What the Research Says About Leadership Coaching and ROI
Updated: May 2, 2022
By Andy Cole
For some of us, it’s intuitive that a leadership coach is an invaluable resource to both a leader and their organization. How could it not be valuable to provide leaders with an experienced sounding board and a confidential space to explore difficult decisions and test new ideas without consequence? Afterall, several studies show that the ROI of a coaching program is $4-8 for every dollar spent[i], and the impact of clear decision-making at the leadership level is easily worth many times the cost of a coach, let alone the impact on company culture, improved prioritization, etc., etc.
For others, it’s not so obvious that the value of a coach (or coaching program for several internal leaders) justifies the cost. For these people, it’s imperative to grasp a tangible return on investment before making the commitment. So – as is the case with anything in business that can be tricky to assign numbers to – we look to the research to guide our decisions. Lucky for us, there’s plenty of research to consider.
To start, we take a look at some of the challenges facing leaders today. Even the best research struggles to nail down the exact costs associated with things like ‘poor communication’ or an ‘unhealthy working culture’; we simply understand that leaders directly affect these aspects, and the associated costs – though incalculable – can be dramatic. As the makers of big decisions and the tone setters for the rest of the staff, leaders are primarily leaders of people, and we do have the data to accurately describe two of the top challenges in managing people; namely, talent retention and talent development.
Retaining talent is more challenging today than ever – especially for the aloof leader.
About 75% of the workforce reports being not fully engaged on the job[ii], and over 40% of corporate employees are now looking for jobs due to anxiety, stress, or issues arising from an inflexible workplace[iii]. If these numbers weren’t serious enough, consider that replacing an outgoing employee costs up to 250% of that person’s annual salary[ii].
With both the risk and consequence so high, it’s surprising to see that – of the employees who do quit - nearly 80% cite a lack of appreciation as a key reason for leaving[iii]. A word of advice from Forbes: “At the forefront of all of this is [a leader’s] ability to connect, motivate, inspire, empathize with and understand employees by first recognizing them as people, not things that we have to tactically improve.” In today’s climate, a leader simply cannot afford to be unaware of their impact (emotional or otherwise) on employees. But what is the best way for a leader gain this awareness, and – once awareness is achieved – how might they most effectively develop in the areas identified for improvement?
Both leaders and employees want to grow, but they lack the opportunity.
One way to keep talent happy while making them more effective is to provide opportunities
for growth and development. However, 58% of managers don’t receive any form of management training[iv] - revealing the harsh reality that we promote good individual contributors, not necessarily because they help others perform, and “we have a bunch of leaders who aren’t trained on how to lead.”
For the 42% of managers who do receive some form of training, 75% are dissatisfied with their company’s training department[v]. With only 12% of employees reporting that they apply skills learned from training programs, research has widely shown that a rigid, instructional approach to leadership development simply does not work. As the Harvard Business Review points out: “We’re learning the wrong things at the wrong time, so we’re disengaged and don’t retain.”
Like tracking the benefits of a daily meditation, the benefits associated with coaching are both numerous and tricky to quantify.
As compared to training programs, Coaching programs have the agility to go off-script to focus on the topic that’s most important to the leader – even if that topic emerged moments before a session – ensuring that no time is wasted on irrelevant content. Interestingly, research shows that coaching combined with training boosts productivity by an average of 86% compared to 22% with training alone[i].
The coaching process creates a dynamic, two-way relationship between leader and coach, and the benefits are astounding. For those of us who like to quantify benefits, it can actually be a bit overwhelming – so let’s break down the top benefits that research has been able to tease out.
· Stress Reduction – One-on-one coaching has been shown to reduce stress by an average of 18% after only 8-10 sessions and in some cases as much as a 47%[vii]. Among leaders surveyed, 74% said that coaching has provided them with tools and perspectives that help them tackle stress better.
· Improved Prioritization – As Michael Porter says, “The essence of strategy is choosing what not to do”, and it unfortunately appears that only about 10% of managers have the right focus and energy to work on the stuff that really matters[viii]. Through coaching, however, 72% of leaders surveyed reported having learned to prioritize their time better[vii].
· Better Decisions – A study has revealed that 71% of business decisions are perceived by leaders as binary (i.e. Should we do it, or should we not?), and – in hindsight – our success rate is has turned out to be worse than had we flipped a coin[ix]. Coaches, on the other hand, push leaders to increase the number of possibilities, and the inclusion of even just one more option improves the success rate dramatically. Of leaders surveyed, 79% said that they feel better equipped to make decisions based on what is truly important to them[vii].
· Increase Awareness – Of the leaders surveyed, 81% said that coaching gave them a deeper understanding of the thoughts and actions that stand in their way.
· Facilitated Change - 85% said that the coaching has made a significant impact on them and has helped them make various necessary changes in their day-to-day lives.
· Perceived Value - 87% said that they could definitely imagine continuing with a coach either now or at another point in their lives.
