Organizational responses to the COVID-19 pandemic have taken a variety of forms. Many organizations have gone through the process of downsizing their workforces; others have made significant changes to their business models. Still others have focused on rebuilding their brands after public scrutiny of their initial response to the pandemic. The choices made and the pivot to the future have resulted in a variety of new challenges and opportunities. It has never been more important to invest in leadership development as organizations normalize and grow.
Minimizing barriers and maximizing opportunities for growth will require leaders and teams to forge an organizational culture equipped to build the new future. Human resources (HR) budgets for investing in these components have always been limited – and may be even more so now. The business case for such investments must be compelling, clearly showing the path to a tangible return. How can HR leaders create that compelling business case? By using analytics to link individual leader, organizational capacity and culture data to tangible business outcomes.
A Framework for Demonstrating ROI
In 2019, research conducted by the Center for Creative Leadership (CCL) found that global leaders identified big data and analytics as the most important trend to impact their business over the next five years. Organizations apply data analytics to nearly every aspect of their business – e.g., marketing spend, operational efficiencies and supply change management. However, analytics are rarely applied to leadership development investments. Why? These four challenges are common barriers:
- HR leaders may not have a clear understanding of organizational goals and how leaders impact those goals.
- Leadership and organizational data can be difficult to obtain.
- Analytics applied to that data can be too simplistic, lacking the power to find statistical relationships.
- Organizations lack systems and processes for acting on the data.
To overcome these challenges and build a strong business case for investing in leaders, teams and organizations, managers must follow these steps:
1. Clarify Organizational Objectives
Clarify your organization’s goals. Leadership development investments must focus on helping the organization achieve its goals — from building the competencies of individual leaders to team efficiencies to organizational capacity for digital transformation. If you are unclear about your organization’s goals, review your organization’s objectives and key results (OKRs), management business objectives (MBOs), annual reports, operating plan, and mission statement. You will need to crisply articulate what the organization wants to accomplish, the metrics for measuring success, and how investing in leaders achieves business outcomes.
2. Gather Relevant Data
An analytics model for leadership development investment requires at least one of these three things:
- Data about your leaders (e.g., competency ratings or nine box scores).
- Data about organizational capacity (e.g., ratings of company’s focus on innovation and risk).
- Data about employee experience or organizational culture (e.g., employee engagement surveys).
In addition, you must have access to business metrics — like year-over-year same store sales, margin improvements or employee turnover.
At the end of the day, you will need to create a purposeful measurement system. Predictive modeling is not about assessing trends; it is about identifying the leader and organizational levers that drive or inhibit outcomes relevant to your business. Leveraging relevant data will create the compelling business case you need.
3. Use Analytics to Predict What Investments Matter Most
Predictive models pinpoint statistically significant drivers of business outcomes. Models can also be prescriptive, indicating how much a business metric will improve by increasing performance on key drivers. It’s not magic, but these models do require sophisticated data science to produce. Such models are commonly used in most business organizations but are rarely used to understand the return on investment (ROI) of leadership development investments.
Armed with these evidence-based insights, HR and learning and development (L&D) practitioners can take a strategic role in helping their organization achieve results. Predictive models can make a credible case for investing in leadership development, because it is now linked to a tangible ROI. As a leader in your company, you can embrace the latest methodologies to help your organization normalize and grow amid uncertainty.
4. Convey Insights and Take Action
Even with a robust model, the process for building your business case can break down if you don’t translate insights into action. HR and learning leaders can do this in four ways:
- Create simple visualizations. Simple visualizations like heat maps make it easy to understand the impact of key drivers.
- Create a playbook. Link the drivers to recommended actions. For example, if risk-taking is a key driver of innovation and the organization is risk-averse, you will need to develop a risk orientation across the organization.
- Communicate results up and down the organization. Everyone responsible for the business outcome must see the results and create action plans.
- Create accountability for change. Foster accountability by tying goals to performance ratings, bonuses or promotions. A predictive model cannot create change — it can only point to where change needs to occur.
Two Case Studies
The following case studies illustrate how predictive analytics prioritized leadership development investments using the four-step approach above:
Fortune 500 Retailer
A Fortune 500 retailer sought to design and validate a new high-performance competency model as part of their succession planning strategy. The vice president of talent development wanted an objective approach to reducing the organization’s 18 competencies to a manageable subset validated as key drivers of business outcomes.
- Business outcome metric: The client identified four job performance metrics as the critical business objective – annual performance evaluation, 9-box ratings, rate of promotion and a “model director” classification reported by HR business partners.
- Data: 18 competencies collected from over 600 leaders, including direct report, boss and peer assessments.
- Analysis: A predictive analytics algorithm identifying eight competencies that impacted job performance.
- Taking action: A heat map visualizing which competencies matter most to job performance; the leadership development journey was redesigned to drive better talent outcomes.
This chart shows the results of the predictive model. The four quadrants show a matrix of performance on the competencies (low vs. high) and impact (low vs. high). Those in the blue circle show the eight most impactful drivers — with five of those having low performance scores and requiring change.
Drivers of business impact highlighted important differences between directors with high and low competency scores. Those in the top 20% vs. those in the bottom 20% had:
- 7% higher annual performance scores.
- 32% better 9-box scores.
- 85% more steps per year since assessment.
- 60% greater chance of being rated a model director.
By incorporating this new insight into their competency model, the organization streamlined both its efforts aimed at improving competencies.
North American Health Care System
This North American-based healthcare system experienced persistent low employee engagement scores and below-target value-based purchasing (VBP) metrics (a subset of metrics that all U.S.-based healthcare organizations are evaluated against). VBP metrics gauge patient outcomes and can include such measures as length of stay, patient satisfaction and number of safety incidents. The company wanted to identify the drivers of employee engagement and VBP metrics to pinpoint where to focus their leadership development.
- Business outcome metric: Employee engagement scores and VBP metrics.
- Data: Individual leader assessment data on 5,500 (individual, peer, boss) and their employee engagement survey scores.
- Analysis: A predictive model identifying six competencies impacting employee engagement and VBP metrics.
- Taking action: A heat map showing which competencies mattered most to the business outcome metrics. Developing programs aimed at improving the six competencies. All leaders were advised to complete self-directed, online development courses relevant to the six areas identified.
As a result of their highly focused approach to leadership development, the client achieved an 8.5% improvement in the VBP metrics, resulting in a $4.22 million reimbursement from the federal government. Impressed with these powerful results, senior management significantly increased their investment in leadership development.
HR and L&D leaders must find ways to ensure that their workforce remains competitive and ready to pivot at a moment’s notice. Prioritizing leadership development investments will be critical to the future. They must take an innovative approach to justify budgets and create new approaches to talent and organizational change. Predictive analytics provide the objective, ROI-focused approach to win budget and resources for investing in your organization’s future.