Why Investing in Leadership Development Is Worth It
Organizations that invest in leadership development perform better than those that don’t.
At CCL, we may be a little biased, but several independent, in-depth studies have consistently reached the same conclusion. Findings by The Conference Board, Bersin & Associates, and HR analytics expert McBassi & Company among others point to the fact that leadership development is one of the most pressing issues facing organizations globally today — and represents a great chance for them to seize competitive advantage in their industries.
As The Conference Board put it: “One of the most influential internal engines to drive change is a leadership development program that sets out to nurture management talent that is entrepreneurial, enterprise-wide, and globally recruited.”
We found the same thing. When we surveyed 300 leaders globally, nearly 75% of respondents said that leadership development is very important in creating competitive advantage for their organizations.
That’s because investments in leadership development allow companies to do 4 things that drive sustained success:
- Improve bottom-line financial performance. Companies that rate highly for their investments in human capital deliver stock market returns 5 times higher than those of companies with less emphasis on human capital. Leadership development builds capacity to reduce costs, drive new lines of revenue, and improve customer satisfaction. As McBassi writes: “Superior human capital management is an extremely powerful predictor of an organization’s ability to outperform its competition.”
- Attract and retain talent. Leadership development boosts employee engagement, increases the organization’s ability to deal with gaps in the talent pipeline, and reduces the headaches and costs associated with turnover. “Great leaders attract, hire, and inspire great people,” the Bersin report says. “A mediocre manager will never attract or retain high-performing employees. Developing, coaching, and promoting people internally is significantly less expensive than the costs typically required to hire someone externally.”
- Drive strategy execution. Effective leadership development isn’t development for its own sake. Organizations need a leadership strategy that closely connects with the business strategy and equips employees with the leadership skills needed to implement it. Leadership development allows organizations to shape the culture and strategy of business. In the words of The Conference Board: “Leadership development has enormous power in both shaping and changing the culture and strategy of business.”
- Increase success in navigating change. Leadership development increases people’s ability to respond rapidly in unpredictable business environments. When organizations look beyond developing senior executives and high potentials to unlock the full potential of their talent pools, agility is magnified. We found that when facing an unpredictable business environment, 86% of companies with strategic leadership development programs were able to respond rapidly. Meanwhile, just 52% of companies with less mature leadership programs could do the same.
Sophisticated leadership development programs develop a deeper, richer pipeline of talent, which is why organizations today are seeking to unlock the full potential of their talent pools at all levels. In fact, Bersin research shows that companies are investing just 22% of their leadership development funds on senior leaders. That’s a lower proportion than in prior years, as more funding is steered toward up-and-coming talent.
Studies show that organizations’ confidence in the leadership capabilities of their people remains low. The Bersin report found that only 30% of organizations rate their first-line leaders as highly capable. Less than half believe their mid-level leaders are highly capable. And their faith in senior leaders is lacking as well.
It doesn’t have to be that way. Leadership development can, and does, power sustained success for organizations around the world. But only when it’s done the right way.
Learn more about the studies and these 4 outcomes of leadership development in our white paper, Driving Performance: How Leadership Development Powers Sustained Success.
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