Despite some claims to the contrary, return-on-investment research that directly links leadership development implementations to financial return is rare. This is because it is very difficult to document accurately.
ROI is generally based on two measurement components: quantitative and qualitative. Quantitative ROI is normally expressed as a quantity that is clearly measurable in dollars, time saved, headcount, improved margins, or other metrics that would stand up to scrutiny by a CFO. Qualitative ROI, on the other hand, relates more to benefits based on less measurable factors such as customer perception, effective leadership, and employee engagement or recruiting and retention success.
How do you convince the CFO that the ROI is truly generated by leadership development? The real difficulty, and hence the scarcity of research data, stems from the fact that organizations are not static but are extremely dynamic. For instance, if a newly trained manager takes over the production department, how can you prove that improved output of the employees in the department resulted from a leadership development program, new process or equipment, improved supplier quality or the new manager’s leadership? You probably can’t.
So, this is where common sense takes over. Can you reasonably expect that people who understand what their goals are, how they link to the big picture, how their performance will be measured, and the connection between leadership, performance and rewards will produce more? Obviously, the answer is “Of course.”
Financial measures are not effective measures you can put on a leadership course. What you can do is measure changes in behavior and attitude in the company over a period of time. The effectiveness of leadership training can be measured through a rolling employee survey. Ask employees how their managers are behaving. Are employees being thanked? Are they being given effective direction? Through this process the impact of leadership development can be measured.
Leadership training and coaching should not be given in isolation. The employees of the organization should know who is going through leadership development training or coaching and told how it should impact them. People in leadership roles tend to go away to a seminar and then come back and implement new ideas, which leave staff wondering what they are doing or worse yet provide “no” new leadership techniques or change in attitude or behavior. To be most effective, leadership development should be an organizational strategy know to all.
Five Reasons for Developing Future Leaders 1. Leadership Development is a Business Imperative Is there a succession planning process in place to identify and develop the leadership talent required to meet present and future organizational objectives?
Organizations which develop leadership skills within a strategic context and in a routinely disciplined manner, grounded in the increased effectiveness by those being developed, will experience impact on business outcomes. Leadership development is not done just for the benefit of the individual; it is also directed at the short and long-term strategies of the organization.
2. Leaders determine whether an organization succeeds or fails Is the organization willing to invest in its future human capital?
This statement and question applies to leadership at every level of an organization. Virtually every leading management thinker – Bennis, Buckingham, Coffman, Covey, Kotter, Tichy, Welch and Wheatley to mention a few – stresses the essential role of effective leadership throughout an organization citing it as a “competitive necessity.” These leadership experts stress that leadership development requires an investment in time, effort and resources; however they all state the return on investment, even more than dollars and cents, is measured in enduring business success. Leadership development should be viewed as an investment in the organization.
3. Leaders determine the culture of the organization Does the organizations leadership truly understand what the present culture is and what culture they want to create for future success?
Many forces work to shape an organizations culture, but none is more important than leadership. As leaders model behaviors that create authentic, trusting and action driven results, they make a positive difference in affecting morale, introducing change and supporting enduring business success. Effective leaders understand that culture counts and the fact that they play a key role in establishing and guiding organizational culture.
4. Leaders determine the level of talent available to carry out organizational goals.
Is the present leadership trained to hire, coach and teach the high potential talent required for success in the organization?
Noel Tichy states “Winning companies win… because they have good leaders who nurture the development of other leaders at all levels of the organization.” He adds “winning leaders have well defined coaching and teaching techniques. A great game plan can only be effectively executed by great talent.
5. Effective leaders are becoming a “scarce” breed of individual Where will your future organizational leadership come from?
As the baby boomer's retire and because of the widespread reduction in mid-level management over the past two decades, there will be a shortage of individuals prepared to assume the role of the leader. When looking at key leadership positions, organizations are faced with three options. Grow their own “known” talent from within… hire outsiders who are basically an unknown entity… or a combination of both.
Five Benefits of Leadership Development Coaching 1. Less Expensive Developing, coaching and promoting an internal person to a leadership position are significantly less expensive than:
Advertising, recruitment fees, time wading through resumes, relocation and interviews with unknowns, signing bonus and the training/break-in costs typically required bringing in someone new from the outside..
2. Cost Effective Studies show that replacing a management level employee by hiring from the outside can cost two and four times the annual salary of the position being filled:
According to some firms, this is a conservative estimation as they have seen the cost go to as high as six times the annual salary. Also, some studies indicate that 50% of the new hires at the executive level only last between 6 to 9 months. Just like good new customers are often expensive and hard to find, so too is good new leadership 3. Less Frustrating Most managers find the process of recruiting; time consuming and frustrating because:
Managers do not hire on a day to day basis and normally are not well prepared or trained in effective interview/hiring techniques. As the economy grows, hiring will become more of a problem. If you have kept the very best through the down times – and I would suspect you did – why would you not want to develop and use this ready talent for your key positions as you begin to grow?
4. A Win-Win By developing and coaching in-house high potentials and key management individuals… the organization wins because:
A succession planning process is embedded in the organization, it helps to preserve acquired skills, maintains both product and organizational knowledge gained by your top people, promotes longevity and dedication from the best people in your workforce, provides growth and educational opportunities for key individuals, lets them know they are valued, helps reduce turnover of your best people and… provides evidence and a comfort level to your board of directors that future organization leadership is in place.
5. A Great Return-On-Investment Investing in the development of your best… to make them even better… is a very bottom-line savvy tactic because:
It is both an ethically sound and proven philosophy. Take care of your very best people and they will return the favor!!!
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Roger M. Ingbretsen, Author, Speaker, Leadership Coach, Organizational and career developer For more information, visit www.ingbretsen.com or call 509 999 7008.
Why Invest In Leadership Development - To learn more about this author, visit Roger Ingbretsen's Website.
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