The ROI of Leadership Development

  • Ezra
  • February 23rd, 2021

Training leaders is important for your business to remain productive and innovative, but how effective is leadership training for impacting the bottom line? Ezra discusses how to judge the return on investment you get for developing your leadership teams.

Measuring ROI For Leadership Development

It should come as no surprise that training the leaders of your company is incredibly useful and productive. However, in the context of your investment and the potential returns, is it actually worth it on paper? After all, some people advocate for leaders to study on the job and to learn from their experiences. So does it really make sense for you to invest in training your leaders? And if so, how do you convince your leaders and even stakeholders to invest in it? How do you show that there’s a tangible benefit in training your leaders?

The answer lies in the return on investment of leadership development.

As with anything that your business does, there’s always a return on investment value that can be calculated based on how much money you’ve spent and how much you expect that it’s made. With leadership training, it’s a little more complicated than just looking at stats and figures.

So in this post, we’re going to look at why it’s important to invest in training your current and future leaders, but also how you can quantify the results and what metrics you should be measuring in order to determine the ROI.

Why your organization needs to train current and future leaders

Leaders are an essential component of any business. Spend any amount of time in a business without leaders and everything becomes a disjointed mess. In most companies, the role of a leader is important because it helps to streamline operations and simplifies the decision-making process. While there’s a lot of stress on the individual, it’s far better for your team to follow a person that understands their responsibilities as a leader and assumes their role with pride.

As such, leaders are incredibly important figures in any team. Whether they lead a small department or are in charge of large operations, it’s vital that you use leaders effectively to help control your business and improve productivity. However, leadership is a role that comes with many unique challenges. It’s impossible to lay out every potential challenge and solution, hence why leaders must be flexible in their approaches.

Training leaders is unique and different from regular training programs

Training a leader isn’t just a case of putting them on a leadership e-Learning course and then being done with it. Developing leadership requires a lot of time, effort, and investment. Both short and long-term goals must be defined, and it’s also important to measure a leader’s current performance and experience to personalize the training for maximum efficiency.

Leadership is also a role that will eventually be inherited by another employee in the future. The employees that work under a leader will soak up the experiences and challenges that their current leader faces, and that will ultimately prepare them to assume the role in the future. While not every staff member is cut out to be a leader, being exposed to a great leader can drastically improve the confidence of future leaders in your business. As such, training current leaders can also be seen as a way to prepare future leaders to take over the position.

Judging ROI of leadership development

Unfortunately, judging the ROI of leadership development is no easy task. Not only does every leader have different levels of experience and expertise going into the training program, but the content of the training program can also affect the end result.

Judging based on the participant’s feedback

In order to judge the ROI of leadership development, it’s important to ask various questions and collect data based on the leader’s experiences with the program or activity.

  • Did the participant believe that the program was relevant?
  • What did the participant learn that they felt would be critical to their future as a leader?
  • Can what the participant learned be applied immediately to their role or is the information only relevant to future circumstances?
  • Was new knowledge gained as a result of the activity?
  • Does the participant feel their behavior has changed as a direct result of the development?

These are important questions to ask the participant. It’ll give you a good idea of how effective the training was in their eyes, and will give immediate feedback on the quality of the activity.

Judging based on the impact to the business

It’s also possible to judge based on the impact the development program has had on the business.

For example, has the leadership development initiative resulted in an increase in productivity, job satisfaction, customer satisfaction, or innovation? If so, and there are no other clear factors that could have affected these values (such as other employee training or seasonal industry shifts), then it can be reasonably attributed to the leadership development initiative.

Calculating the return on investment

So to calculate the return on investment, we can follow these steps:

  • Calculate the overall cost of the development initiative, including any external costs such as participant travel or overtime paid to employees to stand in for the participant during their time off.
  • Calculate the benefits of training. This can be measured as an increase in profits or sales between a period before the training took place and a period after the training.
  • Divide the net profit gained by the cost of the investment, then multiple by 100. This will give you the ROI percentage.

The ROI from the initial period will likely be lower than the ROI from later periods if the activity was effective. If the ROI was negative, then it’s not a sign that you should immediately stop the program; rather it is likely a sign that you need to review the approach the program takes in order to maximize its impact.

Maximizing the effect of leadership development

There are a couple of simple ways to ensure that your leadership development programs are effective. For example;

  • Provide extra feedback/reflection time and give participants the opportunity to communicate with a good leadership coach. This can help explain difficult concepts or cover important topics that the participant feels needs more explanation or examples.
  • Identify any resistors in the team that are against changes that the participant has proposed as a result of their training. How you deal with resistors will be unique to your circumstances, but the best scenario is to win their support and help them understand the positives of the proposed changes.
  • Encourage the participant to apply their new skills and knowledge immediately. This may require discussion with another manager or senior member of staff to help implement the changes effectively.

Leadership development is incredibly helpful when it comes to growing your business, but it’s understandable that some companies may be wary of the costs and potential return on investment (or lack thereof). As such, it’s important to understand how you can calculate the ROI on leadership development and also how to maximize the potential benefits to make the most of it for your organization, not to mention ensuring efficiency of implementation and delivery. Which, being shameless for a moment, is handily where tools such as our coaching app can really step up.

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