Measuring the Impact of Executive Coaching

 

The Society for Industrial and Organizational Psychology (SIOP) is sponsoring a conference next month focusing on the psychology of coaching, the impact of coaching and best practices in coaching that maximise return on investment (ROI).

 

A study by The Human Capital Institute and DBM found that 60% of American companies use executive coaches and 78% consider coaching an effective way to develop leaders. But although most coachees and their managers agree that executive coaching is a valuable exercise, the managers need credible evidence to show top management that coaching is a worthwhile expenditure.

 

The SIOP conference will bring together leading-edge scientists and practitioners to explore meaningful ways to measure the value and return from investing in executive coaching. With executive coaching costing $20,000 to $40,000 for a six-month engagement, it is easy for decision makers to focus strictly the costs especially if they do not have a clear understanding or first-hand experience of the value that coaching. These decision makers need to be convinced that, if properly executed and deployed, an investment in executive coaching can add significantly to their business bottom line.

 

Watch this space for news on the conclusions from the SIOP conference.

 

The Boilermaker

 

As I mentioned in my recent post about Edward de Bono’s Six Thinking Hats, a significant part of executive coaching is about helping people to make better decisions by encouraging them to think about issues in new ways. A great way to do this is through the use of metaphors, stories and parables.

 

When reading this week’s sales tip from negotiation guru Tom Beasor I was reminded of the story recounted by Steve Andreas in the forward to the neuro-linguistic programming book “Frogs into Princes” by Richard Bandler and John Grinder.

 

In the story, a boilermaker was hired to fix a huge steamship boiler system that had broken down. The shipping company owner was in a real flap because his cargo was delayed and he ran the risk of losing the best price for his shipment. Meanwhile the workers still had to be paid and costs were mounting so the owner hired the boilermaker to fix the problem.

  

The boilermaker listened to the engineer’s description of the problems and asked a few questions then went to the boiler room. He looked at the maze of twisting pipes, listened to the thump of the boiler and the hiss of escaping steam for a few minutes and felt some pipes with his hands. Then he hummed softly to himself, reached into his overalls, took out a small hammer and tapped a bright red valve, once. Immediately the entire system began working perfectly, the boilermaker went home and the ship sailed within the hour.

 

When the steamship owner received a bill for $1,000 he complained that the boilermaker had only been in the engine room for fifteen minutes, and requested an itemized bill. This is what the boilermaker sent him:

 

For tapping with hammer:          $ 0.50

For knowing where to tap:      $ 999.50

Total:                                $1,000.00

 

So…How much would you pay an experienced executive coach who makes a significant difference to your bottom line?

 

Do you know where to tap?

 

How to Improve Executive Coaching ROI

 

In a report published last year in Personnel Today, human resources consultancy Chiumento gave some good advice on how organizations can maximize their return on investment (ROI) in executive coaching. Your HR department is probably best placed to play a coordinating role in acting on these simple suggestions.

 

• At the beginning, discuss and agree what you want to achieve from executive coaching with the coach, the coachee and their sponsor or manager. 

• Ensure that these target outcomes are not only realistic but specific enough to avoid any misunderstanding. They should be genuinely relevant to the coachee’s professional development as well as to the business.

• Draft a “coaching contract” that records these target outcomes and agree at the outset with the coach, the coachee and the sponsor that the targets will form the basis of measuring success of the coaching assignment.

• Develop measures that can be used to monitor success against the coachee’s targeted outcome.

• Get regular feedback during the coaching assignment from a cross-section of other staff.

• Have a half-time review with the coach and coachee to ensure that the assignment is on track and to take corrective adjustment where needed.

• Establish a coaching budget and monitor the costs and hours of coaching against your budget and your arrangements with your coaches.

• Manage the coaches in your organization and be clear about those that deliver quality and those that don’t.

• Integrate coaching with other development initiatives within your organization such as succession planning and performance management.

• Make sure that business leaders are involved in reviewing the effectiveness of coaching. Coaching is much more than delivering statistical improvements like staff retention rates. The involvement of business leaders will significantly improve the way that coaching provides significant tangible improvements to the bottom line.

 

In my opinion, this last point is the most important. An effective coaching programme that delivers material and lasting benefits to the bottom line will only work if it has the involvement of a fully committed member of the business leadership team.

 

Benefits of Executive Coaching

Randy Goruk is a seasoned corporate executive and professionally certified career coach with over 30 years of business and leadership experience including 5 years of professional coaching. He has neatly summed up the benefits of executive coaching as follows:

 

• Improve Profitability
• Save time
• Increase personal and professional confidence
• Increase creativity and energy levels
• Faster decisions
• Greater efficiency, confidence and results
• Immediate results

 

He outlines these benefits in more detail at his blog which you can see here.

Executive Coaching and Return on Investment

Executive coaching pays

Research has shown that the return on investment (ROI) in executive coaching is 500-800%. This means that $10,000 spent on executive coaching should generate $50,000-$80,000 in return. Not bad.

 

Two recent surveys provide some more insight as to why businesses use executive coaching. One is by the American Management Association (AMA) who commissioned the Institute for Corporate Productivity to conduct a global survey of coaching practices. Over 1,000 executives and managers were questioned about their use of coaching to determine, amongst other things, its association with higher performance and the correlation between executive performance via coaching and corporate performance. The report is available here but you need to register with the AMA to read it. The other survey was sponsored by HR consultancy Chiumento in conjunction with Personnel Today and explores the use of coaching in UK organisations from a survey of almost 500 companies.  Their report can be found here.

 

What do the surveys say?

• Executive coaching is widespread. The AMA report found that 52% of North American companies used coaching as did 55% of organisations outside of North America. According to the Chiumento survey, 65% of British companies have used coaching for the past five years.
• Executive coaching is popular. 93% of the British companies surveyed by Chiumento believe that coaching is a leading development tool and of the AMA respondents who don’t yet have coaching programs 37% in North America and 56% outside North America say they plan such programs in the future.
• Executive coaching is associated with higher performance. By “associated” I mean that the surveys couldn’t prove that coaching causes better performance but the AMA survey found that organisations that increased their use of coaching were more likely to report that they experience more success in coaching and that their organisations are performing well based on criteria such as revenue growth, market share, profitability and customer satisfaction.
• Executive coaching is primarily aimed at boosting individual performance. According to the British survey, 77% of firms use coaching primarily as a tool to improve performance. The figure for North America in the AMA survey is 79% and 87% for outside North America.

Gimme the bottom line

A study conducted by MetrixGlobal for Nortel Networks found that coaching produced a 529% return on investment as well as significant intangible benefits. MetrixGlobal have also reported that executive coaching at Booz Allen Hamilton returned $7.90 for every $1 the firm spent on coaching – almost 800% ROI. A report from the Manchester Review calculated an average return on investment of 545% from investing in executive coaching. The authors of the report postulated that:

• Coaching translates into doing
• Doing translates into impacting the business
• This impact can be quantified and maximized

But – and this is a big “but” – the Chiumento survey found that 44% of businesses believe it is impossible to measure the ROI of coaching. Their report argues that this is why 67% of organisations don’t even bother to try to measure ROI. To make matters worse, their survey found that over two-thirds of businesses believe there are too many cowboys in coaching, raising concerns about how buyers of coaching can be sure of what they are getting for their investment.

 

ROI is a theme I will come back to in future postings as is the subject of how to maximize the effectiveness of an executive coaching programme.