Monetizing Leadership Development

By Jac Fitz-Enz

A learning leader is sitting at “the table” about to make a proposal to the C-group for funding for a new leadership development program.

It is an expensive venture, and the argument will have to be compelling because this will be the only opportunity to make the sale. It requires an attention-getter.

Open with a sentence like this: “Effective leadership drives productivity, operating revenue, cost management and profitability.” No one will disagree with that.

The second sentence could be: “It is imperative that a leadership development program’s outputs make a connection with those financial outcomes.” That will grab attention.

Now, they are waiting to hear how to connect leadership to making money.

Management consultant Peter Drucker posed the most basic question about leadership. He asked, “Leadership for what purpose?” The learning leader can respond by describing how he or she will monetize leadership.

Simply put, leadership equals market plus organization plus individual.

Revenue-generating leadership is a function of analyzing market forces plus the organization’s culture and desired individual (leader) behaviors.

Then, through predictive modeling, learning leaders connect the human and the financial sides of the business.

Predictive Analytics

Learning leaders are smart enough to know they can’t just buy a leadership development program, plug it into an unanalyzed environment and expect positive results.

Leadership is a complex phenomenon involving more than just individual behavior. It is about the interactions among the organization’s vision, brand and culture as they are affected by market forces and management’s strategic plans.

Building an effective leadership model requires an analysis and integration of where — the market; what — the organization; and who — the culture with leader character and behavior.

1. Where — the market: When convincing the powers that be to fund leadership development, start by describing why it is necessary that the C-group provide intelligence on future market fundamentals.

They already have studied this to prepare their business plan. The learning leader needs their conclusions regarding the following issues. Do they believe:

• The economy will grow, be steady or decline in the organization’s market sector?

• Competition will become stronger or weaker, and are there market disruptors on the horizon?

• Customer trends and demands will affect innovation, price, delivery, quality and service?

• Technology advances will enhance employee ability to communicate and perform?

• Skilled labor availability will become easier or more difficult to acquire?

• Government regulations will affect the business?

Change will occur during the next three to five years, but the directions it will come from will have different consequences. For instance, a change in regulations drives one type of management change.

A change in technology will drive another, and changes in customer trends will require yet another type of response and therefore leadership.

2. What — the organization: When making the pitch for funding, the learning leader will describe how the CEO’s vision, the company’s brand and the corporate culture must be aligned and integrated.

These three elements must be coherent, otherwise the employees will be confused. They won’t know what to value or prioritize, how to treat customers or how to work together.

Will people come to the company for top quality or low prices? Will innovation, exceptional service or operating efficiency be paramount?

Leadership is different depending on the brand promise and the culture.

How will financials affect leading? Does the C-group foresee a long-term positive or negative trend in market growth?

Will there be major investments in technology? Leading growth is different from directing cost reductions or transforming the culture.

3. Who — the individual: Remind the C-group that the act of leading is a combination of character and skill.

What kinds of values, attitudes and beliefs do they want to see in their leaders? What are the most important and preferred behavioral skills? How do these support the desired corporate culture?

Assessment providers can carry out a study of the current and potential leaders along a number of predetermined abilities.

Accepting that the assessment provider has researched traits for effective leadership, the learning leader is still left with Drucker’s question: for what? Clarify the vision, brand and culture.

The following are a typical set of leadership traits from assessment company SHL:

• Leading and deciding.
• Supporting and cooperating.
• Interacting and presenting.
• Analyzing and interpreting.
• Creating and conceptualizing.
• Organizing and executing.
• Adapting and coping.
• Enterprising and performing.

Potential leaders are assessed on their level of proficiency on such a set. Now connect leaders to the business and predict how the leadership program makes money.

Note: A not-for-profit still must operate efficiently to fulfill its organizational charter, such as providing cost-effective services to its constituency.

Predictive Modeling

Next is the seminal task of the leadership development model: predicting value generation. The learning leader now has to show the C-group how to bond the leadership model to financial outcomes.

This predictive leadership model could open with a study of the market and the organization. This sets the stage to consider the current competencies and future capabilities of the workforce.

First, top management has made its strategic business plans. Competitive advantage comes from replacing generic skills with specific capabilities appropriate for the organization’s plans.

Objectives within the strategic plans are business side issues such as revenue, market share, EBITDA margin — or earnings before interest, tax, depreciation and amortization — and total cost of workforce, along with other financial metrics.

On the human side there are the assessment data. The assessment scores show the level of capability across the various leadership characteristics. To monetize leader skills with the business plan, apply structured equation modeling.

Depending on the problem, select a predictive statistic to link the two sides. Learn how each of the assessment variables can affect the strategic plan goals.

Development Experiences and Financial Connections

In a development tool kit there should be a number of methods to help people learn and grow. Developmental tools are the resources learning leaders apply to the individual skill and knowledge gaps that assessments expose.

For example, if there are deficiencies regarding decision-making, give people a model to study or a course to attend. Interaction problems might be dealt with through mentoring.

Analysis and creativity might be improved through some focused on-the-job training. The point is to match development resources with the assessed deficiencies.

Often development blankets are thrown over everyone regardless of specific needs. Experiments have shown the strongest correlation of effective learning is the recipients’ feeling about what they need to know. Absent that, the development investment is almost totally wasted.

The client’s initial reaction to the HCIS is, “We could never collect that data.” The second is, “We wouldn’t know what to do with it if we had it.” Someone likely will challenge the first objection by pointing out that their HR services already produce most of the raw data, but they have not organized it this way.

Handle the second concern through a couple days of training. The base is accounting logic. This model just requires a commitment to monetize the human capital side.

As the learning leader concludes the presentation to the C-group, they should recognize how the development program will contribute to financial results. Congratulations — the program should be funded.

Jac Fitz-enz is founder and CEO of the Human Capital Source. Reprinted from Chief Learning Officer

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