When decision-makers consider making new spending commitments for an organization, there are usually many initiatives vying for funds. Should the company invest in digital transformation? New equipment? More research and development or marketing? Leadership development is generally in the mix somewhere, but it might be tough to justify spending money to develop leaders, especially if it’s tough to see a direct impact on the bottom line.
The truth is that leadership development initiatives often do translate directly to an improved bottom line—and even when they don’t, they manifest results in other ways that create a stronger, healthier organization.
5 reasons to invest in leadership development
1. Achieve Performance and Strategy Goals
While many CEOs understand intuitively that a strong organizational culture helps drive high performance and successful strategy, they often don’t realize how large a factor it is in creating a solid bottom line. One study found that although 82% of CEOs said they prioritized culture, 74% chose other factors as the “most important drivers” of financial performance.
However, the same study identified a subset of CEOs who said culture is a top-three driver of financial performance and consider linking culture to strategy essential. The companies led by these “culture accelerators” had a 9.1% CAGR over three years compared to a 4.4% rate led by CEOs who did not prioritize culture.
Another study by Culture Amp tied employee confidence and trust in leadership to higher stock prices and improved chances of venture capital funding.
It’s possible to have a robust culture and strong leaders without a formal leadership development program, but formal programs can take something that’s already pretty good and make it great. Formal leadership development initiatives can give leaders the tools to improve performance, encourage high-performing teams, and tie culture to strategy, leading to more robust overall company performance.
2. Increase Employee Engagement and Retention
It’s tough to overestimate how vital employee experience is in overall company performance. Not only is it expensive to replace employees who leave, making a high-turnover environment expensive to operate, but when employees are disengaged, struggling with burnout (or “boreout”), or “quietly quitting,” that translates into lowered productivity.
As far back as 2012, a Deloitte study found that 83% of executives and 84% of employees rank engaged employees as the top factor contributing to a company’s success. More recently, Great Place to Work found that companies with a reputation for treating employees well outperformed the broader market by 16.5% during the COVID-19 pandemic. Finally, a study by Better Buys found that employees with professional development opportunities have a 34% higher retention rate than those without.
Implementing leadership development programs will improve engagement and retention among leaders and managers and help those leaders become people other employees want to work for.
3. Develop Skills and Career Opportunities
A 2022 study revealed that 83% of businesses surveyed report skills gaps in their organizations; reasons cited include the pandemic, increased resignations, changing technology, and an aging workforce.
As the global talent shortage shows no signs of letting up, organizations must improve internal development efforts rather than relying on external hires to close company talent gaps. Leadership development and, more broadly, development opportunities for employees across the organization are key to improving the internal talent pool. According to a survey from Bersin by Deloitte, well-developed leaders are eleven times more likely to build future strategically competitive talent.
4. Create a Change-Ready Workforce
Leaders are more aware than ever of the need to create a change-ready workforce. Over the last several years, they’ve had to contend with a pandemic, global instability, technology disruptions, and supply chain issues, to name just a few challenges. Couple those shifts with an aging workforce, a rising “gig economy,” and workforce trends such as the Great Resignation, and creating a stable workforce that can adapt and thrive may seem impossible. In fact, only 23% of employees in a recent Deloitte study believe that their leaders can navigate today’s disruptions.
In contrast, a Center for Creative Leadership study found that 86% of organizations with strategic leadership development programs can rapidly respond to adversity. Only 52% of companies with less mature leadership programs could also respond to disruption.
Emphasizing leadership development may not pay off immediately. Still, the next time a crisis arises in the economy or on the global stage, your leaders will be at an advantage in responding to changes.
5. Demonstrate Commitment to Learning
When organizations prioritize development across the company, they demonstrate a fundamental understanding of the value of a growth mindset. This clear commitment to learning resonates with employees; 60% of leaders would choose a job with strong professional development over one with pay raises.
A company culture that embraces learning and leadership growth will inevitably see an impact from leadership development initiatives. Companies that implement just three months of leadership development training realize a 29% return on investment; expanding the training results in an annual ROI of 415%.
Leadership development initiatives remain one of the best investments companies can make to create stronger leaders. Not only will these initiatives improve retention and engagement among leaders and future leaders, but they will help improve business and leadership skills and create a solid pool of internal talent that can execute strategies and achieve company goals for the long term.
Self-check:
- Do we have formal leadership development initiatives? Why or why not?
- Do we track the success or impact of our initiatives? Why or why not?
- What is one leadership development initiative we could implement immediately (or almost immediately) that would have a direct impact on our culture or our strategy?
