The ROI of Leadership

Summary: It may be difficult to calculate the ROI on good leadership skills however the cost of bad leadership cannot be ignored.

Had a great conversation with a person I respect about leadership. I was talking about my new program (watch for details) and we got into a conversation about why people should care about leadership. While I do think people care about leadership – after all we have all had that bad boss we don’t every want to work for again or become. The question was actually centered around what the value of leadership or the ROI (return on investment) of leadership.

In my research of leadership, I have to admit, I have not seen a concrete number or percentage stating “A good leader can deliver x% to EBITDA”. If you know of one, please let me know.  As with most “soft” skills the ROI can be hard to calculate.

We started with this premise:

While in theory this makes sense, it doesn’t provide a calculable ROI. Our discussion then turned to “what if you don’t”, in other words, if you don’t have good leadership what does it cost you. Ahhh – there’s the magic.

Bad/Indifferent leadership will cost you:

Turnover. People with leave. You may have heard many times – people don’t leave companies they leave managers. Well, it’s true! Many estimates put the cost of interviewing, hiring, and training a new person at 30%+ of base salary. Ouch!

Lack of retention. People won’t stay. Imagine spending the time to interview and hire a person to find out they leave shortly after they have started with you. Do you have one area that appears to have a revolving door?

Poor decisions. Can an indifferent or bad leader make good decisions, use the strengths of those on their team and do what is in the best interest of the company? You decide.

Poor customer service. Even if people stick around a bad manager – how are they treating your clients? their jobs? Regardless of where they are in the company, it will not run as smoothly or efficiently as it could and your customers will notice.

Constantly finding new customers. If clients can’t rely on your company to deliver the product or service on time or with high quality – do you think they will come back? Most likely not and you are constantly looking for new customers. How much does that cost? More than retaining your customers.

How do you measure the value or ROI of leadership?