There is too much confusion regarding return on investment (ROI) for your investment in business coaching.
Let me clear the confusion by describing two sides of the ROI coin, and share an example of a coaching client who demonstrated a 300 % ROI from his investment.
One side of the ROI coin states “If you cannot demonstrate ROI from any initiative, then it will not be funded.” That makes business sense, and has defined most decision-making models. Examples abound from Peter Drucker’s famous maxim “If you cannot measure it then it does not exist” to Alan Weiss’ maxim “The only measure that matters is improved results of the client’s condition.” My corollary is, “Behavorial outcomes or performance outcomes can always be measured quantitatively (with numbers) or qualitatively (with descriptions).”
The other side of the ROI coin states that human behavior is inherently complex and unpredictable, therefore measuring that complexity is impossible. The notion of accurately measuring the impact of that change is impossible (even with artificial intelligence gathered from big data sets.) My corollary is, “The pace of change is slower today than it will ever be in the future, so respond to the challenges today.” What are you waiting to measure? Organizational psychologists distinguish between True Measures (T, an absolute from Aristotle), actual measure (t) and degree of error (%e). One formula to measure that complexity is T = t(%e). The main point is that complexity can be measured within ranges of acceptable error.
My experience is that ROI can be measured and must be measured. Here is the formula that I use, adapted from my good friend John Mattox’s (2016) book, Learning Analytics; Measurement innovations to support employee development. (Yes, my testimonial is on the back cover. I strongly encourage anyone interested in ROI to purchase and study this book.) Another great resource is the ROI Institute, founded by Jack and Patti Phillips.
Here is version 1 of the formula I use: ROI = (benefits-cost)/ cost. For instance, if the benefits of coaching investment for 12 months are $20,000 in new revenue, and the cost of coaching was $10,000, then the ROI of that investment was ($30,000-$10,000) or $20,000/ $10,000 or 200%. Pretty impressive ROI, right? But coaching was not the only reason for that new revenue of $30,000, therefore that 200% ROI number is not valid.
Version 2 of the formula I use is ROI = (benefits x % attributed to outcomes)/ cost. For instance, if the benefits of coaching investment for 12 months are $30,000 in new revenue, and the percent attributed to coaching was 40%, and the cost of coaching was $10,000, then the ROI of that investment was ($30,000 x .40 = $12,000-$10,000) or $2,000/ $10,000 or 20%. A more accurate assessment, perhaps, but 20% ROI is not as impressive. Version 2 is also called adjusted ROI.
Here is a real example from one of my clients that illustrates how to assess the ROI of business coaching:
|% attributed to coaching
|– Cost of coaching
|ROI of coaching
The bottom line?
- The ROI of your business coaching investment can be measured based on behavioral outcomes and performance outcomes.
2. The ROI of your business coaching investment with Action Learning Associates is guaranteed to be positive. Since 1997, we have provided that guarantee, and it has been true 100% of the time.
What are you waiting for?
Call Doug Gray, PCC, today at 615.905.1892 or contact us here.
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The American educator John Dewey (1938) stated, “We do not learn from experience… we learn from reflecting on experience.” That fact remains unchanged (for at least the last 79 years) because it describes the need to reflect on how leaders develop. For instance, a leadership shortage may be described by demographic shifts (millennials or global diversity), insufficient training (after promotions) or discouraging mindsets (low engagement or trust measures). In response to that shortage, leaders need to practice desired behaviors more frequently (Kouzes & Posner, 2016). Consider this example. When I recently asked a room full of leaders, “How many of you describe yourself as a leader?” only about 10% raised their hands. My experience is that many potential leaders do not regard themselves as leaders, largely because they do not trust their personal experiences. Leaders can learn from experiences, but not all experiences are meaningful (Yip & Wilson, 2010). This short paper explains how the two top processes of leader development can be applied to executive leadership. Those two processes, 1) challenging assignments and 2) developmental relationships, described 64% of leader development experiences in the United States 24 years ago (McCall, Lombardo & Morrison, 1998) and are just as critical today.
As a species, humans have always adapted to environmental stimuli. As leaders, humans adapt to environmental stimuli with internal change (Schein, 2010). When I ask leaders to share their “personal best leadership story” the results may range from parenting to global reorganizations. The unifying characteristic of those stories is that they describe challenging assignments; all leaders model initiative, take risks and innovate new behaviors (Kouzes & Posner, 2016). One useful framework for practicing more leadership behaviors includes these five steps: 1) model the way, 2) inspire a shared vision, 3) challenge the process, 4) enable others to act, and 5) encourage the heart (show appreciation and celebrate successes; Kouzes & Posner, 2016). That framework focuses on learning leadership behaviors, like a road map, and consequently I have shared that framework with dozens of executive leaders. Any leader cited throughout history (in any reference book or in any story) has embraced challenging assignments.
