By Allan Schweyer, for the Talent Management Academy
“We specifically instructed the research team to avoid pinning success on any individual leader, but the analytical results compelled us to say that leadership is fundamental to forming a great company.” – Jim Collins, Good to Great
Most of us believe in the value of leadership but are organizations that invest more in leadership development actually more successful? Is leadership development a leading cause of greater competitive advantage? Could the healthcare industry benefit from better leadership?
Organizations known for their heavy investment in leadership development in industries from pharmaceuticals to aerospace and defense overwhelmingly report a higher market value – as measured by price‐to‐earnings ratios – than industry averages. My review of the research for this article explored both ROI in training/development in general and the connections between leadership development and organizational success. The research results demonstrate a strong, positive correlation between development, including leadership development, and organizational performance largely independent of size or industry. Furthermore, evidence reinforced the assertion that this positive correlation exists even during recessions if organizations continue to fund development programs.
Overwhelmingly, organizations that rank high in the quality of leadership identification and development programs and in the quality of its leaders report sharply higher levels of employee engagement, lower turnover, and more productive workforces. Evidence indicates that investment in leadership development has greater potential leverage for driving organizational success than other types of training. Charles O’Reilly and Jeffrey Pfeffer of Stanford’s Business school examined leading organizations in various industries including Southwest Airlines, Men’s Wearhouse, New United Motor Manufacturing and Cisco Systems. The results of their study showed that all top organizations shared a key characteristic: strong leadership committed to investing in people.
University of Michigan professor Dave Ulrich and Norm Smallwood identified significant commitment to leadership development as one of the primary characteristics of high‐performing organizations. According their research, companies investing heavily in a leadership program tied to their organization’s mission “go beyond merely strengthening the abilities of individual leaders; these [organizations] focus on building a more general leadership capability.” According to Ulrich and Smallwood, the ability to develop a “leadership brand” has substantial, calculable benefits for organizations independent of industry or size.
In the healthcare sector, spending on leadership development falls in the bottom quartile of all industries. According to the National Center for Healthcare Leadership (NCHL), two-thirds of healthcare CEOs say their organizations provide no formal programs to develop future leaders. It is not good enough for healthcare leaders to just do their jobs well; they also have to develop the next generation of leaders to take their place in the future. The same is true for all organizations interested in long‐term success.
Leadership has an immense impact on organizational performance. In the past, this was a debatable question more than a statement of accepted fact. Presently, however, it has been well demonstrated that durably successful organizations enjoy outstanding leadership. So the current question focuses on how to grow effective leadership in order to become (or remain) a successful organization.
Leadership and Best Practice
Research substantiates that the quality of leaders, including the first line supervisor or manager is a primary driver of motivation, if not the most important factor. For example, a 2008 Melcrum employee engagement survey found that in large organizations, the two greatest drivers of engagement are explicit leadership issues: quality of direct supervisors (25%) and senior leadership (23%). Other factors can also be institutionalized by quality leadership, such as opportunities for career advancement (9%); people centric culture (9%) and formal recognition (9%). Nearly 75% of the key drivers of engagement are linked to the quality of an organization’s leadership and much of this from front line supervisors and managers.
Through the analyses of the leadership development case studies examined for this article, it is apparent that successful programs share certain best practices. In implementing a leadership development program, it is important to note that while the opportunity to gain substantial benefits from leadership investment exists, the case studies’ successful programs realizing high return on investment shared the following criteria:
- Leadership development was connected to overall business strategy and modified when business strategy changed
- C‐level leadership was actively involved in leadership development design, progress, and evaluation
- Leadership development was centrally managed and funded
- Desired leadership competencies were clearly communicated
- Leaders were held accountable for implementing leadership training and developing lower‐level employees
- Employees were provided a variety of formal and informal leadership development opportunities
- Organizations defined and measured outcomes, evaluated their programs, and refined them when necessary
Typical organizations in the healthcare sector are currently under-investing in leadership. They have a tremendous opportunity to increase their leadership capacity, employee productivity and overall performance by investing a reasonable amount of resources to establish comprehensive and robust leadership development programs.
Allan Schweyer is a labor economist and well-known author, researcher and writer. He has been recognized as among the 100 most influential people in HR and talent management. Allan is a Partner in the DC-based Center for Human Capital Innovation.