality by leader an organization naturally became a strong organizational culture, Where In any organization, leaders create their tools to either evolve the current culture or to change the existing standard. The leadership patterns differs based on how the subordinates observe their organizational culture.

However if leadership and organizational culture can work together, then leadership can play a major role and be an effective factor in changing organization’s culture when needed, also to foster and impact it when there is a decision or plan by decision makers.

There are other theorists confirmed for being leadership a key of both organizational effectiveness and change.

traits of organization’s culture link to the organization’s performance. The performance of an organization depends on organizational culture values that been shared among its members. Comparatively, Successful organizations are often distinguished by the company’s ability to promote their strategies, which mean it relies on the power of their leaders.

After all, we can settle that both leadership and organizational culture can evolve the performance of organizational. Furthermore, leadership is part of an organizational culture and they are essential factors that work together to enhance and increase organizational performance. Accordingly, to the latter, we cannot separate between these three concepts since they fit at best.

Leadership traits and also skills are useful in promoting a healthy organizational culture.

There is no specific leadership characteristic to promote a healthy organizational culture. But to have a successful organization you have to combine between the organizational culture’s standards and the employees’ personal win. Therefore, a leader should have the skills of sharing his vision and motivating the subordinates to reach the desired goal altogether.

Knowing that a healthy organizational culture is linked to a healthy leader, below is a list of leadership traits from different leadership’s styles that contribute to maintaining and evolving subordinates:

Behavior for a successful leader:

  • A leader should be directed toward providing psychological structure for subordinates which means giving subordinates a clear scope of work, scheduling and coordinating work, giving specific guidance, and clarifying organizational structure’s policies, rules, and procedures.
  • Supportive directed toward the satisfaction of subordinates needs and preferences, such as displaying concern for subordinates’ aid and building a friendly and psychologically supportive work environment.
  • Participative, directed toward encouragement of subordinate influence on decision making and works unit operations: discussing with subordinates and build decision by taking their opinions and suggestions into account.
  • Achievement oriented, directed toward encouraging performance excellence: setting challenging goals, seeking improvement, featuring excellence in achievement, and giving confidence that subordinates will attain high standards of performance.

Leadership characteristics a servant leadership should be:

  • Listening, communicate by listening first, through listening they acknowledged the point of view of a follower and validated this perspective.
  • Empathy, Is standing in the shoes of another person and attempting to see the world from that person’s point of view.
  • Healing, the personal well-being of their followers.
  • Awareness is a quality within servant leaders that makes them acutely attuned and receptive to their physical, social and political environments.
  • Persuasion is a sharp and determined communication that convinces others to change.
  • Refers to an individual’s ability to be a visionary for an organization, providing a clear sense of its goals and direction.
  • Ability to foresee what is coming based on what is occurring in the present and what happened in the past.
  • Is about taking responsibility for the leadership role entrusted to the leader.
  • Commitment to the growth of people. It’s about treating each follower as a unique person with intrinsic value that goes beyond his or her tangible contributions to the organization.
  • Building community. A collection of individuals who have shared interested and pursuits and feel a sense of unity and relatedness.

Leadership affects organizational culture

Managers can teach organizational culture through social interactions. Through their own actions, leaders show employees what behavior is acceptable and encouraged. Here are ways that leadership affects organizational culture and leadership:

Promotes a culture of recognition

When leaders let employees know that their contributions are valuable, they foster a culture of recognition. The task of the leader is to reward and incentivize hard work and good behavior. When leaders give positive praise, they help employees feel fulfilled and confident. Leadership fosters a culture of appreciation. Quality leaders encourage their employees to recognize other coworkers for their positive contributions. For instance, during a team meeting, a manager could ask coworkers to share specific instances of when a colleague excelled. A workplace culture where everyone celebrates success builds stronger teams.

Defines and teaches core values

You can define a strong business culture by its firmly held core values that are organized, shared and transmitted by employees. Leaders are role models who demonstrate behaviors that reflect the company’s core values. Effective leaders show their employees what actions they should take to fully embrace workplace values. It’s the duty of a leader to translate the mission of an organization into tangible results.

Fosters a desire to learn

A quality leader demonstrates a genuine interest in promoting the growth of their employees. For that reason, they freely share what they know with others. They help team members build a career path, then share the knowledge that the employee needs to follow it. Leaders promote the idea that employees can learn from any opportunity.

