A recent Harvard Business Review study revealed that almost 40 percent of a company’s strategy can be diluted due to poor execution. Additionally, estimates attribute up to 70 percent of a company’s operating expense to labor costs and yet only 38 percent of employees are reportedly engaged. With this much at stake, the importance of development activities and alignment of organizational goals with strategy is paramount. In spite of the apparent need for investment in employee development, what remains a challenge for many organizations is the determination of, or perhaps acceptance of, returns associated with investments in development activities.
Coming from a position with direct financial responsibility with a laser focus on clearly measurable ROI to a talent management consulting role, I have observed that the focus is often on process rather than results. It’s understandable that CEOs and leaders with P&L responsibility struggle with justifications in which clearly stated expectations for outcomes are absent or fuzzy.
Most leaders accept that employee development has value, but determining how much and what programs requires some effort. To assist in establishing value of development activities, the investment required, as well as the methodology to employ, considering the following three areas proves useful:
- Business need
- Development requirements
- Desired business result
Defining the business need
Defining the business need should begin with clarity around the organization’s goals and what skills, competencies or behavioral changes are necessary to meet those goals. While on the surface this may sound simplistic, assumption is the enemy here. A thorough identification and assessment of what skill sets reside within the targeted group or employee is required to reduce risk and improve organizational engagement toward stated goals. This can often be accomplished through the mining of information available in the HRIS/LMS system, utilization of assessments, and the application of knowledge transfer mapping strategies.
Defining development requirements
Once the business need is clearly defined and competencies identified, a plan outlining methodologies and deliverables can be designed to address the development requirements or gaps. Key questions that should be addressed include:
- How will the change in required skills, competencies, behaviors be achieved? Options may include traditional training, coaching, mentoring, or blended approaches.
- When are the assimilation of these skill sets required?
- How will the outcomes be measured?
Development of human capital is a complex endeavor, with differing needs among employees. While training offers an organization the opportunity to "roll out" learning to multiple assets at one time, each employee will assimilate skills based upon their personal experience and capabilities as well as work/assignment opportunities. Another consideration often overlooked, is that the more senior the level of responsibility, the greater the requirement placed upon emotional intelligence in addition to "technical" competencies. These realities expose the limits of traditional training in improving leadership competency. Coaching and mentoring provide the opportunity to raise self awareness and encourage individual accountability to achieve growth initiatives. Continual improvement in leadership effectiveness attributable to coaching interventions may be satisfactorily quantified by attention to specificity of expectations and measured outcomes.
Defining desired business result
After clearly defining the business need and the development requirements, defining what changes in business results can be anticipated due to the development activities is essential to effective measurement of the return on investment. Estimating improvements in productivity, sales, customer retention, etc., can be specifically anticipated, forecast and measured to further quantify and validate the business value of development activities within your organization. The proposed investment balanced against the anticipated outcomes will then provide leaders who have financial responsibility a quantifiable method of weighing the value of development against other investment opportunities.
Identifying delivery options
Following approval of the development initiative, the selection of talent management resources (internal or external) for delivery will determine its success or failure. The organizations and individuals who provide the training and coaching services should be vetted as rigorously as you would a prospective employee. In this process, it’s helpful to determine:
- What are their qualifications as an executive coach? As a trainer, facilitator, etc. (depending on application)?Degrees, certifications, etc.?
- What is the scope of their business experience? Their services?
- What type of project or area of expertise best defines them?
- Can they provide the necessary resources locally/nationally?
- What references can they provide?
Development initiatives are often considered expendable due to more immediate, and seemingly concrete, issues associated with near term performance; however, when 70 percent of operating cost is associated with labor and statistics report that only 38 percent of the workforce is highly engaged, to ignore the need is to risk collision with the unseen iceberg just below the surface. Our responsibility as leaders, regardless of functional responsibility, is to understand and clearly quantify the investment opportunities that will result in the greatest return for our stakeholders.
Matt Williams is the director of executive coaching and leadership development at Talent Strategies Group, a Division of Career Partners International (CPI), Houston. A certified executive coach, Williams has over 25 years in corporate roles including 10 years as president and CEO of a medical technology company. For more information visit www.talentstrategiesgroup.net or call (713) 784-3197.
 Harvard Business Review, Turning Great Strategy into Great Performance, Markins & Steele