New Report: Every Dollar Employers Spend On Leadership Development Is Worth It

Employers Should Spend On Leadership Development. Photo by Melissa Walker Horn

You don’t need a study to prove that investing in leadership development is a win for employers. However, that’s exactly what Katy Tynan, a principal analyst at Forrester, proved in a joint research initiative with HR Executive Magazine that surveyed over 700 HR leaders recently.

According to the survey, one number stands between thriving and floundering workplaces: $2,500 – that’s the most 65% of businesses spend per year, per employee on leadership development.

Tynan said it is a paltry sum for many companies, but when spent intelligently, it can help promising employees become effective leaders.

The importance of leadership spending drills down to a simple math problem, she explained. Without quality leadership, employees become disengaged at work, leading to retention issues. Hiring a new employee to replace an old one costs anywhere from an additional 50% to 200% of the role’s salary, Tynan said, based on Forrester’s analysis.

That means if five employees making $100,000 annually quit, your company might need to spend $500,000 replacing them. Suddenly, $2,500 per employee doesn’t sound like much, Tynan says.

“The way I always frame this for people is in the context of risk, because that’s really what this number represents in a lot of ways,” she told CNBC Make It.

The problem: Leadership development isn’t something you can simply throw money at. You need to devote time to it too, Tynan said. Here’s her advice for employees who want support, and workplaces struggling to retain them.

Where The Money’s Going

Leadership development often takes two forms: Leadership workshops and virtual learning courses.

On their own, neither is particularly effective, Tynan said.

One-off workshops typically don’t change behavior in the long run, she explained. She points to the “Forgetting Curve,” a German psychologist’s study of how new information fades in our minds over time.

We often lose what we’ve learned within just 24 to 48 hours if we don’t quickly put that knowledge into practice, subsequent studies show.

“You just spent $2,500, you’ve sent people to a lovely workshop, and they go back to their desks and nothing changes and they forget it all,” Tynan said.

Similarly, most corporate virtual learning modules are “noninteractive,” with low retention rates, she says: A three-minute video about leadership skills is unlikely to change anyone’s behavior, but it’s used repeatedly because it’s affordable.

Workshops and virtual learning programs aren’t totally ineffective. Tynan points to VR training modules used by firefighters, which can genuinely prepare them for some of their most crucial duties.

They just need to be used strategically alongside other tactics, Tynan said.

Getting More Out Of Your $2,500

Companies don’t necessarily need to spend more money to succeed. Rather, they may need to spend more time.

Online training modules and one-off workshops are much more effective when coupled with real-world practice scenarios, Tynan said. She pointed to the Center for Creative Leadership’s 70-20-10 rule: 70% of leadership development learning comes from experiences, 20% comes from social learning and 10% comes from coursework.

Say you want to get better at giving feedback, and you’ve yet to receive specific training on it. Your workplace might be tempted to plop you in front of an online training course about giving feedback — but it’ll only stick if you can put its lessons into practice immediately.

So, after the training course, HR leaders could match you up with a training buddy or experienced manager to create mock environments for giving and receiving feedback. Discuss the different tactics you’ve tried: What’s going well? What isn’t?

Once you’ve mastered the skill in practice, you’ll be more prepared to effectively give feedback to a real co-worker, Tynan said. And your company is still spending the same amount on workshops and training courses, with better odds of success.

Time, of course, has its own cost: Helping others at work often comes at the price of completing your own daily tasks, according to a 2015 study published in the Academy of Management Journal.

But it improves your wellbeing on any given day, the study says — and it’s a crucial element for leadership learning, Tynan added.

“I don’t actually care how much a company spends on leadership development. What I care about is how the program is designed,” she said. “If you could do that for $1 per leader, you should. I don’t expect you can, but if you could, you should.”

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