By encouraging employees to take risks in order to grow their knowledge base, effective leaders are able to foster a culture of learning and growth. Employees who feel safe to explore and learn may find their work more fulfilling and meaningful. They feel more inclined to collaborate and learn from others.

Changes the culture

Leaders understand that workplace culture continually grows and changes. Understanding the dynamic nature of the workplace helps them guide their team members through these changes.

When changes in company culture are necessary, leaders have a responsibility to communicate the information to employees effectively. Cultural changes require clear communication with every person in an organization. Leaders who value workplace culture understand that their duty is to keep actively creating a healthy organizational culture. They show their team members what behaviors align with the cultural changes and what behaviors they can alter.

Encourages a shared vision

Effective leaders define a shared goal for which everyone can strive. They promote a vision of the future that’s positive and value-based. By outlining detailed steps, they show team members how to successfully reach a goal. Employees receive a clear understanding of their role within any collective process and collaborate to achieve a shared vision of the future. Being able to describe a realistic vision inspires employees to be more productive. When they accomplish goals, employees feel fulfilled and valued. Seeing results helps them understand how they contribute to the company.

Authority versus Leadership

Leaders are trusted for their judgment and respected for their expertise, integrity etc and hence followed and not because they hold a certain position. For e.g. M.K. Gandhi for most part did not hold any official position to lead the Indian freedom struggle.

It is also important to understand that a formal authority and power emerging from it, might not always be able to influence people in the desired manner as; in times of crisis and difficulties people view it as coercion. On the other hand leadership tends to create followers out of free will and choice without forcing them to accept anything thrown their way.

Authority rarely provides a scope for feedback, constructive criticism or opinions of the people on whom it is exercised however leaders provide ample platform to their followers to voice their thoughts and feedback.

When dealing with adults, the sole use of authority to direct and discipline them hardly works, leadership provides a better approach of sharing and involving thus building rapports with followers and creating long term relationships. Authority can hardly make people change their attitudes and behaviors with lasting effects and results however a leader inspires followers through self modeled ways and hence leadership displays greater effectiveness in addressing attitudes and behaviors of people.

Exercising authority sometimes limits the approaches to arrive at solutions for issues and problems while leadership encourages people to look beyond the obvious and think innovatively and sometimes emerge with radical solutions.

Apart from it, the biggest difference between the two as cited by Stephen R Covey is the moral authority held by leaders over the followers which is absent in the case of power from authority.

Within the organizational setup when leaders also have moral authority on their subordinates by establishing a synchrony in their words and actions; the rest of the structure and processes of the organization also get aligned to it, thus creating a robust and transparent culture.

Authoritative way of working also encourages individuals to work in silos while in the organizations of today; the leaders need to have a complete picture and coordinate with other functions and departments as and when required. It is indeed difficult for mangers and leaders to move out of their circle of authority and coordinate and interact with external people. However the need of the hour and the more effective approach to leadership and management is when leaders come out of their comfort zone and move from exercising authority on a small group to leading the entire organization.

Individuals, who do not rely on authority but lead people, are the ones who enjoy the privilege of their ideologies and thoughts practiced by later generations long after they are gone. Even with individuals who held positions of responsibilities, the ones who actually led their people are the ones remembered and followed.

Leadership is a Choice

All executives have positional authority that can be leveraged to achieve results, but they can choose to use their leadership skills instead of authority to achieve results. You don’t need any positional authority to be a successful leader.

Leadership is exponentially more powerful than authority because it involves choice. When your team members choose to follow you, they are doing so because they either feel positively connected to your vision or because they simply feel connected to you. With this connection, your team members will start consciously succeeding for you.

This shift from their minds to their hearts means that your team members will begin intentionally incorporating the things they believe will ensure your success with their approach to ensuring their success. This will result in closer alignment between their actions, your vision, and the direction you hope their efforts will take the company.

Formal versus Informal Leadership

Formal leadership

Formal leadership is a circumstance in which an individual is the officially recognized head of a group or organization. This type of leadership relates to a job title, so it’s the professional responsibility of formal leaders to motivate their juniors and take charge of the factors that may lead to the success of the organization, such as resource allocation and decision-making.

