In Search of a Quantifiable Return on Leadership Development
Every few months, I run head-on into a discussion with someone (usually a prospective client) about how to value the return from investments in leadership development. The question is not asked as a means of qualifying my services, but rather as a genuine practitioner-to-practitioner inquiry, not dissimilar to what two MDs might talk about with respect to the latest treatment results for an experimental drug program. The person asking knows as well as I do that Return on Leadership Development continues to be an elusive issue that no one has substantively put to rest, and that our best answers are no stronger than impassioned, qualitative opinions.
The venerable consulting firm, McKinsey & Company in their latest issue of The McKinsey Quarterly (2008, Number 4) offers some exciting results showing: “the relationship between financial performance as measured by profit per employee and ten dimensions of global management talent.” Their findings: “Companies scoring in the top third of the survey (when all ten dimensions were combined” earned significantly higher profit per employee than those in the bottom third."
The McKinsey results showed strong correlations in three specific areas:
- The creation of globally consistent talent evaluation processes
- The management of cultural diversity
- The mobility of global leaders.
McKinsey indicated that the firms scoring top-third in any of these three areas had a 70% chance of scoring in top-third for financial performance. Alternatively, companies scoring poorly on these practices had a strong chance of ending up in the bottom third for financial performance.
This is exciting information for anyone and everyone interested in gauging the impact of leadership development initiatives on corporate performance, however, before we consider this case closed, it is important to note McKinsey’s own comment that, "the study results do not show any true evidence of causality, but rather that the results, strengthen our belief that these are important areas on which businesses and HR leaders should focus their attention.” It always comes down to belief. Welcome to my conversations, McKinsey.
Should it Be Return on Expectations?
Another interesting thought comes from Professor Albert Vicere who describes his experience facilitating a group of executives through a discussion on how to calculate a return on leadership development:
“Discussion on how to calculate a return on leadership development and learning investments were frustrating until we saw the light, stopped talking about return on investment (ROI), and began talking about return on expectations (ROE). Participants agreed that due to all sorts of complications we may never be able to calculate a clear financial return on learning initiatives, but if we’re clear on what we’re trying to accomplish through leadership development and learning and if we measure our results against those expectations, we may have the data we need to prove the value of our investments.”
OK, at least this group is giving us a reason to accept that valuing leadership development is a tough task. It is good to know that a bunch of smart people sat around thinking about this dilemma and the best that they could come up with was looking at from a different perspective. They may be right, and the careful expectation setting and measurement around very specific leadership development initiatives may just yield the elusive data that we’ve been seeking.
Is it time to sharpen Occam’s Razor?
More often than not,the rough translation of Occam’s Razor: “All things being equal, the simplest solution is the best,” proves true. My non-statistically significant, can’t prove causality hunch is that effective leadership development practices are part of a whole system and that attempting to value them independent of the other components, while intellectually stimulating, is essentially valueless. This is perhaps like attempting to value the worth of having a healthy heart in a cancer ravaged body or a healthy body carrying an artery-clogged heart. No matter how you look at it, the body and organizations function as complex systems and a problem in any one part can adversely impact issues across the entire system.
Aren't These The True Measures of Leadership Development's Value:
• Quality
• Financial health and performance (company and versus industry)
• Innovation
• Ability to Execute on Strategy
• Employee Satisfaction
• Customer Satisfaction
• Growth versus industry participants
• Retention and advancement of the right people and elimination of others
• Fulfillment of mission
• Growing contribution to community and society
The Bottom-Line for Now
If these items are generally accepted and desirable outcomes of a well-functioning organization, then executives looking at their talent development programs should quit focusing on the search for discrete ROI measures, and instead focus on identifying those practices that are likely to contribute the most to the above. We may not prove causality, but just like McKinsey, it is my belief that focusing on becoming great at the right few talent and leadership development practices will yield higher performance than not focusing on these issues. My vote says focus on: individual development planning, feedback and widespread involvement in strategy creation and execution, and the results will come and the other leadership development pieces will naturally fall into place. Oh, and the decision on how to invest in development activities is a management team decision, not just an HR call. Leadership Development is everyone’s business.
Capturing Talent and Creating Great Customer Experiences: They Go Together
The Poor Interviewing Habits of Many Managers
You would think that we would have this problem crossed off the list by now. I wonder how organizations and leaders in good faith can let managers recruit talent without teaching them HOW to interview and holding them accountable for executing this task effectively.
Most organizations offer some cursory training in the compliance and legal issues of interviewing, but I’m hearing from too many job seekers with hilarious (sad, but true) examples of miserable interviews. Consider the slob that took two smoke breaks while interviewing a talented professional. In-between breaks, his focus was on convincing the individual that he should come to work for the firm, even though they could not pay him what he was making now. Great recruiting! Impressive. This person has no business interviewing.
Questions to consider:
- Are the interviewing skills of your managers helping or hindering when it comes to recruiting talent?
- Do you know what your managers are saying in interviews?
- What’s your organizational batting average on landing the top recruits (and then keeping them)?
Great Marketing: Building Value with The Complete Customer Experience.
I received my new 24” Apple iMac yesterday and once again, marveled at how hard this company works at creating an incredible experience for the customer. The unpack to on-the-internet time is about 4 minutes, but the experience transcends the simplicity of set-up. My wife helped me with the unpacking she marveled at the detail and quality of the packaging materials. “It feels like we are unwrapping something very special,” was her comment.
