ROI: Investing in Leadership
We’ve all heard it… “People don’t quit jobs, they quit managers.” So, the question becomes, what is your organization doing about it? Or do you think that it doesn’t apply to your organization? Because if so, you may want to think again… Research by Hogan Assessments showed that 75% of employees considered their direct boss to be “the worst part of their job.”
I’d venture to guess that most managers don’t go into leading their teams intending to drop the ball or be a poor manager. But it’s not all on them; as an organization, you also have a responsibility to ensure your managers are equipped to become effective leaders. This article isn’t simply intended to be fluffy and feel good on why organizations should want to invest in developing people (which we’re all fellow humans so it probably should be a factor, too), there is also a real return on investment seen when organizations are strategic in their management selection and invest in leadership – it hits your bottom line.
The question on whether you have the right leadership and whether you’re setting them up for success comes up in multiple places in the employment story. Is the right person with values that align with the organization’s hired into a leadership role during the talent attraction process? Is the individual contributor on the team being promoted actually interested in the change in responsibilities (versus simply being amazing at the current work) and have they demonstrated characteristics that would lend well to leading the team they are currently coworkers with? Does the culture support continual learning and offer leadership training to fill in the gaps? How about a mentor?
The (Unfortunate) Situation
How a manager’s team will perform is correlated to the tone their direct manager sets. The most dedicated employees can lose motivation after time when they feel unappreciated and burnout starts to set in – these costs your organization productivity and revenue. Poor management leads to low employee engagement which leads to higher turnover, lower morale and loyalty and reduced customer satisfaction.
Inc. reported on a survey conducted by the Future Foundation of 700 executives across seven countries and their findings included senior executives claiming they spend seven weeks a year (or over an hour per day) managing badly performing employees. Forbes outlined these staggering numbers: Poor relationships with bad bosses cost our economy $360 billion annually in lost productivity. Further, it can take employees 22 months to recover from stress levels caused by bad bosses. Bad bosses punish the fiscal health of an organization as well as the mental and physical health of employees – who would want that?
A key finding in a study by Deloitte surrounded the importance of leadership in employees’ decision to stay or go. More than six in 10 employees (62 percent) who plan to stay with their current employers reported high levels of trust in their corporate leadership, while only 27 percent of employees who plan to leave express that same trust. In addition, 26 percent of those who plan to leave their jobs in the next year cited lack of trust in leadership as a key factor. While it’s true that not all turnover is “bad,” the lack of trust in leadership appears indicative of a broader concern in quality of leaders.
In the currently tight labor market with low unemployment, employees have more power than ever and the challenge is heightened to keep quality employees with your organization. Effective management is one of those solutions. Research and estimates from different sources on the cost of turnover range from 20% of annual earnings for entry level employees to as high as 200% or more for senior level employees.
Now for all you mathletes out there (don’t worry for those who aren’t, we’re keeping it simple) let’s run a few rough numbers to see what the cost could be if just one of your employees leaves. Remember, real costs hit your organization’s bottom line every time an employee leaves, due to a poor manager or otherwise.
SHRM (Society for HR Management) and the Work Institute estimate 41 million U.S. workers voluntarily resigned from their jobs in 2018, an 8% increase from 2017, and that’s expected to further increase over the next two years. The Work Institute reports that at least 50% of voluntary turnover is preventable by the employer. In 2018, that was 20 million employees’ turnover costs that could have been saved. Imagine the dollars that would equal!
So, there’s a significant percentage of employees reporting their manager is the worst part of their job, and research shows that bad managers lead to dropped productivity, lower morale, and higher turnover. Now what?
The Case for Ensuring (not just hoping for) Effective Leadership: Real Dollars and Cents
To start with, imagine if all the numbers above could be reversed and instead of costs, they were savings! Right off the bat, that’s a good reason to invest in effective leadership development.
Effective leaders lead to more engaged employees by fostering loyalty, encouraging personal growth with challenging assignments, supporting career paths or a number of other reasons. Gallup's research has shown that when engaged workers contribute measurably to the organization: They're 18 percent more productive, 37 percent less prone to absenteeism, and generate earnings that are 18 percent higher.
Effective leadership rarely develops through hope and throwing wishing pennies in the fountain. It happens when there is intentionality built behind the objective. Another Gallop report found that nearly one in five (18%) of those individuals currently in management roles demonstrate a high level of talent for managing others, while another two in 10 show a basic talent for it. Combined, they contribute about 48% higher profit to their companies than average managers do. Your front-line managers are likely the newer, least experienced leaders to the game, yet also the ones with the most direct impact on employee engagement and productivity.