The CEO of a corporation is an example of a formal leader. They’re responsible for directing all resources and operations and making decisions that lead the company to profitability. Also, as the highest-ranking executive of the organization, they officially have more authority than others within the company.

Informal leadership

Informal leadership is when an individual does not have official status as a group’s leader, but other group members see them as and consider them to be a leading force. Informal leaders tend to be experienced and knowledgeable, so they’re the ones people seek for answers and guidance. Often, they’ve earned the status of informal leader by developing strong relationships with the people around them and proving themselves, through actions, to be reliable and trustworthy.

An example of an informal leader is a colleague who’s well known for their intelligence, wisdom and interpersonal qualities. This person isn’t necessarily a high-ranking member of the organization, but others respect them and typically go to them for advice and knowledge about procedures. In meetings, they might frequently offer actionable insights that lead to the resolution of problems. If they provide instruction, others often heed it willingly.

Authority of Formal Leadership

When you assign a leadership role to an individual, that person has decision-making authority. You expect employees to respect the position as much as the person who holds it. Formal leaders have the ability to help or hinder their subordinates’ career progress through performance reviews, recommendations to management and disciplinary action. Overall, formal leadership has a top-down feel. That is, the leader is at the top of an implied or explicit hierarchy.

Authority of Informal Leadership

An informal leadership style relies on camaraderie and shared self-interest. The informal leader motivates employees by pointing out the fate all employees will share if they work to reach a goal. This type of leader has the types of leadership traits that allow them to listen to all points of view before making decisions and gains respect from followers through a demonstration of reasoning ability and positive results, according to Tough Nickel.

Communication Styles

Communication from formal leaders tends to take the form of directives the leader expects employees to follow. Under this style of leadership, employees are seldom included in the process that leads up to the decision. After the decision is made and delivered, employees may have an opportunity to ask questions and offer opinions, but their input won’t change the decision. Informal leadership, however, involves employees in the decision-making process. Employees may offer ideas and suggestions for solving the problem, though the leader may make the ultimate decision. The sense under informal leadership is that employees can affect decision-making.

Work Relationships

Formal leaders tend to have boss/employee relationships. The hierarchy that exists in formal settings implies that in any disagreement with the leader, the leader’s view will prevail. Employees operate under formal leadership with the assumption that the leader is concerned about the company and may view employee desires as counter to what would benefit the operation. Informal leaders welcome disagreement and though such a leader may have authority to ignore opposition, this seldom happens, according to Leadership Inspirations. Informal leaders usually persuade the opposition to see the bigger picture and at least understand the reason the leader sticks with a point of view.

Advice vs. Approval

Under formal leadership, employees tend to seek approval from the leader. With informal leaders, employees often seek advice. The formal leader tends to judge employees and this makes communication somewhat intimidating. The informal leader is more likely to mentor employees and therefore may give guidance instead of reprimands.

Leader versus Manager

Leader

Leadership as a general term is not related to managership. A person can be a leader by virtue of qualities in him. For example: leader of a club, class, welfare association, social organization, etc. Therefore, it is true to say that, “All managers are leaders, but all leaders are not managers.”

A leader is one who influences the behavior and work of others in group efforts towards achievement of specified goals in a given situation. On the other hand, manager can be a true manager only if he has got traits of leader in him. Manager at all levels is expected to be the leaders of work groups so that subordinates willingly carry instructions and accept their guidance. A person can be a leader by virtue of all qualities in him.

A leader refers to a person who leads others in a specific situation and is capable of heading the group towards the accomplishment of the ultimate goal by making strategies to pursue and reach the same.

A leader has a vision, who inspires people, in such a way that it becomes their vision.

Further, the leader can be any person having the potential to influence others, be it a manager of an organization, or head of the family, or a captain of a team, minister of a state, or leader in an informal group. He/She is the one who:

  • Takes charge of and directs the activities of subordinates.
  • Provide the group everything that is required to fulfill its maintenance and needs related to the task.
  • Required at all levels to act as a representative of the organization
  • Encourages the whole team to work together and supports them in accomplishing their tasks, as a guide.

Manager

A manager has to perform all five functions to achieve goals, i.e., Planning, Organizing, Staffing, Directing, and Controlling. Leadership is a part of these functions.

Managers are those individuals who are employed by the organization so as to direct and monitor the work of other employees working in the organization. They are the ones who get their work done by the employees and have the authority to hire or fire the employees.

