The survey sample mirrors ama's corporate membership base, which, combined, employs one-fourth of the U.S. workforce. Of those who responded, 31 percent hold senior HR positions, 46 report to a senior HR executive, and 33 percent operate at middle management level. The survey questionnaire was designed by an academic team that included Michael Hitt of Arizona State University, R. Duane Ireland of the University of Richmond and Frank Hoy of the University of Texas-El Paso, under the direction of Deborah Bright of Bright Associates, New York.
The Cost of Developing Leaders
The cost-value ratio is a subjective measure. The value that Barings Bank received from its leadership investment in Nick Leesan, for example, is a world away from, say, GE's return on Jack Welch. Nonetheless, it is useful to track how much organizations spend on leadership development since the numbers provide an important benchmark for others.
Large corporations spend considerably more on leadership development than smaller firms. Overall, certainly, but across the survey, we detected surprising similarities in the annual, per-participant cost of leadership development. Among the smaller, less than 500 employees, organizations, about $6,000 appears the norm. Corporations with 10,000 or more employees spend a little more, slightly exceeding $7,500.
These numbers take on a different hue when the responses are cut another way—annual spending on leadership development as a percentage of the total training budget. But we caution against reading too much into this. True, we did detect marked differences across the survey. At the high end, for example, almost one-third of companies reported spending more than 25 percent of the annual training budget on leadership development activities, while 17 percent are spending less than 5 percent of their budgets. However, the variance is most likely correlated with size of organization rather than any indication of commitment to leadership development.
Obviously, the larger organizations have larger training budgets and will naturally divert a lower percentage, but frequently more dollars, toward leadership development. Smaller companies, on the other hand, tend to do less employee development, and so leadership development, where it occurs, will almost certainly swallow up a larger chunk of the annual budget.
To complete the numbers on leadership development spending, we asked how much organizations spend in total each year. Some 4 percent report signing an annual leadership development check in excess of $750,000. Most though, 66 percent overall, spend less than $100,000 annually.
Measuring the Results
No doubt, some die-hards view the dollar return as the only worthwhile evaluation metric, but it is by no means the only measure of a program's success. Consequently, we set out to discover how successful leadership development is at delivering against the organizations' required competency levels. We also wanted to learn the degree to which development prepares participants for increased managerial responsibility.
Our starting point was to ask respondents to rank a range of skills according to their importance to the organization. We then asked them to rank these skills according to current organizational competency. Aligning the two rankings reveals the all-important skills gap. So what does corporate America require most out of its leaders? Communication skills surfaced at the top of the list, followed by managing change, strategic vision and developing others. Building networks—frequently cited by job hunters as the best way to find a new job—not surprisingly, ranked least important to the organization.
This analysis provided some interesting data on the disconnect between required and actual competencies. Building networks, the least required skill, turns out to be one of the most developed among program participants. The weakest areas (the largest gap between importance to the organization and current competency) in descending order were: communication (despite being ranked as the most developed skill), developing employees and managing change. On the plus side, potential leaders demonstrate the most highly developed competencies in the areas of ethical behavior, self-confidence and quantitative skills.
The natural, next question to ask a leadership program developer is how successful is its program at closing the gap? Or put another way, how much confidence does it have that the leadership development is delivering what the business requires. Almost half of the respondents said they were satisfied, to a necessary degree, that their program targets the required skills and competencies. Some 21 percent said they were either satisfied to a high degree, or not satisfied, to a necessary degree. Only 4 percent said they were not satisfied at all. Expressed numerically, organizations rated the effectiveness of their programs at 4.33 on a scale of one to seven.
The most effective training activity in these programs, ironically, has little to do with program design and delivery. Position and job responsibilities—actual on-the-job experience—counts most of all behind theories and concepts taught, books and articles, and at the bottom of the list, case studies.
When asked to identify and rate program outcomes, developers cited, among others, providing technological know-how, understanding the organization's business model and preparing managers for real-world business solutions. But leadership is, above all, about people and it's in this area, providing the necessary people management skills, that developers believe leadership programs demonstrate the most success.
How developers go about determining "success" naturally varies between organizations, but according to our survey and despite years of research into evaluation methodology, it seems developers haven't yet broken free from the evaluation paradigm: If you want to know how successful the program is, ask the participants, and if you want to find out if participants are performing any differently as a result of development, ask their bosses.
Participants' reaction to the program was considered the most important measure of a program's success, ahead of job performance evaluation, promotions and promotability of participants, and even business metrics such as the employee retention rate. Participant reaction even outranked job performance by superiors, and peer and subordinate evaluation in gauging a program's success ... so much for 360s.
Those who criticize the "how was it for you?" approach to evaluation have a point. Training practitioners have long resisted the call to crunch the training numbers ad nauseam in order to pinpoint that last cent of return. But it's difficult to imagine building a business case for leadership development around happy-sheet scores.
So what do participants derive from leadership development? Is it the golden key to unlock all doors? Probably not. Fewer than 10 percent of respondents report that participation in leadership development "highly" affects future employment decisions. So selection for leadership development doesn't come with a guarantee that you'll climb the corporate ladder. Nor does it mean participants' paychecks will grow. When asked to rank the degree to which participants realize rewards within two years of entry into a leadership program, bonuses and profit participation came out on the bottom of the pile. However, and holding true to the corporate work ethic, the most likely reward for program participants was additional managerial responsibilities. Did I hear someone say "overworked and underpaid?"
Martin Delahoussaye is managing editor of Training. email@example.com