Gallup’s research further finds that great managers have the following talents:
They motivate every single employee to take action and engage employees with a compelling mission and vision.
They have the assertiveness to drive outcomes and the ability to overcome adversity and resistance.
They create a culture of clear accountability.
They build relationships that create trust, open dialogue, and full transparency.
They make decisions based on productivity, not politics.
According to their findings, when organizations grow how many great managers they have and double the number of engaged employees, on average, they achieve 147% higher earnings per share than their competition.
Reinforcing the case for ongoing leadership development, is recognizing leadership right now is not going to be there forever. DDI’s Global Leadership Forecast found that 65% of HR respondents rated their future leadership pipeline as slightly weak or worse. Succession planning, not just for “key” roles but throughout the management team, is critical to planning for and maintaining adequate bench strength to carry your organization successfully into the future.
Never Fear: Hope is Not Lost
Do excellent, natural ability, born-to-lead managers exist? Probably, but they are those rare purple unicorns that are (un)surprisingly difficult to find not to mention retain. Plus, there are differences from organization to organization on what it takes to be a great leader “there” versus “here.” (This can be due to industry, size, autonomy, culture, etc.) Therefore, most of the time, even talented managers need a strong onboarding experience into the new role.
First and foremost, to develop an effective leadership development program, you need to establish what problem it is alleviating or opportunities it’s building that aren’t currently available. A cookie-cutter program that is a broad “be a better manager” or “Leadership 101” simply may not cut it. To get the best ROI, you need to take a careful evaluation of where your managers are in their leadership capabilities and where there are gaps. You need this to determine what gaps you need to close that are directly connected to business opportunity. And don’t forget to include your rising stars who can participate in leadership development to prepare them to take on a future role as well.
Leaders don’t have to be all-stars in every single leadership facet. While there are core competencies such as integrity, communication, decision-making and acting with respect, other elements can be balanced out across a management team. For example, not all managers need expert level financial acumen, but rather focus on ensuring the fundamentals are there, and then strengthen strengths to capitalize on the variety of skills within your organization’s leadership.
Additionally, accept that most managers aren’t “bad bosses” but rather some may simply be bad at their job – which is fixable! There are different paths that can lead to closing this gap, and below are just a few examples:
Executive coaching – partnering with a certified coach can optimize strong leadership teams
Assessments – self-awareness is a necessary first step to growth
Training – standard for defined competencies or customized for your team’s needs
Mentorship – a culture that truly supports the development of its team is invaluable
Strategic Hiring – managers can also partner with HR for their hiring needs with a special emphasis on hiring specific skill sets that compliment the needs of the entire team
Organizations are also living beings in a lot of ways. Strategies and priorities can shift as time passes. However, the overarching values and character remain fairly consistent. That is part of your leadership development and you want to see that consistency, that use of a “values lens” in decision-making across teams. It is important to properly equip and develop leaders for your organization with transparency and open communication as they develop the hard and soft skills of leadership.
Don’t Forget to Measure It
Build your metrics into the program early on. This is critical to establish where your greatest returns are being seen and to correct areas that are falling short. Let participants know about the data collection. They shouldn’t be surprised that there will be accountability in their leadership role and this is just one way to demonstrate it. They must walk the talk.
Know what data will be relevant and make sure you’re collecting it. For example:
Pre- and post-training assessments: Does it demonstrate that any new content or skills were learned? Were capabilities grown?
Surveys: Did participants find the training useful? What did they learn? What did they already know? How will they apply what they learned?
Business impacts: What are the measurable improvements in quality outputs, time, cost savings, engagement, innovative idea generation, retention, etc.
Make sure there is follow-up planned into training. Participants need to be able to demonstrate accountability to the principles that were covered. You don’t want the time and investment wasted if it’s simply forgotten. Some studies have found it can take 6-8 months for an employee to have attained an effective level of job performance in a new role. Therefore, consider utilizing 360⁰ feedback tools at 9-12 months. Also evaluate your reward system; does it connect value to strong leadership traits and outcomes or is it merely focused on individualized accomplishments?
Leadership is not simply a privilege for a single person or a source for a pay bump; it is a responsibility to support and serve as a resource to those around you. Leaders don’t strive to move themselves forward, they move forward only with the organization. And with proper planning and intentionality, your organization can set them (and the organization) up for success.
Key Elements Consulting offers various assessments that are geared toward leaders as well as team dynamics, along with leadership coaching and customized training programs. Contact us if your organization is interested in furthering developmental opportunities in your leadership team today.