He/She ensures that the tasks are completed within the stipulated time frame while complying with all the rules and policies of the organization and using the allocated resources.

Functions:

  • Planning: The planning function encompasses setting up goals, formulation of strategies, and development of plans to coordinate the activities of the organization.
  • Organizing: Organizing involves the arrangement of resources and scheduling of tasks so that activities can be performed in a sequential manner.
  • Staffing: This function involves recruiting the right personnel for various positions in an organization.
  • Directing: Directing involves providing direction, guidance, and supervision to the subordinates, so that they can perform the task effectively.
  • Controlling: Controlling involves keeping a check on the activities performed by the employees so as to make certain that they are performed as planned, by making comparisons. And if there are any deviations then, measures should be taken to improve them.

Manager

Leader

Origin A person becomes a manager by virtue of his position. A person becomes a leader on basis of his personal qualities.
Formal Rights Manager has got formal rights in an organization because of his status. Rights are not available to a leader.
Followers The subordinates are the followers of managers. The group of employees whom the leaders leads are his followers.
Functions A manager performs all five functions of management. Leader influences people to work willingly for group objectives.
Necessity A manager is very essential to a concern. A leader is required to create cordial relation between person working in and for organization.
Mutual Relationship All managers are leaders. All leaders are not managers.
Accountability Manager is accountable for self and subordinates behaviour and performance. Leaders have no well defined accountability.
Concern A manager’s concern is organizational goals. A leader’s concern is group goals and member’s satisfaction.
Role continuation A manager can continue in office till he performs his duties satisfactorily in congruence with organizational goals. A leader can maintain his position only through day to day wishes of followers.
Sanctions Manager has command over allocation and distribution of sanctions. A leader has command over different sanctions and related task records. These sanctions are essentially of informal nature.
Stability It is more stable. Leadership is temporary.
Followers People follow manager by virtue of job description. People follow them on voluntary basis.

Leader versus Mentor

Leader

A leader is an individual who leads a group such as a team, department or business in what they believe is the right direction. The leader tries to make decisions that benefit the entire group and address problems at the organizational level, allowing the group to advance toward its overall goals. Leaders also assign tasks to group members based on individuals’ strengths.

Effective leaders often motivate their juniors to improve by offering encouragement, recognizing work well done, rewarding successes and offering feedback. They may also promote a sense of camaraderie so individual group members desire to benefit the group.

Mentor

A mentor is an experienced and knowledgeable person in a field who undertakes an instructive and advisory role of a mentee, who has less experience. The mentor can guide the mentee toward growth by offering advice, helping to identify problems and being an encouraging figure. In business settings, mentors may also train and develop employees, and it’s not uncommon for mentors to advise leaders or be leaders themselves.

The mentor-mentee relationship is often long-lasting, similar to a friendship or parent-child dynamic. The mentor’s function is to be a source of support while letting the mentee ultimately make their own decisions about the directions they take.

Mentorship Inspires Individuals to Advance

Mentorship, hands down, is something that people need at any company, this will bring magnificent results as one needs to focus on the individual goals of their team members and inspire them to move to the next level on their own terms.

Leadership Is Crucial for Accountability

Leadership is more important because a leader must be willing to roll up his/her sleeves and do the actual work. This is more important as it will keep the leader accountable for everything they command, and show his/her employees how it gets done.

Mentorship is More Holistically Beneficial

Quite often, by definition, leadership is directional but it’s not as holistically beneficial as strong mentorship. Inspiring confidence, autonomy and the capacity to develop professionally are vitally important to a workforce with major societal challenges ahead.

Leaders Steer While Mentors Cultivate Culture

It is important to have both leaders and mentors within a business. At the very top level, there needs to be a leader who steers the direction of the company, and at the managerial level, it is essential to have mentors to learn from on how to cultivate a culture of learning.

Mentorship is Part of Effective Leadership

To be an effective leader, mentorship is part of the package. It is through this approach that people are able to mentor the next generation of marketing powerhouses through effective leadership.

Mentors Help Businesses Grow Future Leaders

Both mentorship and leadership have their own roles, but mentorship is the key to the success of any business. Mentors not only help team members evolve into making tough decisions for the business but also help them become future leaders.

