What you should know about business leadership

People often throw the word “leadership” around in business settings. Yet, when asked to define good leadership, they often struggle to find the right words. While leadership can describe specific characteristics or roles, it has a distinct position in the business world.

Business leadership requires a wide range of skills and can involve several different approaches. Gaining a deeper understanding of the meaning of business leadership and different types of leaders can give you the insight you need to reflect on your leadership style and determine if you should make changes.

What is leadership in business?

Merriam-Webster defines leadership as “the office or position of a leader” or “the capacity to lead.” However, those definitions do little to explain the actions of leadership in a business environment.

According to McKinsey & Company, “leadership is a set of behaviors used to help people align their collective direction, to execute strategic plans and continually renew an organization.”

Effective leaders, no matter which type, typically have many of the same skills to support employees and focus on a business’s future.

Business leadership is an individual’s actions to inspire others to see their vision for the future and complete goals to achieve it. Great business leaders achieve this through transparent communication, ongoing support and careful decision-making.

Why is leadership important in business?

Leadership performs many essential functions in business. While employees at all levels carry out critical tasks that make any business successful, leadership is the backbone that provides direction for the company.

An organization’s leaders define the company’s overarching mission, delegate responsibilities, handle unexpected problems and inspire others to reach the highest levels of performance. In the best circumstances, they cultivate a positive environment and build trust to create a sense of belonging among employees.

Leadership is essential to define an organization’s future and set goals for growth. A leader’s influence can resonate throughout an organization to motivate teams to collaborate, innovate and reach lofty goals. Companies with effective leadership engage employees, adapt to change and take calculated risks to achieve excellence.

Essential skills for business leaders

The idea that great leaders are born, not made, is a myth. Anyone who is passionate about a goal and willing to learn how to guide others can be a good leader.

Brushing up on these essential skills is a good place to start if you’d like to become a more effective leader.


Communication is a leader’s most effective tool. It’s the skill that enables them to get buy-in from stakeholders and share their vision for the future with employees.

Great leaders have strong written, verbal and interpersonal communication. They can empathize with others and make decisions based on the needs of employees, customers and the organization.

Emotional intelligence

Also known as EQ, emotional intelligence is the ability to recognize and manage your own emotions. It also involves understanding and responding appropriately to the emotions of others.

According to psychologist and author Daniel Goleman, emotional intelligence includes self-awareness, empathy, motivation, social skills and self-regulation.

Developing EQ will give you a greater understanding of those around you. It will also enable you to personalize your communications to fit other people’s needs.

Financial literacy

While great leaders innovate and inspire, they are also responsible for developing and implementing business strategies to help the business grow and succeed. We often associate these tasks with the business’s financial performance, including cash flow and profitability.

Financial literacy is the ability to understand and implement financial skills, including budgeting, investing, forecasting and understanding cash flow statements and balance sheets. This knowledge is essential for a leader to make informed business decisions and take calculated risks.


Awareness of your own emotions and what causes them is a part of emotional intelligence. But self-awareness in leadership goes deeper. It also considers performance and how you respond to pressure.

It’s easy to think that no one knows you better than you know yourself, but this is rarely true. Self-awareness requires ongoing introspection to identify your strengths and admit your weaknesses. Effective leaders use self-awareness to delegate tasks, control their actions and improve their leadership capabilities.


In business, there are surprises around every corner. The path to success isn’t straightforward. It often makes you feel like you’re traveling in reverse.

Resilient leaders adapt to changes and remain flexible under pressure. They use critical thinking to solve unexpected problems and lead the organization through uncertain times.

The ability to inspire improved performance

Great leaders never force employees to do things they don’t want to do. They inspire individuals to excel at the duties they hired them for. Effective leaders influence others with honest communication and understanding. They ask questions and provide support. They also ensure employees have the resources they need to perform at the highest level.

Becoming an influential leader starts with getting to know your employees as individuals. You’ll need to communicate with them in a way that brings out their best performance. This may include delivering constructive feedback, showing empathy, fostering open communication and supporting growth opportunities.

Types of business leadership

While effective leaders have many of the same skills, there’s no one way to be a great business leader. Your personality and how you perform in your role will be a crucial part of how you inspire your team.

Consider how these leadership types align with your natural behavior and determine what type of leader you are.

Laissez faire leadership

If the words laissez-faire bring laziness to mind, you’re not far from their literal translation to “leave it alone” or “let it be.” However, laissez-faire leadership centers more on trust than on laziness.

The laissez-faire leader puts together an expert team, then steps back to let them perform as they expect them to. This leadership style requires you to provide resources, support and feedback so team members can make informed decisions for themselves.

Democratic leadership

Democratic leadership promotes participation from workers of all levels.

To include everyone in decision-making, you need to establish a culture of inclusivity and psychological safety. This includes encouraging feedback, accepting that things won’t always go to plan and rewarding employees for a job well done.

Democratic leadership motivates employees by giving them purpose in their decisions and work.

Transactional leadership

This leadership style is based heavily on rewards. A transactional leader arms workers with the necessary training and resources to carry out their duties and rewards them based on performance.

Transactional leadership works best in goal-oriented environments where employees strive to improve their performance for the right reward. This might involve giving pay increases to consistently high performers, team bonuses or company-wide celebrations.

Transformational leadership

The concept of transformational leadership was born in the 1970s. It focuses on change as a motivator for improving performance.

Transformational leaders set a vision for the future and motivate employees to develop and implement solutions to reach the highest levels of success.

During periods of stagnation, transformational leaders identify the strengths and weaknesses of individual team members and motivate them to learn new skills. They tailor motivational support to each team member’s needs and communicate the organization’s mission in a way that shows each employee why their work is essential. As a result, the team feels inspired to work together as a unit for improved performance.

These leaders often embrace innovation and work well under pressure. They are very effective at implementing changes to improve company culture or leading organizations through periods of substantial change.

Situational leadership

Situational leadership personalizes leadership actions to the situations and individuals involved. It requires a leader to know each individual on their team and interact with them in ways that drive them to success.

Situational leaders combine different leadership styles and use them when necessary. When a team is performing at the highest level, they stand back. If a crisis looms, they step in and adopt a transformational approach to encourage employees to pivot to a new solution.

5 ways to improve your business leadership skills

Many people don’t realize they can learn and improve leadership skills. The best business leaders consistently learn new things and hone their skills to guide their employees to greater levels of success.

No matter what type of leader you want to be, you can follow these steps to improve your leadership skills and reach new heights in your role:

  • Assess your current strengths and weaknesses. Reflect on your strengths and weaknesses, then seek feedback from peers and employees to add external data to your findings. Use this information to set goals for improvement.
  • Find a role model. The best leaders are lifelong learners. Seek out an accomplished leader in your industry and learn more about how they achieved success.
  • Get advice from your employees. Let those you lead provide insight into how your actions can improve the workplace. Use surveys or suggestion boxes to allow employees to voice their opinions anonymously.
  • Increase communication. Sharing information is the most effective way to lead a group of people toward a singular goal. Let employees know your door is always open and encourage spontaneous communication.
  • Continually seek new ways to succeed. Great leaders depend on emerging knowledge and tools to assist them in their endeavors to motivate their teams and reach success. Stay up to date on new information and technology that can improve your leadership experience.

Leadership is a critical part of any successful business. Whether you’re hoping to assume a leadership role or want to improve how you lead your company, learning more about business leadership can help.

Check out our leadership blog to learn more about the types of business leadership and effective leadership techniques. You can also find tools to solve almost any leadership challenge with Pip Decks for leaders.

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