So, what are useful challenging assignments? Yip & Wilson (2010) list five types of assignments; 1) increase in job scope, 2) creating changes, 3) job rotation, 4) stakeholder engagement, and 5) cultural exchanges. Examples of an increase in job scope include redesigning roles or responsibilities, adding people or budget to a current assignment, a career succession pipeline or a job succession ladder. Examples of creating change abound as leaders respond to technological changes, market adaptations, global choices of suppliers and providers, diverse stakeholders, demands for improved efficiency, effectiveness or new outcomes. Examples of job rotation include formal systems with regular shifts, as physicians and healthcare leaders often do when training, or informal rotations when leaders shadow colleagues in a different work group or culture. Examples of stakeholder engagement include cross functional teams (sales and operations) or new market negotiations (vendors, clients, government officials) designed to develop awareness of cultural complexity and the need to negotiate desired outcomes. Examples of cultural exchanges include foreign assignments, foreign responsibilities, cultural awareness assessments, organizational culture development, language skills, and understanding of global leadership behaviors.
The next question may be, “how do leaders increase their probability of success in challenging assignments?” The answer includes feedback from developmental relationships.
No leader succeeds alone. We all need meaningful relational feedback such as coaching, peer or group mentoring, or one-on-one mentoring. Yip & Wilson (2010) list three types of developmental relationships; 1) constructive managers, 2) difficult relationships, and 3) other venerated leaders. Examples of constructive managers include regular one-to-one feedback sessions, performance reviews, based on critical organizational competencies or developmental states validated by a career development plan. Examples of difficult relationships are those conflicts or disputes that were handled poorly, remain memorable as instructive reminders of “what not to do next time”, or lessons from unethical or inappropriate behavior. Examples of relational feedback from other venerated leaders may include a mentoring session from an elder or historically wise leader, or an exemplary role model in a community or organization.
How do leaders increase developmental relationships? The most effective answer is to actively seek out wise mentors and regularly ask for feedback. As Kaplan (2007) states, the person in the mirror may be able to respond to seven key questions with candid feedback. However, my experience is that executive leaders require external, objective relationships with experienced mentors and coaches who can “speak truth to power” or model new desired behaviors. The most requested topics for executive coaching engagements have not changed for many years; those topics are (1) executive presence and influencing skills, (2) ability in leading teams and people development, and (3) relationship management (TCB, 2014). Managers and supervisors may be able to provide insights into those topics, but only executive coaches can observe and recommend new desired behaviors.
The coach training industry is now estimated at 53,500 global coach practitioners and over $2B in annual revenue, with 115 accredited coach training programs (ICF, 2016). The International Coaching Federation (ICF) hosted the largest global survey (n=15,380, with 38% non-members) of coaching practitioners (internal, external or both) and managers or leaders using coaching skills (within Human Resources, Talent Development, or any line of business; ICF, 2016). That survey identified the top future obstacles for coaching as (1) untrained individuals and (2) marketplace confusion (ICF, 2016). The survey also identified the top future opportunities for coaching as (1) increased awareness of the benefits of coaching, and (2) credible data on ROI/ROE/outcomes (ICF, 2016). Those findings suggest a significant need for research on the efficacy of coach training.
When Dewey revolutionized American educational systems, he caused leaders to challenge the status quo and provide developmental relationships for students. In a similar way, leaders have always accepted challenging assignments and sought candid, relational feedback of their performance. In recent months I have applied the model from Kouzes & Posner (2016) to several executive leaders because it focuses on frequency of desired leadership behaviors. If we assume that any leader needs to 1) model the way, 2) inspire a shared vision, 3) challenge the process, 4) enable others to act, and 5) encourage the heart (show appreciation and celebrate successes; Kouzes & Posner, 2016), then we can help more leaders to increase the frequency of desired leadership behaviors. In other words, we can help leaders practice leadership.
Contact Doug Gray, PCC, for details at 615.905.1892 today.
Dewey, J. (1938). Experience and education. New York: Macmillan.
ICF (2016). 2016 ICF Global Coaching Study; Executive summary. International Coaching Federation.
Kaplan, R. S. (January 2007). What to ask the person in the mirror. In On managing yourself (pp. 135- 156, 2010). Boston: Harvard Business Review Press.
Kouzes, J.M. & Posner, B.Z. (2016). Learning leadership; The five fundamentals of becoming an extraordinary leader. San Francisco, CA: Wiley.
McCall, Lombardo & Morrison (1988). The lessons of experience; How successful executive develop on the job. (reference not included in text, but cited on p. 64). In Velsor, E.V., McCauley, C.D. & Ruderman, M.N. (2010). Handbook for leadership development, 3rd Ed. San Francisco: Jossey-Bass.
Schein, E. H. (2010). Organizational Culture and Leadership (4th ed.). San Francisco, CA: Jossey- Bass Publications.
TCB (2014). The 2014 Executive Coaching Survey. The Conference Board, Report #R-1568-14-RR.
Yip, J. & Wilson, M.S. (2010). Learning from experience. Pp. 63-95. In Velsor, E.V., McCauley, C.D. & Ruderman, M.N. (2010). Handbook for leadership development, 3rd Ed. San Francisco: Jossey-Bass.
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