This scene is playing out in board rooms globally. According to Training magazine and Wilson Learning Worldwide Inc., “In 2020, companies spent $176 per employee, on average; in 2019, this figure was $147. Last year’s Leadership Survey showed that current leaders in high-performing organizations were 48% more likely to give new leaders increased responsibility and provide coaching than were leaders in low-performing organizations.”
In his recent book, The Leadership Decade: A Playbook for an Extraordinary Era, Buddy Hobart states, “Investing time and money into someone’s development is not a one-size-fits-all solution. In any organization, there are high-potential folks who have proven that they are ahead of the pack. Investing in these folks will lead to the greatest ROI.”
If organizations want to retain their top talent, the leaders must understand the return on investment (ROI) they can produce by developing their top talent. So, why aren’t companies investing in leader development?
Executives Aren’t Sold on Leader Development
Unfortunately, many senior executives aren’t sold on leader development because they can’t see the immediate, tangible results. However, many companies are stuck in a 20th-century development model. Consider that many current executives over 55 received training from leaders who learned leader development in the 1920s! What’s the evolution from 20th- to 21st-century leadership?
20th-century leadership was about:
- Career ladders.
- “No news is good news.”
- Learning from mistakes.
- “Pay your dues.”
- Time is on the employer’s side.
The 21st-century model is about:
- A Career Chessboard.
- Realtime feedback.
- “Teach me & show me.”
- “What’s next?”
- Job jumping is a new normal.
Current Executives Don’t Know How To Develop and Retain Their Top Talent
The DDI Global Leadership Forecast 2018 found that only 41% of C-suite leaders surveyed believed that their organizations’ leadership development programs were high-quality. Despite the billions of dollars that companies pour into these efforts each year, most organizations still poorly measure the effect of their leadership development initiatives.
Consider what Jack Zenger, CEO of Zenger/Folkman, researched in his HBR article: “The typical individual in these companies became a supervisor around age 30 and remained in that role for nine years. It follows then that if they’re not entering leadership training programs until they’re 42, they are getting no leadership training at all as supervisors. And they’re operating within the company untrained, on average, for over a decade.”
Or consider what Heather R. Huhman cited in her Entrepreneur Magazine article, “A 2016 survey of 500 managers from micro-learning platform Grovo found that 44% felt unprepared for their role. Additionally, 87% wished they’d had more training before becoming a manager.” So, what’s holding companies and executives back from investing in developing their leaders?
Why Is Investing In Leader Development Worth It? A Real-World Example
A CFO from one of our clients has been evaluating the return on investment for leadership development. During a brief period where the organization considered selling, they performed a “business evaluation exercise” that gave them a good idea of how the outside world viewed their leadership team and leadership development.
This business has approximately $65 million in revenue with about 200 employees. Over the last five years, they have invested about $450,000 in leadership development and put 24 folks through a distinct leadership development program. From this group, only one person has left the organization, and one has gone part-time since she started her family. The average turnover before implementing the leadership program would have conservatively seen ten folks exit the organization.
Her ROI estimates and calculations came out to the following:
- Reduced turnover = 9 x $30,000 = $270,000.
- Five-year increased profits = $5 million.
- Increase the value of the business 2X EBITA ($9.7 million) = $19.4 million
In the CFO’s estimation, the savings on retention alone nearly paid for the entire $450,000 investment, but the total business return was $24.67 million. The total ROI was 54.82. These numbers were vetted with the current bankers, which allowed the ownership to take nearly $10 million in “chips off the table.” A significant return on investment indeed.
How Can You Build a Business Legacy?
It all starts with who you currently have. Are your employees excited to come to work because of the culture and opportunities you provide? Who are the high potential leaders that need development now to be ready for the executive ranks 5-10 years from now?
Is development a line item under your “expenses” or does your company’s culture see development as an investment into the future? How much opportunity cost are you leaving on the table because leaders aren’t being developed?
Although you might not have the experience of a professional coach, be an engaged leader and learn what your employees need for their development. If you feel overwhelmed, seek outside support for coaching and development. Bring in experts to partner, come alongside your organization, and tailor a solution to fit your needs.
Buddy Hobart also stated, “Organizations tend to cut their leadership development initiatives in order to ‘save’ expense dollars. Words matter. Investing in leadership development is definitely not an expense. It is a commitment and a long-term investment. It can be the focus of your organization with spillover to make everything more effective and efficient.” Are you saving or investing for the future? How can you overcome the fears or unknowns about the ROI of effective leader development? Who do you need to partner with the train and retain your top talent and preserve your business legacy?