Leaders and Mentors are Dependent on One Another

Mentorship and leadership are two sides of the same coin that are dependent on one another. From a behavioural science perspective, no one can motivate another person. Leaders can make it easy to accomplish what’s wanted or needed, whilst mentorship provides a form of guidance.

A Coaching Leadership Style is Akin to Mentorship

There are two primary types of leaders: dictators and coaches. The best leader is more like a coach or a mentor. Leaders and Mentors perform at their best when they are influencing and helping those they lead improve through encouragement and challenge.

Mentors Can Be Found in A Wide Range of Relationships

The mentorship role can encompass a wide range of relationships, from someone whom you occasionally meet for coffee or you can actually email for advice because having mentors to support and guide you is a key aspect of professional growth. But it’s important for leaders and mentors to be approachable, provide well-rounded advice and make people feel safe when reaching out to them.

Younger Workers Want Leadership and Mentorship

Leadership demonstrates positive movement forward and a confidence that inspires those just coming into the workplace, whilst mentorship provides a roadmap that allows someone to build their own skillset, knowing that they are, indeed, moving in the right direction, that’s why the new generation in the workforce wants both leadership and mentorship.

Leaders Must Listen and Dialogue as Mentors

Leaders must dance between inspiring and recognizing that their motivations, measures of fulfilment and relationship with “work” have shifted. Mentors, just listen. Some of the best decisions come from hearing feedback, involving the team and not being afraid to evolve.

Mentorship Shapes Employees to Lead in Their Own Areas

Mentorship shapes employees to become leaders in their own areas. That means they, too, get to bear the company’s goals and objectives so that they can carry out their tasks with minimal supervision.

Power and influence in teams

Power is the ability to impose your will on others, whereas influence is the ability to deeply affect behaviors and beliefs.

As a leader, you’ll need to use your power once in a while to steer the ship. But when you use influence to lead, you’ll slowly build deeper trust and loyalty with your team.

When you lose a position of power, you lose the power that came with it, but not the influence you generated.

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Power leadership

Power leadership uses sources of power instead of influence to motivate others to act.

With power leadership, you can influence how others act, but it won’t necessarily change what people believe and how committed they are.

Power leadership also tends to centralize power and decision-making to one person.

Instead of working to develop trust in your team and get your team to trust you, you focus on finding external ways to drive performance.

If you rely solely on power leadership, you don’t necessarily try to get feedback from your team. Although, it doesn’t mean you aren’t willing to listen when it comes your way.

Power relies heavily on forcing team members to do something through the use of threats, whether they’re implied or explicit. Intimidation is achieved by creating the belief that if an employee does not comply, they will face punishment whether that means being fired, losing out on a promotion or being berated in a public space. This kind of negative leadership can create the feeling amongst team members that they have no choice but to do things a certain way.

Power remains in the hands of one person, or a small group. This independent approach to leadership means that the team is not consulted during the decision-making process, and are often micromanaged to ensure that the leader’s methods are upheld. This undemocratic response to leadership removes a sense of responsibility from the team, decreasing morale.

Influence leadership

Influence leadership is having an impact on the beliefs and actions of the people you are leading.

You notice how the people you lead become motivated and committed, and you use what you know to generate positive results.

Influence leadership in management is based on two-way trust with the people you lead. 59% of leaders consider employee feedback a high priority, and building this trust can help make way for this feedback.

As an influential leader, this means you are not only open to receiving constructive feedback, but actively encourage it. You understand that feedback is necessary to improve the wellness of the entire team and help you improve as a leader.

Influence understands that teamwork is a dependent process: the team is dependent on their leader for guidance and the leader is dependent on employees to produce excellent work. As a result, there is a shift from autocratic decision-making to an emphasis on transparency and getting the team involved at various stages of a project’s inception. This approach means that team members feel valued, and as a result, produce work that reflects that.

Influence leads to an entirely voluntary approach to completing work. Through the use of positive affirmations and encouragement, influence results in the team feeling that they have a choice in both the work they’re required to complete as well as the means they take to get it done. Threats are traded in for persuasion and negotiation to allow employees more control over the work they’re doing.

