The ROI (Return on Investment) of Executive Coaching: Useful Information or a Distraction? Part 1
Part 1 of a 2 Part Series by Carol Braddick
This article was first published at www.ukhrd.com in November 2003 and is reproduced with the permission of Fenman Limited. Copyright remains with Carol Braddick.
Part 1 of this 2 part series discusses the high interest in the evaluation of results from executive coaching (1) against the backdrop of growth in the coaching market. Part 2 includes selected findings on results from coaching (including ROI) and insights on developing an approach to evaluating results from coaching.
If you have any comments to add to this topic or would like to be in communication with other people exploring this field then please email us
Where Do the Evaluation Questions Come From?
The questions turning heads in Training and Development: What are the business results of executive coaching? The ROI (financial return on investment)?
Peter Block (2), in his book ‘The Answer to How is Yes’, challenges those who say “prove it first - and with numbers”: “The persistent questions about data and evidence are most often a form of disagreement, or despair, or show a lack of faith…When the measurement question is asked as if someone else, working independently, must prove value, then the question is a refusal in disguise. It is fine to refuse, but say it directly, don’t disguise it as a search for data.”
- The coaching market is growing, attempting to self regulate and currently has a highly variable supply of coaches;
- HR buyers have a well focused eye for value for money and have become more proactive in managing the use of executive coaches;
- HR is accountable for guiding business investments in people (rewards, benefits, training, coaching, etc.) based on what will be most beneficial to the organisation; and
- HR seems to be perpetually defensive about the value it adds; coaching is the latest corner to fight its way out of. Coaching is often on the defensive, too, fending off rants about “latest fad”, “status symbol” and “now everyone’s a coach”.
Although the interest in evaluation is not surprising, it is still difficult to tell how the following factors are influencing this interest:
| 1. A push from coaches | 2. A pull from HR buyers and end users of coaching |
| 3. A constructive blend of push and pull alongside important contributions from academics and professional coaching organisations (the optimal scenario) | 4. Confusion about evaluation and coaching |
The comments below (3), made originally in reference to the market for services in leadership development, are also characteristic of the economic and competitive pressures operating in the executive coaching market:
“Our ability to speak the language of business by conducting research that documents…ROI’s (financial return) can influence the perceived value the market assigns” to our services. Delivering programs that document impact and ROI will create “new opportunities to highlight the specific value proposition” and …to be “seen as the most qualified service providers. Finally, and perhaps most importantly, such efforts will help us differentiate” our discipline “from competing disciplines.”
Commercial interests are inevitably at play in the coaching market and these interests can potentially shape the debate on, and demand for, the evaluation of coaching results. There are, for example, preliminary rumblings of a mini herd of consultancies and coaching organizations at work on developing their approach to estimating ROI.
At the core of the evaluation issue, according to Stratford Sherman, senior executive coach with Executive Coaching Network, Inc., is the fact that “the demand for quantitative data comes into being independent of any understanding of what measurements are possible in coaching. Human nature is not susceptible to the reduction-to-numbers approach that characterises most business analysis.
Organisations are turning to coaching in large part out of a recognition that they need to relate to their leaders in a much more individual, personal, and human way -- yet many are slow to recognize that such efforts take place in a realm where quantification can at times be meaningless.” Hence, we have possible factor 4 as above: confusion about coaching and evaluation.
Before jumping into evaluating results of coaching, it is worthwhile to clarify the drivers of the interest in evaluating coaching to ensure that such interest leads to purposeful activity. The use of coaching has already charged past the tipping point, bypassing HR in some companies. There’s time – and good reason - to thoughtfully consider evaluation objectives and alternatives.
