How To Measure The ROI Of Leadership Development Programs

One of the keys to running a business is data collection. It’s one of the ways we understand the current situation of our companies, our managers, and how happy employees and customers are - we measure it. If you invest in a leadership development program for your employees, it only makes sense that you want to know that your money was well spent.

Something like leadership can feel like an ambiguous, complex thing to pin down and measure. That's why we are breaking it down how you can determine the ROI of your leadership development program.

Begin With Awareness

We know that culture and behavior shift when we measure and gain awareness. When I was hired by Microsoft to take on a role that really focused on customer satisfaction, which hadn’t previously been a focus, they brought the issue to everyone’s attention by putting customer satisfaction into the bonus structure for everyone, all the way to the top of the organization.

I worked with 108 people worldwide who were all leading the charge on customer satisfaction. It was a concerted effort across different customer sizes, industries, etc. While they were already measuring customer satisfaction, we did a listening tour and a needs assessment. Because they applied resources and hired people, they achieved their three-year goal in 18 months.

If you’ve identified leadership development as something your company is ready to invest in, the first step is to become aware of what leadership looks like within your organization, create a definition, and decide as a senior team how you want leadership to look. What are the expectations? And have they been communicated clearly to everyone? 

Are there perhaps areas specific or unique to your business you’d like to focus on? Perhaps, your leaders are innovators, so you want to find a way to measure innovation. Or, navigating change management is important and you’d like to measure your effectiveness in that area. Or perhaps you’d like to focus on improving your cross-functional collaboration. Before you begin, have a clear picture of where you want to go.

Create A Baseline

In order to track progress, you need to know where you’re starting from. You could conduct employee surveys and gather feedback on their perceptions of leadership within the business.

Leaders could also complete self-assessments, or you could conduct 360 assessments of the leaders within the organization to get a comprehensive view of strengths and weaknesses. There are leadership assessments you could use to determine competencies, personalities, and more. You may also want to look at succession planning to track the success of leaders in developing and promoting talent as a measure of leadership abilities. 

Finally, don’t forget the business metrics such as employee retention, customer satisfaction, and financial results.

Assess Key Metrics

Chances are you’re already measuring the business metrics that reflect the quality of leadership. Let’s look at each one in detail...

Metric #1: Employee Engagement And Productivity

Leaders play a critical role in shaping the work environment. When they foster a positive culture, they motivate employees to perform at their best.

Leaders who provide clear direction, support, and recognition can help create a culture of engagement and increased productivity within the company. Engaged employees, in turn, are more likely to be motivated, productive, and committed, leading to improved performance and business outcomes.

 Let’s look at what the data shows:

• The Centre for Creative Leadership (CCL) found that leadership accounts for up to 70% of the variance in employee engagement levels.

• Organizations with high levels of employee engagement experience 17% higher productivity, 41% lower absenteeism, 24% lower turnover rates, and 21% higher profitability compared to those with low engagement levels. (Gallup)

• A study from Harvard Business Review revealed that leadership quality is the single most important factor influencing employee productivity.

• The Brandon Hall Group found that companies with a strong learning culture were 46% more likely to be first to market and experienced 37% greater employee productivity.

• Companies with highly engaged employees achieved an average Net Promoter Score 12 points higher than companies with low employee engagement levels (Bain and Company)

These statistics highlight the significant impact leaders have on employee engagement and productivity and underscore the importance of strong leaders who are able to foster a positive culture.

Metric #2: Retention And Satisfaction

We’ve all heard that employees leave jobs because of poor managers. On the other hand, when they feel well-supported, they want to stay. Employee retention is one way to measure how effective your leaders are. Another thing you may want to consider is looking specifically at leadership retention. If you’re losing leaders, it’s worth investigating why.

 Leadership impacts employee satisfaction, motivation, commitment, and loyalty. Employees who have a positive relationship with their managers are more likely to feel valued, supported, and engaged, which can contribute to their decision to stay. 

Let’s look at the data:

• Employees who feel their leaders care about their well-being are more engaged and less likely to leave their organization. (Gallup)

• The Society for Human Resource Management (SHRM) found that leadership style and behavior are key drivers of employee satisfaction and retention.

• LinkedIn’s 2020 Workplace Learning Report found that 94% of employees said they could stay at a company longer if it invested in their career development.

• A study by the CCL found that effective leadership practices, such as creating a positive work environment, fostering open communication, and supporting employee development, are linked to retention and job satisfaction.

• 79% of employees who quit their jobs cited a lack of appreciation as a key reason for leaving. (TINYPulse)

Strong leadership that demonstrates empathy, support, and trust can enhance employee satisfaction and retention by creating a positive work culture. Leaders who provide clear direction, recognition, and opportunities for growth are more likely to have satisfied and motivated employees.

Metric #3: Financial Results

There is no better way to measure the ROI of your investment in a leadership development program than to see how it impacts your bottom line. And there is plenty of evidence to support the link between effective leadership and financial results.

Let's take a look at some stats:

• Highly engaged teams show 21% greater profitability. (Gallup)

• Organizations with high-quality leadership development programs are more likely to outperform their competitors. (Deloitte)

• CCL found that organizations that prioritize leadership development are 4.2x more likely to outperform their peers.

• Organizations with strong leadership development programs are 1.5x more likely to be among the top financial performers in their industry.

• Teams with leaders who received strengths-based development showed 8.9% greater profitability.

• Companies with highly effective leaders achieve significantly higher customer loyalty. (Harvard Business Review)

When organizations choose to invest in leadership development, it strengthens the entire organization, so it seems logical that their new-found strength will be reflected in their financial results.

Perform A Cost Analysis

When measuring the ROI of a leadership development program, you can evaluate it from a cost-analysis perspective. Calculate the total cost of the leadership development program, including expenses related to designing, delivering, and evaluating the program.

However, when it comes to comparing these costs to the benefits gained from improved leadership effectiveness such as increased productivity, reduced turnover costs, and higher employee engagement, it isn’t always easy.

If you don’t already measure these things and understand their dollar value it’s hard to decipher what an improvement could mean for your bottom line. You almost need to run the program with a control group and measure the results before you can extrapolate across your organization.

Evaluate The Program

It’s important to gather feedback from participants to assess the relevance, usefulness, and effectiveness of the product you delivered.

Remember that change takes time. We suggest waiting some time to repeat the baseline assessments you began with to give participants a chance to integrate their learning and change their behavior.

You’ll also want to track the long-term impact of a leadership development program. Look at the business metrics you decided to track, career progression, retention, and performance of program participants over time. This way, you’ll be able to measure whether the skills and behaviors learned are sustained and have a lasting positive impact on individual and organizational success.

At first glance, it might seem challenging to assess and measure something like the ROI of a leadership development program, but when we begin to look at the very real impact that leaders have, we can see that highly effective leaders are one of the biggest drivers of organizational success affecting productivity, engagement, retention, satisfaction, and even financial results.