The Wild West of Coaching

Fast forward to 2007 – the Wild West still hasn’t been fully tamed. However, the wild west mentality is shifting dramatically as companies try to get a better handle on coaches they will use, who gets coached, expected outcomes and how coaching gets linked to the organization’s larger talent management continuum. The attempts to capture the Return on Investment (no standard formula has been adopted and lassoing this bull continues to require “Herculean effort”) are increasing and creating new perplexing issues. An emerging issue is how to balance the pressure to track the ROI of coaching with the need to preserve its essence, which distinguishes it from all other development activities.

While some dismissed executive coaching as another flash in the pan leadership development offering, the appetite for executive coaching continues to grow. $30,000 to $100,000 investments in “sexy” leadership development retreats to Whistler, Napa or the French countryside are increasingly being replaced by executive coaching. This movement is primarily driven by the growing pressure to get sustained results directly linked to business outcomes from any leadership development initiative. Executive coaching continues to be ideally positioned to do this by virtue of its fluidity and dynamism, which caters profoundly to individual leader’s needs.

Current numbers suggest executive coaching is not only here to stay, but is receiving increased acceptance. 60% of Fortune 100 and 25 - 40% of Fortune 500 companies are providing executive coaching programs costing on average between $15,000 to $25,000 for six months. When 400 US and Canadian business managers were asked what their preferred method of leadership development was, 85% chose executive coaching as their number one preference. However, with increased acceptance, utilization and spotlight on determining ROI, executive coaching needs to avoid becoming a victim of its own success. The mystery and art of coaching are at risk of becoming tertiary at best and obsolete at worst, as companies attempt to reign the process in and make it more mechanical, standardized and regulated.

As the balancing act between the need to document ROI and the need to preserve the unique nature of this powerful development activity ensues, more rigor has been built into the process. This rigor has made it easier to determine ROI as it is embedded in the very definition and framework of the coaching. The framework is contingent on the triangular relationship, previously mentioned, and a phased approach. ROI must be an integral part of an initial executive coaching discussion and must continue to be front and center throughout each phase of the assignment. Prior to an engagement and during the contracting phase, ROI becomes part of the initial discussions with the corporate sponsor and the leader being coached. This anchors the coaching and explicitly draws the link between the coaching and specific business outcomes. Matt Resnick, Career Partner’s Denver Partner states, “All development must begin by understanding the business results you want to achieve.” How current behaviour is affecting results should also be discussed at this stage. Specific questions such as “Which business goals are most directly impacted by the leader’s behaviours under examination?” In the assessment phase, when the coach is providing feedback, links between assessment results and business goals should consistently made. For instance, poor delegation skills might be linked to turnover. The individual plan created in this phase, zeros in on specific business results tied to targeted behaviours. This sets the stage for the next phase in which a Development Plan is created with a section focusing on the business outcomes/impacts. Throughout the Action Coaching Phase, the coach directs the discussions to the business results by asking questions such as, “What is the impact of your current actions in how your division/department is performing?” During the Reassessment and Wind Down phase of the coaching, it is critical to try and formally determine the ROI which the coach and leader have been tracking throughout the process.

The range of ROI for executive coaching captured in the literature is 5-8x the investment or 500-800%. The methodology for measuring ROI varies in format and complexity. For instance, one global consulting firm’s preliminary formula for calculating ROI is:

ROI = (E-ROI + S-ROI)/2
cost of program

E-ROI is the coachee’s estimate of the financial benefit attributed to achievement of the coaching goals.
S-ROI is the stakeholders’ average estimate of the financial gains realized.

One of the most vigorous methods for calculating the ROI for executive coaching was devised by MetrixGlobal for Nortel’s coaching program called the Leadership Edge. There were five levels of data collection designed to measure both the impact of the coaching and the financial return. Levels One to Three surveyed leaders being coached to determine best practices, target what clients had learned e.g. improved communication and applicability of learning to business situations. Level Four assessed the impact of coaching in nine business areas e.g. 77% respondents indicated coaching increased effectiveness in at least one business areas. Level Five focused on actual financial return using a fairly refined formula which took into account the total cost of the coaching (e.g. cost of professional fees, evaluation costs, time to be coached, travel, administration, materials, etc), isolating the effects of coaching in terms of the percentage coaching resulted in a business impact and the percentage of confidence the leader being coached had in the benefits.

In Nortel’s case, the ROI was 7.88 when employee retention was included as a business impact and 5.29 when excluded.

There is no question new formulas will emerge to calculate the ROI of executive coaching as companies continue to scrutinize development expenditures. Organizations are far more strategic about the 4 w’s (who, why, what, when) of executive coaching, which should ultimately improve the ROI. However, it will be critical to ensure the pendulum doesn’t swing too far in favour of generating the hard numbers at the expense of the process, which can only be structured to a point, and the coach, who should not be straitjacketed. There is another critical consideration when determining the ROI of executive coaching which the renowned executive coach, Marshall Goldsmith has researched and written about, “Real leadership development involves a process which occurs over time”. While the current ROI ranges are good, this would suggest the investment in executive coaching just gets better over time. Career Partners/Hazell & Associates’ master executive coach, Peter Johnson, maintains, “We are living in unpredictable times. Because of executive coaching, leaders gain more confidence and optimism in their ability to deal with the unexpected. The investment in executive coaching significantly appreciates over time as leaders are better able to navigate through ambiguity and uncertainty.”