How to Measure the ROI of Leadership Development

​Cultivating new leaders is a top challenge facing executives worldwide. In fact, only 41 percent of 1,000 C-suite leaders surveyed recently believe that their organizations’ leadership development programs are of high or very high quality.

Despite the billions of dollars that companies pour into these efforts each year, most organizations still do a poor job of measuring the effect of their leadership development initiatives, the DDI Global Leadership Forecast 2018 found. Only 18 percent are gathering relevant business impact metrics, which may be why some experts have questioned the worth of these programs in recent years. 

“We spend a lot on it. People want to know: What’s the real value?” says Patti Phillips, president and CEO of ROI Institute Inc., based in Chelsea, Ala., and co-author of Measuring the Success of Leadership Development (Association for Talent Development, 2015).

Having the data ready when the chief financial officer asks you to prove the program’s worth may help you avoid cuts or bolster your request for an increase in funding. It will also build your reputation as a strategic thinker who is looking out for the long-range health of the business. Even more important, conducting an analysis will enable you to identify where improvement is needed so the initiative can be more effective next time, Phillips and other experts say.

Here are some tips to help you measure the business impact of your program and avoid some common missteps.

Align your efforts to business needs. A common mistake is investing in a program before establishing what problem it would solve or what opportunity it would help leverage. 

“People think that investing in leadership development is inherently a good thing. While there may be some truth to that … the first question to address is why,” Phillips says. “What are the business opportunities? What’s the opportunity for the organization to make money, save money, avoid cost or do some greater good? What are the behaviors that need to change in order to solve the problems and leverage those opportunities?”

Only after answering those questions should you decide what type of program to provide. “Many times, organizations identify solutions first and hope change occurs. That’s the opposite of what they should be doing,” Phillips says. 

Consult with others. Be as specific as possible when defining the measures that reflect business needs and the changes in behaviors that must occur to address those needs. “This requires we engage others in the conversation,” such as the people analytics team, Phillips says.

Find out what your leaders need. Too often, programs are chosen without any knowledge of leaders’ current skills or knowledge—or even how they learn best. 

“Rather than offering Leadership 101, identify the skills gaps that are going to give organizations the most bang for their buck,” says Darlene DeRosa, managing partner at OnPoint Consulting LLC, based in New York City. 

If possible, use data from the performance management system or conduct 360-degree assessments, gathering feedback from multiple sources, to help determine the development areas that are a high priority for leaders or that high-potential employees need to focus on. Or, if cost is a factor, use an anonymous survey to ask leaders directly. Study the aggregate data for trends to uncover competency gaps throughout the organization or division, she advises. Be aware that just because leaders aren’t using a particular skill in their current role doesn’t mean they don’t know how to leverage that ability. 

“Focusing on what behaviors or competencies are going to be required in the future also gives organizations a better return on their investment,” DeRosa says.

In a recent study of one large organization, Phillips notes, leaders said they preferred experiential learning. “They want projects that achieve a purpose that also give them an opportunity to develop as leaders,” she says.

[SHRM members-only research: Making the Case for Professional Development Benefits]

Build data collection and evaluation into the process early on. They shouldn’t be an afterthought, Phillips says. Depending on your objectives and the type of program you’ve selected, you might choose to collect data that will help you answer the following questions: 

• Do participants believe the program was relevant? Most companies conduct surveys after training programs to collect participant feedback. You can also capture feedback throughout the program’s implementation to indicate the extent to which participants have bought into the content or the likelihood that they will apply what they’ve learned, Phillips says. However, surveys don’t gauge behavioral change, DeRosa notes. For that, you’ll have to do more.
  
• How much did they learn? Assessments can be given to test the knowledge and insights acquired. Simulations and role-playing can also provide evidence of learning.
  
• Are they applying what they learned to their jobs? To measure that, you could collect more 360-degree feedback after the program. But wait at least nine months, especially if the individual is going through some on-the-job experience or training, to allow time for any changes to take effect, DeRosa advises.
  
• What impact did the program have on the business? Improvement in measures representing output, quality, costs, time, job satisfaction, customer satisfaction, work habits and innovation is the ultimate goal, Phillips says. DeRosa suggests also looking at retention figures and whether participants were promoted. 
  
• What is the return on investment (ROI)? Calculate the monetary value for the changes in business impact. Subtract the costs, both direct and indirect. The net benefits divided by costs will give you the ROI.
  
• What are the intangibles? While they can be converted to money and included in the ROI calculation, typically the cost of doing so outweighs the benefits. If improvements can be shown in teamwork, inclusion, experience and others, which are directly linked to leadership development, the value is clear enough. 
  

Share your expectations upfront. Don’t surprise participants by asking them to provide data after the fact. They should know what you need in advance and be given tools to help keep track of their progress. Let them know they are expected not only to change their behavior but also to use their new knowledge to drive business improvements.

Share the results. Whatever your findings, share them with business leaders. While it might be tempting to hide negative results, hoping no one will remember to ask for the analysis, that strategy won’t likely end well. 

At a minimum, you can use your evaluation to make improvements for the future. A negative ROI could indicate that you spent too much money on the program, for example, or that you involved people who didn’t need to be included. However, you might also see an uptick in employee morale. 

“A negative ROI doesn’t mean you have to stop the program. It does mean you need to improve it in some way,” Phillips says.

While everything worth doing can—and should—be measured, it might not be practical to evaluate some inexpensive programs so extensively, Phillips says. On the other hand, if you’re involving people in a comprehensive process because you’re trying to drive change or improve key business metrics, you will want to evaluate your program for business impact and ROI.

“In the end, that’s what senior executives want to see—a connection between these expensive programs and improvement in these key business measures,” Phillips says. “Otherwise, why do it?”  

Dori Meinert is senior writer/editor at HR Magazine.

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