The ROI of Executive Coaching

Coaching for business executives is a hot topic, featured recently in many well-known publications, from The Wall Street Journal(1) to the Harvard Business Review(2). These and other stories have linked coaching to measurable improvements in executive effectiveness, higher executive retention rates, and increased job satisfaction. So as executive coaching becomes a more mainstream tool for leadership development, many have begun to ask the obvious business questions: is there a clear return on investment (ROI) from executive coaching? And if so, what is it?

To date, there have been relatively few formal studies that have addressed this question. Part of the issue is that each coaching engagement is unique — every coach has their own approach, and every leader has their own set of issues and challenges. So although there are clearly some “fundamental truths” and patterns to coaching (and to leadership), in effect each coaching engagement becomes a unique program and experience. Despite this, a handful of studies do exist — a MetrixGlobal study pegged the ROI within a Fortune 500 organization they studied to be 529%(3); a broader study mentioned by Fortune Magazine came in at 570%(4). We would argue that the benefits of a high-quality coaching program are much higher than this. In fact, one of our clients describes coaching as his “…solution to a million dollar issue.” But whether the return is 5-to-1 or 50-to-1, we think it is fair to stipulate that today's leaders have a lot to gain (with very little to lose) from a good executive coach. (If you still don't buy this, we recommend that you read some of the articles referenced in this issue - or give us a call.)

If today's coaches and coaching programs are so unique, with a huge range in potential ROI, this leads us to a different question: how do I maximize the ROI of my own executive coaching program? First, let's look at where the return comes from. Certainly, there is an expectation of increased effectiveness from the executive; this has been the focus of most of the traditional ROI studies. But what about other, indirect impacts? Let's look at just one: attrition. We all know the saying, “People don't quit the company; they quit the boss.” Great executive coaching also measurably impacts the broader network of relationships and dynamics that exist across an executive team. When this happens, the return on the coaching investment becomes much more than an “individual” matter.

So if your organization is going to give executive coaching a try, what specific factors can you influence to maximize the ROI? There are many dimensions to be considered, but here are a few specific thoughts and tips that might help:

• Get the right skills match. The Harvard Business Review article states that good coaching is based on “…a small number of disciplines, including consulting, management, organizational development, and psychology.” We agree, and would add that the best “mix” will vary, based on the situation and end objective(s). But be careful about hiring someone with a strong background or experience in only one or two of these disciplines. A business consultant that has “re-branded” themselves as a coach may add some value, but they won't maximize the potential ROI.

• Address core issue(s). If your executive team has done the offsite “teambuilding” routine, but always seems to revert back to the norm — then most likely you have been addressing symptoms rather than root causes. This is where psychology skills are most effective, by focusing on the core issues that impact individual behavior, and creating lasting behavioral change. But to maximize ROI for the business, this must be done in the context of the strategy, and desired business outcomes (so no, we're not referring you to a therapist).

• A Coach vs. a Coaching Firm. Most coaches today work as independent consultants (although we expect that will change over time). If you are looking for a single coach for a specific executive, then an independent coach may be a good choice. But if you are thinking about the longer term, and how a coaching program can augment broader leadership development programs, then a relationship with a good coaching firm is more likely to be able to grow and evolve with you.

• Cost. Executive coaching is relatively inexpensive; we're not talking about a six-figure consulting engagement. In today's “Wild West” of executive coaching, hourly rates can run from less than $100 to over $1,000 — but in general, a highly-effective, 4 - 6 month program can be done for $10,000 or less. This certainly compares favorably to the annual compensation of the executive (not to mention that of all the individuals they interact with and influence each day). So within reason, the “right” executive coach is almost always worth the price.

It's clear that executive coaching is an investment — of time, money, and not the least, trust. But where else can a $10,000 investment potentially address a “…million-dollar issue?” So the next time you consider how to get the most “bang for your buck” in leadership and/or executive development spending, think about the potential ROI to be achieved through effective executive coaching.

(1) The Wall Street Journal, CEOs Seek Therapy, June 2004.

(2) Harvard Business Review (HBR), The Wild West of Executive Coaching, November 2004.

(3) MetrixGlobal LLC, Case Study on the ROI of Executive Coaching, November 2001.

(4) Fortune Magazine, Executive Coaching - With Returns a CFO Could Love, February 2001.

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