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What’s the Return on Investment When Using Externally Supplied Executive Coaching?

September 28, 2012 by Dr. Jon Warner in Coaching and Mentoring

What’s the Return on Investment When Using Externally Supplied Executive Coaching?

In today’s extremely competitive climate of changing technology, fast evolving customer needs and ever evolving organizations, executive coaching can have a highly strategic impact.

Executive coaching typically focuses on the broad topic areas of “what needs improvement” and “what’s going well” (so that we can build upon these successes). The overall goal in offering executive coaching is then to help people become more effective in the jobs that they do and the contribution that they make (for themselves, the team and the organization as a whole). This means that we typically coach individuals to help them to overcome personal obstacles or barriers, and to maximize individual strengths, so that they can reach their full potential.

We are all generally happy to accept the fact that executive coaching often helps individuals to grow as professionals and contribute more fully to the success of an organization. We also usually readily accept that if it is done well, it can significantly leverage individual performance and help to bring about much greater collaboration and alignment (an outcome that ultimately benefits everyone). Executive coaching is therefore offered very much as an investment that an organization makes in developing its key people for the long-term benefit of the enterprise in a general or loose way. It is often not offered so much as a process through which we can gain direct or measurable return on investment or achieve a tangible contribution to the bottom line.

Many companies are now focusing more closely on building the capability of managers and executives through coaching and mentoring programs and to do this for both developmental and harder contribution reasons. According to a nationwide survey of more than 300 companies by Manchester, a management consulting firm, 59% of companies offer coaching of some kind to their managers and top executives and another 20% of organizations said they plan to offer such coaching within the next year. Well over half of these programs are developed by or offered by external coaching entities and all of these are expected to add value in some way.

The research suggests that organizations like to offer executive coaching mainly so as to improve overall productivity to fuel growth and profitability. But, substantial productivity doesn’t happen when people are only focusing on a narrow range of issues or just functional or technical issues. It occurs most when the capability of managers is seriously developed to help their employees with the less tangible elements of interpersonal interaction. This is simply because the vast majority of the work that is required in today’s modern enterprise gets done through a wide range of relationships. The key to calculating return on the investment (ROI) in executive coaching is consequently in developing and sustaining individual and group behaviors through personal relationships to achieve the desired business results. In other words, returns can come from better teamwork, less conflict or improved morale for example but we should aim to measure the contribution here also (even if it is a best guess).

Since it’s becoming considerably harder to train and keep the best people (and the war for leadership talent is at its peak in the period 2010-2020 so the demographics tell us), it is clear that companies are interested in providing executive coaching to managers who are then able to improve productivity by motivating, energizing and exciting their direct reports, who then in turn make a much greater contribution on an overall basis, much of which then translates to the “bottom line”.

So, what does executive coaching really cost?

Typically executive coaching programs combine both change-focused coaching (changing certain behaviors, competencies or skills) and growth-oriented coaching (focused on lifting or honing performance). It may also include direct one-to-one training and management consulting intervention. This makes the average costs of executive coaching quite hard to tie down but we can nonetheless make some broad estimates.

Assuming that any training or consulting is only provided in the context of the one-to-one relationship between the coach and the coachee, executive coaching programs or assignments typically last from 6 months to one year. The cost of a year of executive coaching generally costs a company somewhere between $7,000 and $25,000 in theUSwhich usually includes several personal assessments and weekly telephone or face-to-face coaching sessions (lasting anywhere from 30 minutes to up to two hours at a time). In the UK, these costs range from between £3,500 and £15,000.

The number of sessions provided varies considerably with as few as 6 or 7 at the one end of the continuum and as many as 20 to 25 at the other end. Of course some executive coaching is continual with executives preferring to hold sessions on a regular basis for as long as necessary (every 2 weeks on a Thursday afternoon for example).

Executive coaching assignments are often expensed by the hour or day, by the month or over a more extensive call-off period. This will always depend upon circumstances and what an executive is specifically looking to achieve in the time frame. When a relationship is new, a first session may be free in order to better discover or understand the particular challenges of the specific coaching relationship and to work out how the coach and coachee might successfully work together.

Although it varies amongst different coaching firms, the likely investment (in terms of minimum costs) and the likely return is often discussed and agreed at the outset. Recent research suggests that senior executives look for at least a 2:1 return on investment (although as we suggested earlier they will accept that some of this return is in “soft” benefits as well). Recent research has suggested that actual returns on executive coaching (taken over a 12 month period on average) have been in the range of 150% to as much as 400% on the investment made, while 200%-250% more closely represents the average return.

With these kinds of ROI figures, executive coaching, if well chosen and set up, certainly seems to be worth the money and may be a much more focused way of delivering development to managers and executives than other methods.

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About Dr. Jon Warner

Dr. Jon Warner is a prolific author, management consultant and executive coach with over 25 years experience. He has an MBA and a PhD in Organizational Psychology. Jon can be reached at OptimalJon@gmail.com

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About the Editor and Primary Author

Jon Warner

Jon Warner is an executive coach and management consultant and in the past has been a CEO in three very different companies. Read more

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