ROI of Leadership Development

A young man joins a gym having paid for a full years’ membership fee. On the first day at the gym he meets the girl of his dreams. They meet every day for a year (clearly, the man’s gym routine is off) and then they get married. Has he got a good return on investment of the gym membership? If the return that comes through is not what was planned, would that make the investment worthwhile?The Army, Navy and Air Force is famous for the continuous training they provide to their officers. Their belief is ‘sweat more in peace to bleed less in war‘. But what if there is no war, how would we measure the Return on Investment in developing their leadership skills? Does the effectiveness of learning get measured only if it is used? What is the best way to measure investments in Leadership Development?  When there is a downturn in business, most firms (yes, there are exceptions) reduce the investments in developing their people. This entire discussion focuses not on investment made by the employer in functional or technical skills, but on leadership development and soft skills.Why Invest in Leadership Development:Develop a pipeline of talent: Succession and leadership development must be designed with an eye to creating a variety of candidates and then selecting the candidate who is not simply the best but the best for the circumstances of the company at the time and where the business is heading. In the book Jumping the S-Curve, the succession planning process of Colgate-Palmolive is mentioned. It is probably the best example of what I call Crowdsourcing the Leadership Pipeline. Here is the process:

For about a thousand of the best of these high-potential employees, Colgate-Palmolive brings in executive coaches from the outside to help smooth any rough edges. Those employees are also brought to the company’s headquarters in New York City for a week so that they can meet with every senior executive. In addition, all functional leaders are expected to introduce to the board the top two or three individuals who might one day succeed them, and the leaders supply detailed information on the strengths and weaknesses of each of those candidates. Altogether, the board regularly tracks the top two hundred or so Colgate-Palmolive employees so that it is familiar with all internal candidates for senior positions.

Attract Talent: Talented people get attracted with opportunity to work with other talented people. The power of an employer brand lies in their ability to attract the most talented. When talented people see the investment the company makes in developing people, they know that working for this firm will make them grow in future. That can be a powerful incentive.Building the Employer Brand: According to the HR Magazine, “part of Google’s employer brand promise is to provide ground-breaking, stimulating projects, surrounded by like-minded, bright colleagues.  Dan Hynes, head of resourcing EMEA, explains 20% of a software engineer’s time is allocated to leading-edge projects of their choice. Hynes claims these projects keep staff engaged.”Why do we need to ask about Return on Investment?Is the problem the lack of ability to measure intangible returns or are there no tangible measures in leadership development?The answer depends on what is the question we are asking:

1. Whose growth should we be measuring – the individuals? Or that of the function or business unit. Who should be considered the beneficiary?
2. What are the benefits we should be looking to measure? Should we also measure benefits that are unplanned? If the person builds a network in the classroom that gives him a great lead to a prospective client, is that a good ROI of the class? What if the person had an AHA experience a few years after that class she took? Would that still be counted as a successful outcome of that class? If there are unintended learning outcomes, is that to be accounted for in measuring ROI?
3. Who should be counting the return on investment – the organization? The employee’s manager? The individual?
4. Who should the organization invest in – the select few high potentials or the poor performers? The return will be much higher if the base is smaller.
5. Is the Return on Investment a measure of the teaching skill of the facilitator or is it reflecting the learning ability of the employee? Or should the credit go to the instructional design team?

In the final analysis the value of investing in leadership development comes from allowing the employees aspirations to soar. The organization becomes a canvas for people to realize their dreams. The essence of developmental efforts is in helping a person realize their potential. The value of such an investment is often intangible. While investment in skill development can be measured in tangible terms, the investment in leadership development is intangible and cannot be measured in economic terms always.Leadership Development is a risk mitigation process for the organization. Think of it like a business continuity process as applied to leadership. One has to constantly calibrate the talent pipeline just because the environment is constantly changing. The best firms actually use succession planning to renew the and evolve the firm. In the book Jumping the S-Curve authors Paul Nunes and Tim Breene say:

High performance businesses tend to use succession planning in a fundamentally different way than other firms do. Specifically, they use it to continually renew their top management as a precursor to renewing the company. In this way, they tend to change their CEOs and other senior executives according to a timetable that implicitly or explicitly recognizes the need for company transitions along the capabilities S-curve. In other words, they don’t wait for a crisis or another event that forces action. Instead, they follow a pattern that proactively seeks to bring about changes in their top teams to drive organizational transformations ahead of the curve.

Leadership Development perhaps follows the tenets of what Einstein had famously said – Not everything that counts can be counted, and not everything that can be counted counts.————–Reading:  Jumping the S-Curve. How Cos Evolve Through CEO TransitionsMust Read article on HR Analytics in the McKinsey Quarterly March 2011: Are we using our ‘people data’ to create value?