Great employers know the benefits of investing in their people. Increased productivity, high levels of employee engagement and retention, and increased revenues are three benefits frequently noted when thoughtful employee development programs are put in place.
Leadership coaching is one of the many options organizations have to invest in the development of their people. Before authorizing leadership coaching in their organizations, prudent decision-makers will have many questions about the benefits and costs related to coaching. Before I jump to the ROI of leadership coaching, let’s first clarify what it is and what it isn’t.
What is Leadership Coaching?
Leadership training is instruction on the competencies that leaders need to succeed. The purpose of leadership coaching is to enhance the skills, knowledge, and abilities of leaders so they can be more effective in leading and managing their teams. Leadership coaching complements training by providing a space for individuals to explore their personal leadership style, learn to regulate emotional responses, and uncover the recurring patterns and limiting beliefs that block or limit professional success.
Organizations that offer coaching and have built coaching cultures say their top reasons to make coaching a key part of their leadership development strategy are:
- Improved communication skills
- Improved teamwork
- Improved decision making
- Increased productivity
- Increased employee engagement
While leadership coaching is often perceived as expensive, the return on investment (ROI) can be significant. A Price Waterhouse Cooper’s survey reported that the average ROI return for companies that invested in coaching was seven times their initial investment and more than 25% of survey respondents reported ROI of 10 to 49 times the initial investment. These are impressive numbers. Let’s look at three ways that the ROI of leadership coaching can be assessed.
1. Improved Performance
One way to evaluate the ROI of leadership coaching is by measuring the improvement in performance of leaders and their teams.
The International Coaching Federation (ICF) found that 70% of individuals who received leadership coaching reported improved work performance, while 86% of companies reported recouping their investment in coaching through improved productivity and profitability.
Coaching helps leaders develop emotional intelligence (EQ) and self-knowledge needed to lead their teams effectively. Leaders with high EQ are better able to motivate and manage their teams to higher levels of performance. Communications improve and team conflict may be reduced.
2. Employee Recruitment and Retention
Another way to evaluate the ROI of leadership coaching is by measuring the impact of coaching on employee recruitment and retention. Organizations that offer coaching demonstrate to current employees and candidates that they are committed to the ongoing training and development of their staff. This improves retention of top and high potential employees and helps to attract the best qualified candidates.
For example, stress is cited as a key driver of poor performance and employee absenteeism. Positive Intelligence Inc., where I received my coaching credentials, reported that 100% of employees of a US-based health and wellness company managed their stress better after completing a coaching program.
Research conducted by the ICF found that organizations that provided coaching to their employees had a 21% higher retention rate than those that did not provide coaching. The study also found that coaching was the second most effective tool for retaining employees, behind only salary increases. A study conducted by the Harvard Business Review found that replacing an employee can cost an organization 6-9 months’ salary on average. Reducing turnover leads to significant cost savings.
Coaching can help leaders develop the skills needed to create a positive work environment, which can lead to higher levels of employee engagement and satisfaction. As a result, employees may be more likely to stay with the organization, reducing turnover costs while the organization increases its ability to attract the best candidates.
3. Increased Revenue
Coaching can also lead to increased revenue for organizations. By improving the performance of leaders and their teams, organizations are able to increase their productivity, efficiency, and profitability. Additionally, coaching can help leaders identify new opportunities for growth and development, leading to increased revenue streams.
For example, a study conducted by the ICF found that coaching led to an average revenue increase of 46% for organizations. The study also found that coaching was the second most effective tool for increasing revenue, behind only strategic planning.
The ROI of leadership coaching can be sizable. Organizations that implement leadership coaching can expect to see benefits such as improved performance, increased employee retention, and increased revenues. While the upfront cost of coaching may be significant, evaluation of the long-term benefits should outweigh the costs, making it a worthwhile investment in an organization’s leadership development.
If you are curious about how leadership coaching could benefit you or your organization, contact Lucy White, an Osborne Group principal, to explore the value of leadership coaching with you.
Learn more about Lucy White, CPQC