Leadership ROI featuring Michael and Bonnie

Attempts to measure ROI in so-called “soft” disciplines suggest that new perspectives are called for. One such attempt to measure the ROI of leadership has been developed by leader mentor Michael Shenkman, Ph.D., founder and president of the nationally recognized leader mentor consulting firm Arch of Leadership, based in Albuquerque and Boston. The author of such books as Leader Mentoring (Career Press), The Arch and The Path: The Life of Leading Greatly (Sandia Heights Media), The Strategic Heart: Using the New Science to Lead Growing Organizations (Greenwood Press), and Value and Strategy: Competing Successfully in the Nineties (Greenwood Press), Shenkman says that to make the case for leadership ROI, one must get away from the historical model employed for assessing return on investments for capital equipment and instead conceive new ways to measure your investment returns from the “immediate, day-to-day, across-the-board impacts” of leadership. In Business Strategies Magazine 2007, Shenkman and coauthor Bonnie Gorbaty state:

“Every company today competes increasingly on its value proposition and the ways it is able to differentiate from the competition and away from commoditization. Value gets created in the development of products and services, in the right hiring and development of talent, in strategic market positioning to name a few of the big ones.

“But the real value that feeds into all of these is what leaders bring to the enterprise with their compelling visions, and their ability to integrate disparate ideas/solutions/opportunities into competitive advantages, and their energy in driving cross-functional innovation. “

How can such intangibles be measured?

Shenkman and Gorbaty refer to the book Good to Great, in which Jim Collins profiled 11 companies that achieved the leap suggested by his title. These firms averaged cumulative stock returns greater than 6.9 times the general market during a 15-year transition period. An investment in these 11 good-to-great companies during those 15 years would have multiplied 471 times, compared to a 56-fold increase in the broader market.

How did these 11 achieve this leap? They realized the value of leading, Shenkman and Gorbaty insist, requiring a different kind of investing. Instead of investing in tools for efficiency, these 11 good-to-great firms invested over the longer term in appreciating and nurturing the talents and energies of their emerging leaders. As a result of this investment, they developed a "deep bench" of people across many disciplines who could be counted on to envision new approaches to the company's opportunities.

They could also be counted on to enlist the energies of others effectively and robustly, so as to accomplish those approaches. No executive searches, no down time in training new people, no resentments from being passed over for promotions, no defections. “Just put the leaders you have developed in place, and run with it,” Michael Shenkman explains. .”That's an ROI worth the price.”

To Shenkman and Gorbaty, “appreciating and nurturing the talents and energies of emerging leaders” constitute a return-on-investment that’s identifiable, impactful and durable. Skeptics of course might reply that such arguments, though strong, nonetheless beg the question of a hard-and-fast formula for quantifying leadership ROI. In response, Shenkman and Gorbaty have in fact augmented their thesis with a quantifiable formula that factors into the equation such variables as executive salaries, stock prices, costs of executive searches and marginal growth rates. Offering such a formula further weakens the argument that soft disciplines cannot be measured in hard dollars.

If leadership can be quantified, can other ROI for other soft disciplines such as thoughtleading and media attention and publishing be measured as well? Surprisingly perhaps, the answer is yes.

Copyright 2008 by Ken Lizotte. All rights reserved.

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