Of course, these are all impactful areas in which to improve, but leaders seeking a coach are looking for bigger-picture benefits that typically encompass all of the above. CEOs, for example, say[x] the two main reasons they have a coach is to:
· Expose blind spots – As the Harvard Business Review says: “a good, neutral third party assessment is a clear reality check for executives.”
· Create a safe place – The same HBR article points out that “every single person inside the company has an agenda of some sort. This makes the coaching environment a rare and safe place to think through various topics against the framework of what is in the CEO’s best interest.”
We can clearly see that coaching provides a whole host of benefits – but precisely how much will it help, and how will it translate into actual dollars and cents?
Create a unique definition of ROI that fits your organization
In an overarching sense, studies show that the ROI of a coaching program is 4-8 times the original investment (Studies by Manchester Inc and MetrixGlobal LLC, for example, found returns of 5.7x and 7.9x, respectively), making it about as smart as any investment an organization could make.
While such a level of return seems like a no-brainer, the question remains how well a coaching program will work for you and your organization. So – if you want to ensure success – the answer lies in understanding your specific needs and crafting a definition of ROI that fits those needs.
Here are some questions[xi] that will help you home in on an ROI unique to you:
· What are your current challenges?
· What are these challenges costing you?
· And what is the value to you / the organization if these challenges went away?
· What are the consequences if these challenges continue or intensify?
Going a little further:
· What will it cost you if the team doesn’t deliver on time and on budget?
· What would be the value of seeing the team’s deliverables come through on time and under budget?
· How much does it cost to replace someone in your organization?
· With this answer, you could calculate the cost of your current turnover and the value of hitting your reduced turnover goal.
· What is the gap between the performance of the sales team now and the performance you expect?
· How much could the organization grow if it had additional leaders grown from within?
For certain leaders, the following questions might be revealing:
· How would you feel if you had more time, and could leave the office earlier?
· What would it mean for your peace of mind if you reduce the conflicts happening on your team?
· How much stress are you feeling about a particular issue?
· What would it mean to you if we could eliminate this stress?
· How will you feel when you achieve your primary goal?
Still need more ideas? Here are other ways[xii] companies track coaching ROI:
· Hard metrics
· People & Culture: eNPS, engagement scores
· Revenue Generation: Sales numbers
· Operations: Time savings, cost savings, product quality
· Softer metrics
· Survey coachees at program milestones on how they feel and ask what helped them improve
· Turn soft metrics into harder metrics
· To make vague objectives more concrete, create Objectives and Key Results (OKRs) for each coachee. This process could involve teammates and other stakeholders who agree on a “success scenario” so everyone is committed to success.
Every leadership coaching program should be unique (i.e. crafted to the needs of the leader and organization) and targeted (i.e. with clear objectives) to ensure an optimal return. While existing research shows that leadership coaching is highly effective, it cannot tell you (with accuracy) the ROI figures you should expect to see for your program. Fortunately, with the framework above, weighing the cost of the status quo against the potential upside to be gained through a coaching program is as not as difficult as it seems, and the process will help you be more thoughtful about both program goals and tracking benefits over time. With an assessment of your unique coaching needs, an estimate of expected cost vs. value, and a few key metrics to monitor the process, you now have everything you need to make a thoughtful investment decision.
About the Author
Andy Cole is a leadership strategist and executive coach at Mainspring Consulting, skilled in helping leaders clarify their thinking, improve communication, and cultivate sustained confidence. He has 15 years of professional experience as a business executive, renewables engineer, strategy consultant, and leadership coach. Connect with Andy on LinkedIn or visit Mainspring’s website at mainspring-consulting.com.
[i] Buffalo Niagara Partnership, The Impressive ROI of Executive Coaching & Leadership Development, 2021
[ii] O.C. Tanner Learning Group, A New Benchmark for Initiating Employee Engagement, Retention and Results. A study involving 200,000 participants over the course of 10 years.
[iii]Forbes article, How to calculate your coaching return on investment, 2021
[iv] Forbes article, 10 Shocking Workplace Stats You Need To Know, 2018
[v] Harvard Business Review article, Where Companies Go Wrong With Learning and Development, 2019
[vii] Norwegian University of Life Sciences, Can Coaching Reduce the Incidence of Stress-Related Absenteeism? A collaborative research project with CoachConnect, studying 111 coachees receiving Co-Active coaching over a three-month period.
[viii] Harvard Business Review article, Beware the Busy Manager, 2002
[ix] Decisive: How to Make Better Choices in Life and Work, by Chip and Dan Heath. The authors quote a study by Paul Nutt, who reviewed the outcomes of 168 decisions made within organizations.
[x]Stanford University, 2013 Executive Coaching Survey, 2013. In partnership with The Miles Group, researchers surveyed 200 CEOs, board directors, and other senior executives, profiled in an article by HBR.
[xi] Center of Executive Coaching, The Simple, Easy Way To Justify The ROI Of Executive Coaching Fees
[xii] Forbes, 14 Specific Ways To Show Clients The ROI Of Coaching Services, 2021