The ROI of Leadership Development

Feb 23 2021 | Insights
Man working and calculating.

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.

Training the leaders of your company will give you a leg up on your competition. But in the context of your investment and the potential returns, is it worth it on paper? Some managers advocate for leaders to study on the job and to learn from their experiences. But does it really make sense for you to invest in training your leaders? If so, how do you convince your leaders and stakeholders to invest in on-the-job training? 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.

Like anything 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 will be made. Leadership training is a bit more complicated than just looking at stats and figures.

In this post, we’ll examine the importance of training your current and future leaders. How do you quantify the results and crunch the numbers to determine your ROI?

Why training will help you get develop better current and future leaders

Leaders make or break any business. In a business without leaders, you’re sure to soon see a disjointed mess. Companies need capable leaders to streamline operations and simplify decision-making. 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.

Leaders are the key players behind any team. Whether leading small departments or in charge of large operations, leaders must be used effectively to control your business and improve productivity. A leadership role comes with many unique challenges, so it’s impossible to lay out every potential challenge and solution. Because of this, you need to be sure your leaders are flexible and adaptable in their approaches.

Training leaders is unique and different from regular training programs

It’s not just a case of putting your leaders on an e-Learning course and being done with it. Developing leadership requires time, effort, and investment. Short- and long-term goals must be defined, and it’s also important to measure a leader’s current performance and experience to personalize training for maximum efficiency.

Leadership is also a role that will eventually be inherited by another employee in the future. Employees working under a leader will soak up the experiences and challenges their current leader faces. This will ultimately set the stage for keen employees to step up to the plate for future leadership roles. While not every staff member is cut out to be a leader, beingexposed to a great leader can drastically improve the confidence of future leaders in your business. Training your current leaders well is a way to prepare future leaders to take over these prestigious positions.

Judging ROI of leadership development

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

Judging based on the participant’s feedback

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

  • Did the participant believe the program was relevant?

  • What did the participant learn that they felt would be critical to their future as a leader?

  • Can the participant’s takeaways 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. You’ll get a good idea of how effective the training was in their eyes, and immediate feedback on the quality of the activity.

Judging based on the impact to the business

You can also judge based on the impact the development program has had on the business.

Has the leadership development initiative led to more 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 how can you calculate your ROI? Follow these steps:

  • Calculate the overall cost of the development initiative, including 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. You can measure these 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. Multiply 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, don’t feel the need to immediately stop the program. Instead, review your program’s approach to maximize its impact.

Maximizing the effect of leadership development

You can use a few simple techniques to make sure your leadership development programs are working. For example:

  • Provide extra feedback/reflection time. Give your participants opportunities to communicate with a good leadership coach. This can help bring light to difficult concepts and cover important topics the participant feels need more explanation or examples.

  • Identify any resistors in the team that are against changes the participant has proposed as a result of their training. How you deal with resistors will be unique to your circumstances. 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 will ultimately help you grow your business. The costs and potential return on investment (or lack thereof) can be scary. But understanding how you can calculate the ROI on leadership development and how to maximize potential benefits will help you make the most of these tools for your organization. Not to mention ensuring efficient implementation and delivery. Which, being shameless for a moment, is handily where tools like ours can really step up.

Make developing your leaders a business priority with EZRA’s world-class employee coaching, built to fit into today’s working life. We’ve redesigned leadership coaching for the modern age to help transform people through affordable, scalable and high-impact solutions, with equitable access through our world-class coaching app. Find out today how digital coaching could make a big difference to your organization.

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