Which is easier – measuring leadership development ROI or teaching jellyfish to walk on dry land? Some might opt to work with the spineless sea creature rather than formulate a system to measure the results and return on leader training.
However, learning and development professionals know that effective leadership development can transform organizations — impacting everything from individual performance to the execution of overall business strategy. Investing in leaders through coaching, mentorship, and other experiences empowers them to lead their people toward stronger team and company performance.
In this post, we’ll explore what high-ROI leadership development looks like and how you can achieve it – and measure it — in your organization.
Why is Measuring Leadership Development ROI so Hard?
Three main issues stymy efforts to capture ROI metrics for leadership development.
- Timing – behavioral change takes time. Change is often positive, but gradual. To accurately measure full impact, you might have to gather data over a period of years, not weeks or months.
- Data – While companies spend huge sums on talent, most are laggards when it comes to implementing systems to measure performance. Even professionals at organizations with performance management systems may admit that performance data can be more subjective than objective.
- Science – Behavioral science – as practiced in corporate settings – is fairly immature. In any valid scientific experiment, we must control extraneous variables. In other words, you have a control group and a test group, and the only difference (variable) between the two groups is what you’re testing. That’s difficult to do in a business setting relating to talent development. When we’re testing new products, we might be able to set up controls – such as test markets. But many variables – not just leadership development – affect leaders’ performance and business results. That’s why its difficult to both run the business and simultaneously control for variables to uncover definitive cause-and-effect results of leadership training.
- Strategy – Professionals involved in development are often so focused on the development program design to stop and think strategically about how to prove the program is working. And with fuzzy or no ROI, leadership programs often go underfunded or even eliminated.
To demonstrate a positive leadership development ROI, it’s essential to start with the end in mind. As the consultants at McKinsey are famous for asking, “What problem are you trying to solve? What are your outcome goals? And more specifically, what are the measurable goals of your leadership development program? And lastly, what you can readily measure in your organization?”
Before we talk more about developing a process to measure ROI, let’s look for inspiration. Here are several examples of leadership development’s powerful outcomes.
Outcomes that Illustrate the ROI of Leadership Development
Investing in leadership development can transform your organization by fostering a culture where leaders excel and employees thrive, ultimately driving company growth. With a thoughtful investment in building great leaders, these individuals become more than people managers; they become coaches, role models, and champions for innovation.
Here are several key outcomes that demonstrate leadership development ROI:
Stronger Business Performance
Research has found that effective leaders drive better decision-making, innovation, and overall productivity, which naturally leads to improved financial performance. According to McKinsey research, organizations with top-tier leadership have nearly double the EBITDA of others.
Effective Change Management
Change is inevitable in any organization, and effective leadership is crucial for navigating it successfully. Leadership development enhances your organization’s ability to manage change by training leaders in adaptability and resilience. A study of over 200 participants in leadership development programs across 20 organizations found that these programs helped leaders make better decisions, respond more quickly in times of crisis, and ensure faster organizational recovery after operational disruptions.
Higher Employee Engagement
According to Gallup, 70% of the variance in employee engagement is determined by the manager. With developmental experiences that enhance skills like communication and empathy, leaders are better equipped to keep their people engaged and committed to achieving goals.
Higher Retention
While many employees would leave due to bad leadership, they’re more likely to stay in an organization where leaders know how to provide clear direction, invest in their growth, and foster a positive work environment.
A Stronger Leadership Bench
A recent IMPACT Group study found that HR and L&D leaders are highly concerned about having too few leaders ready for the next level. However, investing in leadership development for frontline and middle managers helps ensure they have the necessary skills to advance and replace departing leaders.
Design Your ROI Measurement Process for Leadership Development
Begin with the end in mind. Start with what your CEO, CHRO or other internal stakeholders want to change. If you don’t know, read your company’s earning call transcript, strategic plan documents or internal presentation decks. What are the company’s goals?
Next, how do those goals relate to talent? What is the talent goal? Can it be measured?
Ways to Tie ROI Metrics back to Leadership Development
Depending upon the organization’s business goals and the specific goal of the development program, our clients have tracked several metrics in relation to development programs such as:
- ROI and other business results from coach-guided, capstone projects completed as part of the development program
- Engagement scores from manager/leader surveys
- Performance scores / promotions from Performance Management Systems
- Manager feedback from those managing the leader
- 360 degree feedback /pre and post leadership development
- Retention rates of leaders developed as well as their teams
- Reduced gaps in talent pipeline – due to an increase in leaders rated “ready” for more responsibility
Key Components of a High-ROI Leadership Development Program
To achieve a positive ROI from your leadership development programs, it’s crucial to implement a mix of experiences that boost leader confidence and encourage positive changes in their daily leadership behaviors. Therefore, consider how to integrate the following elements into your current leadership development program:
- Coaching: The benefits of executive coaching are well-established, but you can drive an even stronger ROI by extending those benefits to leaders at all levels. For example, affordable, scalable microcoaching helps non-executive leaders enhance their leadership impact and tackle daily challenges more effectively.
- Online training: Unlike traditional classroom and group training sessions, online training offers flexibility and accessibility, allowing leaders to learn at their own pace. You can also take online training to the next level by combining it with coaching. With this powerful mix, leaders receive personalized one-on-one guidance and engage in customized online activities that reinforce each coaching session.
- Development of high potentials: High-potential talent development programs offer emerging leaders challenging assignments – such as capstone projects — and training that prepares them for senior leadership roles. Investing in these individuals helps retain your next generation of leaders and ensures a strong leadership pipeline for the future. For instance, some of our clients, including MJ Electric, develop future leaders through a leadership development program that culminates with a capstone project. Our coaches prepare leaders to succeed in managing high ROI projects and advise them on how to track their results and deliver positive outcomes. So when these clients track the ROI of leadership development, they include the payback (cost savings and increased revenue) from their capstone projects.
- Job rotations: Job rotations broaden leaders’ experiences and perspectives within the organization. By rotating through different roles and departments, they are exposed to diverse teams and gain preparation for roles with greater responsibility and complexity.
Drive Continued Business Success Through Leadership Development
Leadership development is a crucial investment that yields significant returns for your organization—but only if you implement a range of development options that serve the needs of all leaders, from emerging leaders up to the executive level. By understanding the ROI of leadership development and implementing these diverse strategies, you can position your leadership development program to drive business performance, enhance team engagement, and foster a positive workplace culture.
Ready to leverage leadership development and build a stronger foundation for long-term success? Explore IMPACT Group’s people development programs for leaders at every level.