Role of a Leader in Decision making

Decision-making is a leadership skill that managers use to assess a situation and determine how the organization may proceed. The decision-making process involves the following steps:

  • Identifying the challenge: In this step, the manager discovers an issue and determines the circumstances that led to the situation.
  • Devising solutions: After learning more information about the case, the manager creates one or several possible solutions.
  • Weighing options: The manager analyzes the advantages and disadvantages of each option and explores alternative solutions if needed.
  • Making a choice: Once a thorough assessment takes place, the manager makes a final decision about what action to take.
  • Informing others of the decision: The manager informs employees of the decision and explains how the decision influences the workplace.

Role:

Improve workplace productivity

Effective decisions can save time and propel work projects forward, increasing employee productivity. For example, employees at a small furniture store disagree about when to host the annual spring sale, which prevents them from promoting the sale and preparing the store for an influx of customers. The manager of the store announces the sale date in April. This decision starts the planning process and motivates employees to complete their associated occupational tasks.

Reduce conflict

The decision-making process can decrease conflict by setting clear expectations for employees, leaving little room for misunderstandings. As a manager, you can provide direction on how your team collaborates to achieve organizational goals. For example, you may assign teams for major projects to distribute the work evenly. Deciding what standards you want for your team can promote shared understandings instead of confusion.

Establish trust with the employees

Good decision-making can help managers show their employees that they value their work and have their best interests in mind. When a manager takes the time to evaluate, analyze and explain decisions, they also display thoughtfulness and trustworthiness. Employees may feel they can confide in their managers about their interests and concerns.

Create action plans in emergency situations

Emergency situations may require managers to make quick, impactful decisions to minimize damage and optimize benefits. For example, a small town experiences a power outage, and employees at a local grocery store become concerned with how this may affect their work hours.

The store manager decides to open the store operating on a generator and provide work hours for employees who can safely travel to the store. This ensures employees can work to earn income and the store receives business. When unexpected situations occur, it’s important for managers to assess organizational needs and decide how best to proceed.

Challenges to Wealth Manager in India

Regulation of FDI and foreign exchange

The Reserve Bank of India (RBI) controls all foreign exchange inflows and outflows, directly or through the banking system. Foreign direct investment (FDI) in India was historically heavily regulated, it is now more liberalised. However there are detailed compliance requirements for remittance of capital into India and for repatriation of profits to a parent outside India. Remitting money into or out of India through banking channels also requires a substantial amount of paperwork. Similarly, taking a loan from an overseas parent company falls under the External Commercial Borrowing (ECB) guidelines which restrict certain sectors from borrowing and place limits on amounts, interest rates, agreements, etc.

Complex taxation systems

India has both direct and indirect taxation in the form of income tax (IT) and goods and services tax (GST). The latter replaces many taxes, including service tax, value added tax, central sales tax and others. Both IT and GST systems are moving towards greater online reporting, however both require in-depth analysis and interpretation of tax law. There are also several monthly, quarterly and annual tax compliances for companies of all sizes. In addition to this, tax scrutiny/assessment or tax audit can often be a lengthy, time-consuming process, with extraneous factors influencing outcomes at times.

Complex legal systems and slow-moving judiciary

A relic of the British era, India’s legal system is complicated and often archaic. There are several legacy laws that continue to apply to companies and individuals. All businesses require multiple registrations and certificates and manufacturing entities face the highest compliance burden. Labour laws are strict, however most small to medium sized companies do not have strong unions. Delays in court cases can stretch to decades and it is quite ordinary for all directors of a company to received personal notices in litigations against the company.

Differences in market

In size and scope, India is an extremely complex marketplace. For consumer brands in particular, it can be overwhelming to formulate a strategy. This is because of the multitude of regional languages, the varied income ranges of consumers, the difficulty of setting up a distribution network and so on. Local competition usually exists and has the first mover advantage. There is also a thriving and fragmented unorganised sector which cannot be analysed and competed with.

Wealth Management Services Used

  • Independent financial advisers are more widely being used than firms that position themselves as wealth managers.
  • Younger potential clients use a wealth management service as a one-stop shop.
  • Poor service and poor communication are the key reasons for dissatisfaction with a wealth manager.

Investment Preferences

  • Potential clients in both age groups favour an advisory portfolio management approach where every investment transaction is first approved by the client. So discretionary mandates are declining and Clients are increasingly becoming more active in the investment decision making process.
  • Overall, clients want to focus on core asset classes such as equities and bonds, with less interest in non-core instruments. Younger clients show marginally more interest in specialist areas such as emerging markets.
  • Clients are increasingly going for a customized portfolio creation than just investing in model portfolios.

