New Leadership ROI

The Cost of New Leadership

Time and money.

The two things that we can never have too much of and are constantly trying to save, make, maximize, or conserve. Organizations are no different than individuals when it comes to wanting the most out of their time and money.

And much of both is tied up in the process of finding and keeping great leadership talent.
Unfortunately, the state of corporate America’s leadership looks pretty bleak.

Here are some startling facts:
· McKinsey and Co. found that 40% of corporate officers in 77 companies said they can’t pursue business opportunities because they lack the right leaders.
· The Corporate Leadership Council reported that more than 50% of newly hired leaders were fired in the first three years.
· Harvard Business School reported a 40-60% failure rate of executives.
· In a Conference Board report, only 36% of employees rated their companies’ leadership as good or excellent, down 50% from 5 years ago.
· A 2005 Corporate Executive Board Recruiting Roundtable survey found that 89% of new executive hires across enterprises indicated they did not have the optimum level of knowledge and skills to do their job.
· Consultant Bradford Smart estimated that the cost of senior executive turnover was 40 times the base salary. A similar study by Sibson and Company found that executive and manager replacement costs have reduced earnings and stock prices by an average of 38%.

What is New Leader ROI?

When an organization has spent thousands of dollars and dozens of hours in finding, recruiting and hiring the right person for one of their leadership positions, expectations for that new leader are very high. The expected Return on Investment (ROI) for that new hire is great, and the time to deliver it is often short.

Michael Watkins, author of The First 90 Days, defines new leader ROI as the point in time, at which the value created for the organization by the new leader exceeds the value consumed by that leader. This is also known as the “breakeven point”.

In a typical situation, the break even point occurs at just over the sixth month of a new leader’s tenure*. The new leader must not only learn the organization and its culture, but forge strong relationships and deliver the appropriate results given the amount of time on the job. This is often referred to as “speed to performance” and the emphasis is usually on “speed”.

*The First 90 Days,
Michael Watkins


Is New Leader ROI Measurable?

Some companies report that their return on new leader investment is something that they “know when they see it”. But is what does it look like? And how can you measure it’s existence, and. for that matter, what it’s impact?

Best-in-Class organizations are measuring these indicators as they transition new leaders:

1. Is the new leader accomplishing his/her onboarding objectives?
2. Are there “early wins” for the new leader and his/her team?
3. What is the feedback about how the new leader is “fitting in” to the organization?

It’s not just losing on an individual.....

Organizations that fail to pay attention to those first few months of a new leader in a new role are at risk. A recent study by Deloitte Research reports that “40 to 50 percent of senior new employees fail to achieve their desired results in new jobs. When a new recruits fail, organizations lose their investment in the individual. They also lose performance from the employees surrounding new recruits due to lost time, disrupted efforts, and damaged morale.”

—“Connecting People to What Matters”, Deloitte Research, June 2007, page 7

Relationships and Retention

In most cases, increasing retention rates of newly hired or newly promoted leaders is a key indicator of success for an organization. Forging key relationships has proven to be a key factor in leader ship retention. The same Deloitte report cites an example from BMW which appoints mentors “to help new hires adapt efficiently to BMW’s culture and to foster connections they need to perform.” The report goes on to say, “not surprisingly, newcomers who quickly form relationships with co-workers tend to be high performers and more satisfied with their jobs.”

The bottom line is this: Organizations have much to lose if their new leaders are not integrated successfully. The cost of a systemic and consistent new leader onboarding process is quickly paid back with the significant Return on Investment delivered to the company by an effective new leader.

To get more info about new leadership onboarding go to www.connectthedotsconsulting.com