Boost ROI While Developing Your Leaders
A company’s health is always dependent upon its ROI, the ability of an organization to leverage its resources for greatest return. At Arch of Leadership, we believe an organization’s greatest leverage for increasing ROI is found in the differences leaders can bring to it. Thus it is not surprising that we also believe that the best investment a company can make, bar none, is in developing its leaders. The question then arises: Is there a way to accurately measure that investment? Our answer is decidedly “Yes!” via a calculation we’ve developed called “The Opportunity Premium.”
On some level, we agree that leaders deliver exceptional value. Compare the value Steve Jobs has brought to Apple Computer, for example, since his return, versus that of his predecessor Gil Amelio. In terms of stock price alone, it’s $74 under Jobs versus $7 by the time Amelio departed.
But that’s only the value of the CEO. What about also determining the value of developing leaders throughout an organization?
In a recent article in the Journal of the Human Resources Planning Society, it was reported that Hewitt Associates surveyed more than 6,000 companies, ranging from less than 5,000 employees to greater than 250,000, for three years, on the extent of investment in leader development. Their headline-making conclusion: “CEOs of all of the top 20 companies surveyed are actively involved in developing leadership talent, compared with only 65 % of CEOs at other companies.” While there is no claim that leadership development is responsible for being a Top 20 company, the fact that 100 percent of the top 20 companies invest in leader development cannot be ignored.
In calculating the ROI of leader development, there are actually TWO calculations to make, one building on the other. The first comes into play whenever new leaders are called upon to establish mandated organizational change, due to growth, competition, disruptions in the market or internally. In this calculation, start with the cost of mentoring 12 leader prospects for one year, using as a yardstick our Arch mentoring program. This would be equivalent to one middle executive salary. Assume that some of these candidates will eventually fill vacancies opened due to growth initiatives or turnover in executive ranks. Now subtract the cost of mentoring from the cost of hiring an executive search firm for filling three positions.
Next add a premium to account for the fact that there will be no slow-down time due to transitions, since your people will already know one another and can therefore get right to work on the crucial issues. Add a second premium for decreasing your rate of turnover (which in turn eliminates even more search fees). Your high-potential leader candidates are staying with you because (a) they are in this program, (b) have enriched their current roles with new leader energy and (c) they LIKE being in this program! From outside the company walls, more top-tier and high-potential employees will likely be attracted to your company too because this attractive leader mentoring program is in place.
A second, higher-level calculation demonstrates a longer term ROI of mentoring leaders: Using the ROI projected with the current team in place as a baseline, compare that to the projected growth made possible by innovations that new leaders will spur. This produces an additional ROI, from productive, profitable changes. It’s not so outrageous a calculation, either! You might call it an inverse of your “opportunity cost,” i.e., the cost of not taking an opportunity. So what we’re talking about now is a leader or opportunity “premium.”
Continuing with this second calculation, next subtract the costs of hiring new leaders vs. the cost of leader mentoring, using the formula outlined above. Of course, the more a company relies on its own mentoring, the larger the premium will be.
When you look at things this way, it becomes clear that this Opportunity Premium offers an irresistible validation for your investments in mentoring, strongly making the case for leader development as a baseline. This function is not an extra but both critical and essential for your organization to grow, prosper and thrive in the turbulent business years to come.
Take advantage of our Opportunity Premium! Email or call me personally to explore how to customize our Arch program formats for your organization, or forward this message to your executive contacts at other organizations who could benefit from tapping into the Opportunity Premium. Together, we can build great leaders for the bottom line!