Billions of dollars are invested in leadership development. Research suggests that the majority of this expenditure doesn’t appears to return the value it promised. Are organizations throwing money away? Do organizations regard leadership development as a necessary attraction / retention tool? When does leadership development deliver against its return on investment?
So many questions! Understanding how to get a return on investment for leadership development should be at the top of the list of any serious professional in this field. You wouldn’t buy a car if you didn’t think it would deliver against a list of core requirements would you? At least providing a means of transport to facilitate different aspects of your life style. And you’d probably like it to deliver against some “nice-to-have’s” as well! As with a car, so with leadership development.
When considering the leadership development agenda, what do you want it to deliver? Is it a healthy leadership bench capable of populating a succession plan so that the future of the organization is robustly ensured? Is it to develop capabilities in leaders that align to the organization’s core direction, or change in direction? Is it to enable leaders to step up to a level of greater accountability so that they can effectively lead others and their deliver against their functional responsibilities? Whatever the reason might be, any leadership development initiative should start with a ‘master objective’. For me, this approach is more meaningful than dancing my way around Kirkpatrick and other learning effectiveness models …. Although it could be said that a ‘master objective’ is equivalent to Level 4 (Results) – which by the way I think is the right place to start – not Level 1 (Reaction).
Once you have established a master objective, this should be unpacked as to what value it adds to the organization. You should always try to articulate this in units of dollars – not just things like culture, confidence or continuity …. even though these are all important. For example – what is the cost of hiring against the cost of retention? What is the cost to the organization of not managing under-performing employees, e.g. only delivering 80% of objectives instead of 90%? What is the cost of not having a leader fully effective in a role when it becomes vacant? What is the cost of promoting leaders who only deliver 80% against expectations as opposed to 90%? (I’ve deliberately avoided setting the bar at perfection to allow for a little flex!) And lastly, what is the cost to the organization if the annual stockholder report does not reflect any investment in developing the highest caliber of leaders?
Measuring cost to the organization of not developing leaders is only one half of the equation. Perhaps the more challenging side of measuring ROI is to measure the upside, i.e. the value added. For example, how much will the development of leaders add to the revenue growth of the organization? How much will leadership development allow the organization to attract the brightest and best to its ranks? How much will leadership development provide for accelerated transitions of strategy, acquisitions, etc.? And lastly, how much will leadership development ensure that only the best leaders are elevated to higher levels of accountability?
There are some measures, or values, that are harder than others to put dollar amounts to. I would suggest that the power of the arguments, articulated in business parlance and with senior leadership sponsorship, are likely to ensure that leadership development is seen as a critical organizational imperative rather than an overhead.