Looking at Results from Executive Coaching
The table below provides a sample of measures that are useful for identifying outcomes of coaching. These measures cover evaluation Levels 3 & 4 developed by Kirkpatrick (4) that are widely used in assessment of training programmes. These changes in behaviour and performance can be observed and verified. For some companies, it is sufficient to see such results in association with coaching. Empirical studies would be needed to ascertain the cause-effect relationship between coaching and the changes.
| Individual and Team Measures |
| Pre and post coaching input from stakeholders on client behaviours Climate survey results localised to individuals Achievements of performance and development plans (e.g., a customised scorecard) Achievements on specific accounts, products or objectives (e.g., shorter cycle time for completing annual marketing plan and accelerating execution of the plan (5); development of marketing plans that are more strategic, explicitly addressing market and customer current and future needs(6)) Improvements in productivity, quality, customer satisfaction |
| Measures for Comparison of Coached vs. Non Coached (Individuals) Note (7) |
| Performance ratings Rewards (financial and non-financial/political, e.g., who gets the coveted invitations to the senior management away days) Retention rates Promotion rates Climate survey results Entry into top talent, top performer or top executive pool, i.e. the groups that “get watched” closely |
| Organisational Measures |
| Climate survey results Employee engagement and commitment External evaluations of company management and leadership, e.g., best companies’ lists Collective observations of coaches on changes observed among client base (8) |
The individual and team measures in the table above are common inputs for the estimation of coaching’s ROI. As the next section discusses, clarification of the role of coaching in generating these results is a highly subjective process.
Estimating the Financial ROI of Coaching Engagements
An estimate of the financial ROI of an executive coaching engagement can be made by:
- Verifying changes in behaviour and results;
- Estimating the financial benefit of these changes (e.g., the business benefit of the faster implementation of the marketing plan referenced in the table above);
- Considering the role of coaching in enabling the changes;
- Estimating the total financial benefit attributable to coaching;
- Estimating the cost of providing coaching; and
- Calculating the return, i.e., the benefit (Step 4) relative to the cost (Step 5).
There is an obvious argument for using a third party to estimate ROI: the independence of the third party. However, the coach who has worked with the client can bring unique and valuable observations – throughout the engagement and during the concluding analysis – on the contributions of the client to the outcome.
ROI estimates sshould be considered alongside the sensible guidance of Terry Bacon (9) of Lore Institute: “The best we can ever do is show the proximate link between coaching and improvements in an executive’s performance.” Readers familiar with the caveats of estimating the ROI of training programmes will also recognise the familiar limitations of the method, e.g., lack of capture of long term benefits and prevention of negative outcomes.
We have “proximate” as the upper limit of the coaching-performance improvement link. And we have a market situation in which:
- There is a wide range of definitions and types of coaching;
- Coaching activity is far ahead of the empirical research with business research providing a commendable interim landing.
How beneficial, then, are ROI studies at this stage of the market? As EXCN’s Sherman acknowledges, “The business environment quite reasonably creates a demand for numbers that demonstrate the effectiveness of any investment, including coaching. At the same time, it is important to recognise that pressure to produce numbers may result in reliance upon unreliable methods of measurement.”
Do we really need another or better method of estimating the return when the link between coaching and performance can only be proximate? The process of estimating ROI, i.e., verifying outcomes and understanding client perceptions of roles in achieving outcomes, appears more valuable than announcing a percent of return, however impressive the figure. I think organisations, clients and coaches are better served by more focus on 1) agreeing the most important Level 4 type coaching outcome(s) sought through coaching and 2) managing coaching (10) well. As Katherine Williams of Lee Hecht Harrison’s Leadership Development and Coaching Team explains: “it’s premature to quote ROI results.” Instead, Lee Hecht Harrison’s emphasis “is on defining Level 4 rigorously at the beginning to provide a catalyst to the coaching engagement”.
Is There a Financial ROI for the Organisation?
“Three quarters of the activities in organisations are undertaken based on a leap of faith and intellectual reasoning”, says Neville Osrin, consultant in Hewitt’s Talent and Organisational Change Practice. “The scrutiny of the organisational ROI of coaching a worthless endeavour. For years companies have been looking for the relationship between an intervention (such as coaching or training) and business performance. The intervening variables, such as leadership and employee engagement (11), are much more meaningful.”
Osrin’s analogy to illustrate this point follows:
If you go to the gym regularly and do a sound programme of exercise…
Will you improve your cardiovascular health? Yes.
Will you manage your weight? Yes.
Will you improve your stamina? Yes.
Will you live longer? Not necessarily.
The companies participating in a recent UK study conducted by the Career Research Forum (12) reached a similar conclusion and expressed “wide agreement that there is little point in trying to identify whether coaching and mentoring have a direct effect on bottom line performance when it is clear that they are indirect influences in the first place.”
