Although most organizations understand the importance and value of leadership development, persuading executives to dedicate precious resources to it can be difficult because the return on investment is not clearly established. A Gap International survey of executives found that while 85% believed it was important to maximize a company’s talent and 83% said it was important to empower employees to succeed, less than half had any plans to invest in leadership development programs that year.
Responses like these suggest that good leadership development programs are often treated like a luxury that’s “nice to have” rather than a vital resource organizations “need to have.” However, there is no shortage of evidence that this belief is badly misguided. Gallup research indicates that companies select candidates without the right talent for management positions 82% of the time. Considering the high costs of making a hiring or promotion mistake, neglecting leadership development to prepare leaders for key roles can have significant long-term consequences.
Poor Leadership Development Leads to Poor Candidates
Organizations often fall into the trap of thinking they can fill their leadership positions by promoting their highest performing employees. The logic of this approach is intuitive at first glance. Since most organizations already have metrics and processes in place for evaluating performance, it may seem relatively easy to identify top employees and move them into leadership positions.
But considering a 2015 Brandon Hall Group survey showed that 51% of executives claim their organization’s leaders aren’t prepared to lead today and a shocking 71% believe those same leaders aren’t ready to lead the company into the future, something in the selection process is falling short. The truth is that many of the criteria used for evaluation and promotion are poor predictors of leadership potential. In fact, only 1 in 7 of high-performing employees are high-potential employees, or people with the ability, desire, and commitment to lead. As many as 46% of recently elevated leaders fail to meet objectives in their new roles, usually due to being incorrectly identified as high-potential employees or not receiving the proper training to meet their increased responsibilities.
The High Costs of Poor Leadership Development
Promoting the “wrong” candidates into leadership positions can be an expensive misstep. Organizations often underestimate the cost of replacing an employee in terms of factors like interviewing, hiring, training, reduced productivity, and lost opportunity costs. Simply replacing a mid-level professional position can cost up to 150% of that position’s salary, and the figure rises as high as 400% for senior management. Given these costs, most organizations cannot afford to make too many promotion mistakes.
Even if an organization can successfully identify the best candidates for leadership positions, that’s only half the battle. Poor leadership development can contribute to problems like high turnover, low morale, and a lack of collaboration. The modern workplace requires leaders to possess a diverse array of both technical and soft skills. Without effective training to introduce and reinforce the behaviors and skills needed for success, organizations will continue to waste the potential of their newly elevated leaders.
Better Leadership Means Better Outcomes
Investing in robust leadership development isn’t just about avoiding negative consequences. There are a number of compelling arguments in favor of investing in programs to identify and prepare the best candidates for leadership positions. High potential employees bring as much as twice the value to organizations as other employees. Research has revealed that teams with strong leaders are 68% more innovative, 35% more engaged, 21% more adaptable, and have 20% better customer satisfaction than teams with weaker leadership. Additional research demonstrated that companies with exceptional leadership outperformed their peers by 19%.
Investing in leadership development is also critically important for creating a positive and healthy culture in the workplace. Millennial leaders, in particular, routinely identify “opportunities to learn and grow” as one of the top factors they value in a job. By cultivating high-potential employees from within, organizations can create a pipeline of leadership candidates who already understand and embrace its values and goals. Candidates drawn from this pool of “home grown” talent already have a level of comfort in the organization and the credibility needed to build trust in their new roles. A thorough leadership development program also ensures that each newly-promoted leader will have the same tools and resources needed to excel in their position, which provides a measure of predictability and consistency to succession situations. Ongoing education and training can also help high-potential employees to expand their skill sets and prepare for new challenges while also keeping them engaged in their current roles.
Given the benefits high-potential employees can bring to an organization and the high costs of placing poorly-suited candidates in leadership positions, executives need to take a serious look at their leadership development programs when deciding where to invest their resources. The initial costs of building a strong leadership development program might seem high at the onset. However, a system that can successfully identify high-potential candidates and provide ongoing training to reinforce successful skills and behaviors can pay for itself in the long run and avoid the painful consequences of hiring and promotion mistakes.