Tuesday, February 10, 2009

Leadership Development ROI is not Greek to me: Let us revisit

Leader rating and development programs are among the hardest to sell with ROI. A dollar spent on assessment may save three dollars in retention. A dollar invested in training may lower recruiting costs by five times that amount. The good news is that better-developed leaders produce superior results, thus increasing compensation, and lowering turnover. Word gets out, and top talent begins pursuing the company rather than the other way around.

Top Management will generally be committed to implementing the strategic changes to transform the enterprise and increase shareholder value. Jay Cross of the Internet Group reminds us that the top-line can be just as important as the bottom-line. Top-line = sales, revenues, out-surviving the competition, increasing market share, building brand, staying in the game and holding on long enough to score, reinventing the business. Executives focus on two things: strategy and outfoxing the competition.

The Saratoga Institute found that the key factors separating high-performing companies from those that try to compete are:

  • Balanced Values—a mix of human and financial goals
  • Commitment—organizational stick-to-it-iveness, and
  • Culture—defined by the ability to attract, retain, and motivate talent.

Leadership development programs are valuable because they impact all of the above.

Questions to Answer

Prior to implementation, specific issues should be addressed to prepare an organization for ROI justifications post-implementation. These a priori issues include the following:

  • What problem areas were identified? What are you trying to improve on? Do they relate to high turnover, origination expansion, etc.—once determined, value can be assigned.
  • What behaviors/attitudes/skills are being targeted for change?
  • Why is the change required—what difference would it make if the program were not done at all?What would be the contributions made to the business by these changes? (such as—improved productivity, better communication, improved morale, increased sales, decreased turnover)
  • Establish a baseline measure of current performance and clearly indicate how performance will be tracked and reported on.
  • Determine what will pass as persuasive evidence that the program produced the desired results.

We can extrapolate behavior changes into measurable business once the above are codified. Look for significant differences in performance ratings—from Time 1 to Time 2. These differences might be in new product development, new clients/business, teams working together in more productive ways, increased client satisfaction and retention, etc. All of the aforementioned are potentially value-laden and will assist in making the Business Case.

Next Steps

Once the questions bulleted above are answered, an ROI research plan can be designed for determining the business value of the leadership development program.

It is easy to put a dollar-figure on a hard benefit (e.g., new clients) but difficult for a “soft” benefit (e.g., improved morale). If an item simply can’t be quantified, it can be included in a nonfinancial analysis and ranked among the financial impacts. Further, two similar departments, one that participates in the program and one that does not, can be compared on relevant variables. A customer survey might also be advised to capture perceived differences.