More Than Just ROI for Leadership Development

Most people hear the term Return on Leadership (ROL) and think it is simply a way of condensing return on investment in leadership training.

And although it can be used that way – for instance, Disney Corporation found that they got $33 in increased revenue or savings for every dollar they invested in leadership development – looking at ROL as a dollar ratio obscures the ways in which ROL is a different Key Performance Metric than ROI.

What we’re interested in is ROL

How much effective organizational leadership you are getting per leader.

  • When you hire a junior leader for a job, do you fulfill your hiring expectations, or do you have turnover?
  • If they fulfill their expectations at that position, do they also end up as high potentials for promotion to the next level up?
  • When looking at promoted talent, what percentage of your promoted people end up as high performers in their new jobs?
  • Of your high potential + high performing people with key leadership skills, what is your average retention rate? How long do they stay with your company?
  • At the Executive or C-Suite level, how successful have your transitions and successions been? How effective have leaders been at grooming new people and planning their own successions?

One way to think of ROL is as a measure of the lifetime value of a leader as seen through the eyes of your organization.

Making Smarter Leadership Investments Through ROL

When you understand the lifetime value of a customer, you can make smarter long-term business decisions regarding customer acquisition and retention. You invest more in effectively acquiring the right kind of customers and keeper them loyal to you.

The same thing works when assessing – even in qualitative terms – the lifetime value of a leader by looking at your organization’s Return On Leadership.

If you sink lots of hiring, training, and business experience into a leader and then lose them or find that they are not suitable for further promotion, you have both wasted an incredible amount of resources, and handicapped your future capabilities.

And both the waste and the handicapping are only partially quantifiable in dollar terms in terms of an ROI ratio.

McKinsey on Return On Leadership

the most recent McKinsey study on leadership, actually titled Return On Leadership, shows that high growth and highly profitable companies require “a critical mass of excellent leaders… to trigger and sustain corporate growth.”

For example, at companies in the top quartile of revenue growth, 40% or more of senior executives were scored 5 or above for the leadership quality known as Customer Impact on Egon Zehnder’s 7-level scale.

This becomes more impressive when you know that only 11% of leaders are rated at 5 or above, meaning that top growing companies are almost four times as likely to have recruited, trained, and retained exceptional leaders as regular companies.

Moreover, this leadership advantage must be widely held throughout the company’s leadership team – not just at the top or among a few star players. The study also shows that the top 50% growth companies had at least 20% of their entire leadership team excel in Customer Impact.

In other words, top performing companies required -- and invariably had -- a “critical mass” of exceptional leadership.

How Companies Build a "Critical Mass" of Top-Level Leaders

How do companies build the kind of leadership "critical mass" that McKinsey's report talks about?

They focus on ROL, by baking leadership development into the company’s recruitment, assessment, and promotion processes.

The goal is to systematically build and retain the quantities of excellent leaders needed to drive consistent revenue growth.

In other words, according to the most rigorous survey on leadership’s impact on performance done to date, as performed by McKinsey and Zehander, high growth requires a focus on ROL that is broader and greater than standard measurements for ROI on Leadership Development would suggest.

Improving Your Origanization's ROL

Want to get started improving your ROL?

Take a look at how the Fearless Leaders Group coaches can help you implement your own systematic efforts to build and retain quality leaders.

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