Client-led not sales-led proposition: wealth managers need to show how they differ from other intermediaries. Primarily this requires a business structure that enables the Wealth Management Organizations to focus on quality of client advice, not volume of product sales.

STP & SWP

STP

STP is a useful tool in mutual funds to average your investment over a specific period. To decide on whether one should do an STP or lump sum depends on three factors an investor’s current allocation to equities, the risk profile of the investor and finally, the market view. For instance, to invest Rs.1 lakh in an equity fund using STP, you may first select either an ultra-short-term fund or a liquid fund.

Features of a Systematic Transfer Plan

Entry & Exit load

To apply for an STP, you need to do at least six capital transfers from one mutual fund to another. While you are free from entry load, SEBI allows fund houses to charge exit load. However, the exit load cannot exceed 2%.

Minimum Investment

There is no standard minimum investment amount to invest in the source fund. However, some AMCs insist on a minimum amount of Rs.12,000 in their systematic transfer plans.

Taxation on STPs

While an STP is a good strategy, you should be aware of the tax implications and exit loads on the transfer. Every transfer from one fund to another is considered as redemption and new investment. The redemption is usually taxable. The money transferred within the first three years from a debt fund is subject to short-term capital gains tax (STCG). But even with this tax aspect, the returns earned would be higher than those in a bank account.

Disciplined & Lucrative

Systematic Transfer Plan (STP) enables a disciplined and planned transfer of funds between two mutual fund schemes. In most cases, investors initiate an STP from a debt fund to an equity fund.

Investment steps of STP:

First Step: As soon as the lump-sum amount gets credited into bank account, go to websites like moneycontrol or valuereserachonline and pick a good debt based & equity based mutual fund. The units purchased of a debt based fund is the beginning of the process.

Second Step: In the second step you will decide an amount which you would like to withdraw (SWP) each month from the debt fund for onward investing (SIP). This amount can be fixed or variable. We will know more about this in types of STP.

Third Step: The amount decided in 2nd step gets automatically invested (like SIP) to buy units of a pre-decided equity-based fund. In an STP, there is a limitation on number of transfers from a debt fund to equity fund. Example: Minimum of 6 transfers from a debt fund to equity. Read more about other limitations.

Systematic Withdrawal Plan

A Systematic Withdrawal Plan or SWP allows an investor to withdraw from his/her mutual fund scheme every month on predefined dates. This withdrawal could be a fixed or a variable amount. It could be made on an annual, semi-annual, quarterly, or even monthly basis.

Advantages of systematic withdrawal plan

A steady source of income

SWP’s can help your finances by ensuring a steady and regular flow of income as per your chosen period. It can be of great help, especially if you have attained retirement or when you need an extra cash flow to meet expenses like your child’s educational expenses.

Investment with discipline

With SWP, an investor can automatically redeem some mutual fund units every month to meet monthly expenses, irrespective of market levels. Thus, it protects against withdrawing large amounts from panic/fear during volatile market situations. It allows withdrawals even when markets are experiencing new highs and therefore, protects investors from impulsive investment during boom periods.

Tax Benefit

Since tax is usually payable only on the income component and not the capital component, SWP can be a great way to benefit from tax efficiency. Withdrawals on the SWP are treated as a combination of Capital and Income. SWPs also enjoy tax exemption for up to Rs. 1 lakh on long-term capital gains. The investor needs to pay tax only on earnings in excess of Rs. 1 lakh. In the case of equity funds, tax is to be paid on the gains from equity at 15% on the withdrawn sum if the holding period is less than a year. In the case of debt funds, if it is withdrawn within 3 years, the returns are treated as a part of income and taxed on the basis of the relevant slab rates. On the other hand, if it is withdrawn after 3 years of investment, then the gains from equity mutual funds are taxable at a rate of 20% after indexation, which is, of course, more profitable.

Meeting financial goals

If planned on time, SWPs can be a great asset for you and help you meet your financial goals easily. A second income, besides the salary, is always an added benefit. It can help meet your goals from being delayed due to the unavailability of cash or cash crunch. If set for redemption at a time when you need the most, SWP is a great value addition.

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