It’s hard not to be awestruck by the beautiful design and the spectacular display on your desk, and I’m going on five years with our stable of Macs growing as our two sons head to college. The products always work and it’s still exciting to use one.
Questions to Consider:
- Are your customers saying the same things about your offerings?
- Are your employees obsessed with creating great customer experiences?
The Bottom-Line: Talent Fuels Performance:
There’s no way that an organization that accommodates sloppy interviewing habits is landing and retaining the best and brightest. As a business leader, you want your customers to constantly be surprised and delighted. A manager that takes mid-interview smoke breaks and badgers a talented candidate about salary expectations is someone that I want working for my competitor.
My suggestions:
- HR, get it in gear as the trustee of talent and create systems and tools to ensure best interviewing practices are developed and reinforced.
- Leadership Team: It’s not all HR’s job. Set high standards and demand excellence at all levels in the hiring process.
- Managers at all levels: evaluate the interviewing habits and track records of your managers and supervisors.
There are no excuses for getting this wrong and just one reason for getting it right: success.
Teaching a Senior Team To Dance With Leadership Development
I am encouraged by the number and the quality of the discussions that I am having with top executives about “how” to create a more effective leadership development culture. Moving beyond the “why” to the “how” is definitely progress in the right direction.
There are a number of common themes and pain points that I hear and observe in organizations seeking to improve in this area:
- A recognition on the part of top management that realizing sustained growth over a period of time will require a consistent infusion of new talent, especially in leadership.
- The recognition that current ad hoc and silo approaches to leadership development have not worked, and in some cases have resulted in misfires, misplacements and damage to the business.
- Frustration on the part of the CEO over the lack of results on this topic from his or her senior leadership team. (Note: this is often representative of a bigger communication, collaboration, team, trust issue than just leadership development.)
- Lack of clarity on how to get started on improving leadership development effectiveness.
My Suggestions: The First Eight Steps to Mastering the Leadership Development Dance:
1. Moving from poor to good or great at leadership development will take time and attention. Be realistic in setting your expectations, as this is an evolutionary process. If necessary, consider qualified outside counsel to help you structure your program and to help keep the team on track.
2. Leadership development is the CEO’s priority…but everyone’s job. Identify leadership development as a strategic priority with your leadership team and develop your collective thoughts on this topic just as you would a potential new product development or a prospective acquisition. It is imperative that the senior leadership team view this effort not as a task to be completed, but as an on-going process for all leaders at all levels.
3. Ensure that accountability for leadership development is spread across the leadership team…not just deposited in HR’s lap. (Ram Charan, writing in Leaders at All Levels, suggests making HR the Trustee of leadership development, not the sole responsible party. I like Ram’s approach and his book is filled with great ideas for any leadership team moving down this path.) Accountability means ensuring that your senior leaders are aligned around leadership development objectives with clear performance metrics and compensation incentives.
4. Establish a baseline for current practices. A good adviser will be able to help you identify and evaluate your current performance against key best practices. The best practices are intuitive and focus on evaluating the existence and maturity of activities for identifying talent, providing developmental opportunities, evaluating progress and performance, delivering timely, candid feedback etc. This baseline will help you monitor and reevaluate your organization’s progress over time.
5. Establish your collective (not silo or functional) criteria for the type of leaders and the type of talent you expect to need in the future. Easy to write…but a thought-provoking and challenging assignment. Note: you will need to re-evaluate your criteria over time based on changing forces and strategies.
6. Based on your criteria, the leadership team will need to parse through all available talent to assess needs, gaps and the depth and breadth of the current talent pool. Again, easy to describe, but a challenging task to complete.
7. Create developmental assignments for existing high-potential talent and begin the process of filling gaps through external recruiting. Ensure that the senior leaders understand and act on their role as mentors, coaches and shepherds of the talent development process.
8. Constantly evaluate progress and performance and constantly reassess the performance of your high potential individuals. You will need to redefine your criteria for evaluating progress based on how individuals perform in various roles, and you should definitely re-evaluate your talent pool based on the results. A high potential at one level may struggle at another, and vice versa.
The Bottom-line for Now
With the intent of being redundant the steps above are easy to write and very challenging to implement. There is no silver bullet for creating an effective leadership culture, but there is a straightforward formula: focus, time and discipline. And of course, practice, practice and more practice. How well does your senior team dance when it comes to leadership development?
In Search of the High Performance Project Team
I recently conducted a leadership workshop for a group of technical professionals at an industry conference, and as always, I walked away from the session with a couple of insights gained from the input of the participants. One that surprised me was that after talking about characteristics of high performance project teams, I asked for a show of hands from anyone that had been a member of this type of team. Only 5 out of 58 raised their hands. Even discounting for the people that don’t tend to respond to "showing of hands" requests, anything even close to the 10% range here seems abysmal.
How Healthy is Your Leadership Culture? Rate It Yourself and See or, “Rate it and Weep”
Chances are if you are like most of the business professionals that take the 10 question Leadership Culture Index below, your organization can use some improvement. A lot of improvement.
I deliver this simple and I’m sure non-scientific survey (see author’s note for origin) almost every time I’m in front of a group of managers and executives talking about leadership, and I’m still shocked by the scores. I suppose I should quit being shocked by how abysmal many businesses are at identifying, developing and retaining leadership talent, but the optimist in me continues to believe that people are too smart to ignore this important issue.
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