Shareholders are Potentially Interested, Too
As companies consider their approach to examining the results of coaching, there’s a relevant development looming in the reporting of human capital information. The 2002 report (13) commissioned by the Council for Excellence in Management and Leadership (CEML) from Cranfield School of Management, indicated that the following changes are likely in corporate reporting and disclosure:
- “Legislation may result in organisations reporting more in the field of organisational management and leadership sooner than they would otherwise, but in the longer term market forces will force them to report this information.”
- “What investors and other external stakeholders want is insight into the management and leadership talent pool that exists within organisations.”
UK organisations such as CEML and CIPD have already proposed frameworks for this area of external reporting, but it’s too early to know what will be acceptable to shareholders as they take greater interest in the quality of management and leadership. Until the new requirements are in place, HR, Training and Development Managers can get a head start by:
- Getting involved in the development of the coaching profession;
- Actively sharing information with other companies about what’s working well in coaching;
- Collaborating with coaches working in their organisations to agree approaches to evaluating the effectiveness of coaching; and
- Volunteering their end users for studies that will increase the knowledge base about coaching.
Part 2 of this series will consider what we are learning from evaluating coaching and offer insights on moving forward with coaching investments. In particular, Part 2 will consider coaching from the following perspectives:
- as one of several smart people practices;
- as a means to build leadership and emotional intelligence skills;
- as an investment that can potentially affect organisational variables such as employee engagement; and
- as an intervention that appears to have positive results in terms of both developmental and business outcomes.
Footnotes
1. For the purposes of this series the term coaching is used as follows: 1) consistent with the definition provided by Myles Downey in his book ‘Effective Coaching’ (Orion Business Books): the art of facilitating the performance, learning and development of another; 2) coaching undertaken with managers, leaders and executives for the purposes of improving the client’s business performance and impact on business results.
2. Block, Peter, The Answer to How is Yes. Acting on What Matters. Berrett-Koehler Publishers, Inc. 2002.
3. Cincaid, Stephen B, Gordick Diana, The Return on Investment of Leadership Development. Differentiating Our Discipline. Consulting Psychology Journal: Practice and Research, Vol. 55, No. 1, 47-57. 2003
4. Refers to Donald Kirkpatrick’s 4 level model of assessing training effectiveness, including 1)reactions; 2);learning; 3)transfer (i.e., what coached clients are doing differently; and 4)results.
5. Example provided by Mary Beth O’Neill, author of Executive Coaching with Backbone and Heart’.
6. Example provided by Mary Davis, US based executive coach
7. Attributed originally to HR Magazine and quoted frequently thereafter on coaching websites, is the observation that Dell executives who received coaching tend to be promoted more frequently. As of this writing, Dell was unavailable for further comment.
8. These observations will also highlight systemic organisational issues, e.g., widespread ambiguity in accountabilities and roles.
9. Bacon, Terry, Ph.D., Measuring the Effectiveness of Executive Coaching, White Paper, Lore International Institute, 2003.
10. Managing coaching well refers to processes such as selecting coaches, contracting with coaches, linking coaching to HR systems such as leadership competencies, etc.
11. This will be explored in Part 2 of this series.
12. Lambert, Andrew, Obtaining Value from Executive Coaching. Career Research Forum Report. 2002. Obtained from The Coaching & Mentoring Network
13. Neely, A.D.; Gray, D.; Kennerley, K. and Marr, B. Measuring Corporate Management and Leadership Capability. Report commissioned by the Council for Excellence in Management and Leadership. 2002
Carol Braddick is an independent OD consultant and business coach. She works with Financial Times Knowledge Coaching Solutions and is affiliated with Keener & Associates, a consulting firm specialising in business performance improvement. Carol also works with Rita Cashman, a leading US executive coach, coach supervisor and specialist in coach training. She is a member of the Association for Coaching, European Mentoring and Coaching Council and International Coach Federation. Her previous article on coaching, Keeping a Buyer’s Eye on Coaching, was published by www.hrworldclass.com.
Carol can be contacted at csbraddick@aol.com
