The ROI of leader development: 3 reasons to invest
It’s interesting that in today’s business climate many leaders continue to view investing in leader development as an expense. Talent development in general is one of the first areas many companies look to cut costs in tough times or they make excuses about not having enough time to devote to it in times of rapid growth. Be warned. In times of growth, there is often a false complacency that accompanies success, while in tough times there may a failure to recognize that survival may depend on the effectiveness of leaders to execute.
In either extreme or in between, the lack of a “budget” for leader development is not the real question. The real question to ask is, “Where are you spending or losing that money anyway?” If you are feeling reasonably successful, yet still want more growth, you will want to consider what is inhibiting further growth and the financial impact of that. If you are experiencing internal challenges in the form of turnover, lower engagement, lacking productivity or customer issues, you will want to consider what is causing those outcomes and what that is costing you in real dollars. In these cases there is likely a direct correlation to the effectiveness of your leaders and the results.
Studies over the last 50+ years ranging from Frederick Herzberg’s work in the 1960’s and 1970’s to the ongoing work of Gallup, SHRM, Bersin and others consistently show a direct connection between effective leadership and real financial results. Following are 3 ROI reasons to take a hard look at your organization and ask if you need to focus on leader development:
Increase Engagement: In 2012, Gallup conducted a meta-analytic study that spanned 1.4M employees, from 192 organizations distributed across 49 industries and 34 countries. The baseline result? The employee engagement difference between the top 25% and bottom 25% of the organizations showed 22% higher profitability, 21% higher productivity and 10% higher customer satisfaction.
Reduce Turnover: The Society for Human Resource Management notes, “Employee departures cost a company time, money, and other resources. Research suggests that direct replacement costs can reach as high as 50 – 60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary.”
Drake International offers a free online turnover calculator to help you determine the impact in real dollars of turnover in your company, located here.
Improve Productivity: Simply stated, this is about getting more from your existing resources. From a leadership perspective, this is about increasing the capacity of teams to do more or do it better. This can have massive impact on customer loyalty or simply the amount of work that can be done. It can’t happen unless the leader can actually develop the team. While Gallup cites 21% higher productivity (see above), the Journal of Nursing Management published a study in 2001 that showed key leadership behaviors had a statistically significant impact on productivity.
Various and countless studies can be found in seconds with a simple Google search and the results are remarkably consistent. The question is this, “Do you and your organization have the foresight to make this all important investment?” If you have invested and the results have not been as expected, maybe you simply have not invested in the right leader development program or maybe your culture does not fully support the behavioral changes required to realize the benefits.