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Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School

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Leadership Development Can there be a Return on the Investment?

Is an ROI assessment possible on investment in leadership? The answer is yes and usefully so. I am often asked “what is the payoff?” to which is often added “when?” In reality, most organisations that invest in leadership development do so from a perspective of ‘distress’ or with a strong instinct that it is worthwhile. I think there is a place for this type of investment assessment but let’s examine the veracity of some more robust forms of assessment.

There is scope for measuring leadership competence with a balanced scorecard type method. For example; the ability for leaders to Define the Realities, to Declare the Mission, Decide the Strategy and finally communicate and engage others with consistency and clarity. These can be measured and often are. Assessment can be a combination of views from above, peers and subordinates. There may be and usually is some measurable improvement in performance from the perspective of others  – but what of improved financial performance? It depends on the function and sphere of influence that the leaders exercise of course.

However, in the US a study by ‘The Leadership Challenge’ demonstrated profits generated by individuals and the groups they were leading significantly increasing with no other variables changing significantly. In this study, the correlation between Leadership and financial performance was clear. Four leaders made a 31% profit increase over the previous year.  A fifth person delivered process improvements valued at nearly $400k.

The leaders in question also noted how their behaviours (and habits) had changed. They felt more like they were leading and noticed greater innovation, initiative, and greater bestowed initiative and risk taking in people around them. Also increased were collaboration, self-confidence, and shared values.

In my own experience the most obvious manifestation of ROI is in the area of sales leadership. When leadership skills are enhanced and there is a culture of leadership then the sales teams outperform their previous periods and other divisions where there was not investment in leadership. I have seen this happen repeatedly. Sadly I have also seen the reverse effect. Namely, an improved team that then acquires an autocratic or worse still, a divide and rule individual. In this situation the sales go into reverse, sometimes quite quickly and not least because sales staff turnover increases.

Alternative assessments

Of course, opportunity cost must be looked at as must the cost of doing nothing to develop leadership. It’s a cliché and a truism that continuing change and adaptation are not choices but are necessities for organisations today. Therefore static organisations cannot exploit profitable growth opportunities without prepared leaders to enable the staff and gain from opportunities.

The nature of mergers and acquisitions is such that they suffer a high failure rate in relation to promises and expectations. But M&A’s do succeed when the quality of leadership on one or ideally both sides is very high. It requires only a few people to make a deal work – or fail.  The cost of failure is immense in most cases.

The value of organisations is defined by ‘goodwill’ and today more and more this is associated with ‘brand’. Brands are only delivered by people and their leadership. Great brands have greater leaders – not great logos. So great leadership can be priced in some accordance with brand value.

Let’s get Emotional and Cultural

People’s motivation and energy in organisations is critical to commercial effectiveness. We have all been in organisations that feel energized and conversely those that feel dead. These conditions can be ascribed to the quality of leadership and yet poor leadership is masked by continual re-organisation and perversely by overstaffing to make up for the lack of energy expelled by those there.

A well led organisation feels inspired, energised, valued and confident. They also perform to higher levels. So productivity is a measure but so too is employee contentment, it has a huge value. A content workforce also has less absenteeism and sickness. Absenteeism costs the UK economy £32b pa in the UK (PWC) and $153b in the USA (Gallup).

Financially these organisations gain through the emotional response of individuals and the culture strength that accompanies this. Such conditions are measureable with some ease and financially quantifiable too.

It’s not always easy to show absolute cause and effect of leadership in organisations.  There are always a number of other variables which are hard to isolate and account for.  Much is rightly attributed to belief in the importance of leadership. But good leadership makes a difference. It inspires people to outperform. Courageous leaders are needed to advance organisations during times of uncertainty and stress so investment in leadership is worth the investment increase the probability of success.


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