How to turn leadership spend into leadership investment

The world’s companies spend US$50bn a year on developing leadership capabilities, yet few know whether they are getting any return on this investment. Adam Canwell explains how to instil discipline into the ad hoc practice of leadership development

Boards and executive teams have tremendous insight into the value and effectiveness of an organisation’s financial and physical assets. Yet when it comes to the intangible asset of leadership development, boards and the C-suite are flying blind. Even in organisations spending hundreds of millions of dollars a year on executive development, the impact of leadership spend is barely measured. In fact, few organisations know the answers to these fundamental questions:

• How much are we spending, and what are we spending it on?

Incredibly, many organisations find it difficult to identify their total investment in leadership development – or even to understand where they are spending their money. Activities are usually carried out ad hoc, with little integration and often no attempt to link development initiatives with identified future capability gaps. Coming from different budgets, with different owners – and often entrenched in tradition or aligned with personal interests – leadership development has few controls.

• What impact does our spend have on business and leadership performance?

Even worse, few companies are able to measure the impact of their spend – beyond tracking the satisfaction of the participants attending leadership programs. Reflecting on the millions her company had spent on a development program with a leading business school, one executive was of the view that, while leaders loved the program, there was little, if any, evidence that it had improved business performance.

The truth is, most boards struggle to get a joined-up view of all their leadership activities, let alone understand whether and how each initiative is aligned to organisational success. It’s hard to imagine any other corporate spend of this magnitude that would be seen as successful – and permitted to continue unchecked every year – without delivering clear impact.

If any capital-intensive organisation managed its capital assets in the same way most companies deal with leadership spend, the board and CEO would be fired.

Time for a new level of discipline around leadership development
It’s time organisations applied the same discipline to their leadership asset as they do to other organisational assets. The frenzied tactical activity we see in most organisations is clearly failing. Instead, organisations need a joined-up, rigorous approach to aligning, measuring and controlling their investment in leadership development.

In developing this approach, boards and the C-suite need to consider:

• Purpose and profit – Organisations need leaders who behave in a way that is in tune with their culture, while also delivering exceptional performance. This needs to be an ‘and’, not an ‘or’.
• Individual and collective capability – For too long, the focus of leadership spend has been on the individual leader, with individual capability and performance as the most important unit of measure. Yet we know that most of our work as leaders is in teams or groups. Arguably, the ability to work effectively in high-performing teams has a greater impact on organisational performance – and more leadership investment needs to be focused here.
• Prediction and performance – Performance in a current role is a poor predictor of success in the next role up. Yet most organisations base promotion decisions almost entirely on current performance. We need to start using predictors of potential – both tried and trusted psychological assessments and also patterns in data identified by people analytics.
• Leadership and context – People often see leadership either as a set of skills and capabilities agnostic to environment, or as being entirely context-specific. We believe both perspectives are correct. There are some generic skills and capabilities that all leaders need (such as influencing); whereas, others are very definitely context-specific (such as making things happen within a particular culture with the right trade-offs). Organisations need to identify both the broad-context agnostic skills that all leaders require alongside the context-specific skills and capabilities needed in this particular organisation or industry.
• The leader and the system – We need to stop pretending that spending on a single time-limited program will have a sustained impact on an organisation’s leadership capability. To build an effective leadership architecture or system, organisations need to consider everything that develops leaders for the long term. This might mean performance management, career mobility, reward, mentoring or development at key transition points rather than broad sheep dips.

In the current turbulent business and geopolitical environment, I believe leadership is one of the true strategic advantages an organisation can build for the long term. Boards and executive teams must take action to ensure leadership investment delivers a clear impact. Otherwise, they run the risk of a leadership capability deficit damaging the long-term health and performance of their organisation.
 

Adam Canwell is the global leader of EY’s Leadership Consulting Practice within People Advisory Services.