Strong leadership is now more critical than ever, as the world grapples with uncertainty and disruptions. Today, increasingly, organizations and business leaders are struggling with several serious and costly problems rooted in a lack of effective people management skills causing a mass exodus of employees which was dubbed as The Great Resignation. These problems have resulted in organizational failures, employee disengagement, loss of consumer confidence and heavy profit losses.

What Is the Cost of Ignoring Leadership Development?

McKinsey spotlighted the return on investment (ROI) of leadership development in their research findings from surveys with over 500 executives. Their findings showed that a leadership system that is capability-based requires leaders who can operate their segment, operationalize new strategies and transform operations seamlessly.

The cost of not implementing a leadership development program can be significant for your organization, hindering its ability to reach its goals, execute its mission and retain its best people.

The McKinsey study found that “organizations with successful leadership-development programs were eight times more likely than those with unsuccessful ones to have focused on leadership behavior that executives believed were critical drivers of business performance.“

Investing in leaders’ development can also drive retention amid The Great Resignation: LinkedIn Learning found that 94% of employees would stay longer at a company if it invested in their learning and development (L&D).

Employee engagement also continues to be a challenge for organizations: An annual survey by Gallup continues to reflect the poor employee engagement. Gallup’s measure of engagement is made up of several elements, which employees are asked to rate. Key elements that have declined the most include: clarity of expectations, opportunities to learn and grow, connection to the purpose of the company, opportunities to do what employees do best and feeling cared about at work. The survey reflected that 34% of US workers are currently “engaged,” and although the “actively disengaged” category is down by 13%, there is still work ahead for progress to be made. Leadership development undoubtedly can help drive this progress. However, the reality is that many L&D and human resources (HR) departments don’t have the bandwidth or capacity to execute such a development program and may need to hire experienced professionals outside of the organization.

The ROI of Leadership Development and Coaching

According to BetterManager’s study, “The ROI of Leadership Development,” every dollar invested in leadership development yields a ROI ranging from $3-11, with an average of ROI of $7. These numbers prove that cultivating leadership skills is a strategic business investment. According to the study, 42% of respondents observed an increase in revenue and sales as a direct result of leadership development programming; 47% of those who observed an increase in revenue and sales credited better performing managers and/or their direct reports.

The study further shows that leadership development programming increased several benefits known to produce more efficient and effective teams. Specifically, program participants scored consistently better against non-program participants.

Let’s consider some additional studies showcasing the ROI of leadership development and coaching:

• The International Coaching Federation (ICF) found that 86% of organizations saw an ROI on their coaching engagements, and 96% of those who had an executive coach said they would go through the process again. Tangible factors included increased productivity, higher levels of overall employee performance, reduced costs, growth in revenue and sales, higher employee retention and higher employee engagement. Intangible factors were increased confidence of those being coached, improved communication, more vital employee/peer-to-peer feedback, and key stakeholder relationships.
• A 2022 Harvard Business Review study found that of the organizations who are most successful at implementing leadership development programs, 35% reported an increase in revenue as a result of their efforts.

In Summary

Chief financial officers and other stakeholders want to know that L&D programs are aligned with the company’s strategic goals and objectives.  They want to know how training and coaching contributes to these goals and how it supports a company’s long-term strategy.

Executive coaching, group coaching and leadership training programs are an important part of improving employee retention and engagement and are a valuable professional benefit for employees. Having employees leave the company because they are not growing and developing is a very costly issue to the business. Many senior leaders are now requesting executive coaching as part of their package when they join a company. Having these options available to build workforce readiness is critical.

For those who drive organizational growth, be it in L&D, HR or leadership positions, these findings are your roadmap to optimizing your organization’s coaching and training initiatives. Showcasing the ROI of leadership will, ultimately, help you prove to the business that leadership development is a key driver of financial success.