Return on Investment from Executive Coaching
Does 1031% make it worth the investment?
Executive coaching represents a substantial investment by the organization. An investment of this nature is only warranted if the organization can gain a return on the investment. Surveys of and testimonials from executives who have worked with an executive coach show repeatedly that the executive finds coaching to be beneficial in helping them raise the bar on their leadership skills. The question is: How does this translate to a worthwhile ROI?
ROI can be the result of a decrease in expenses, increase of revenue, improvement of quality or level of service, or achievement of strategic goals. If any of these are achieved there is no doubt that a reasonable investment is warranted. Each of these would result in the organization's bottom line improving either directly or indirectly. For example, if a new CEO successfully onboards quickly without any costly missteps, the organization benefits by keeping its momentum while avoiding costs of missteps. The failure rate of first-time CEOs is thought to be 30% within the first 7 years due to the uniqueness of the CEO position.
64% of newly hired executives will not succeed in their jobs
50% will quit or be terminated within 3 years
40% will fail within the first 18 months
18% will not make it through the first year
The cost of replacing an underperforming CEO can easily reach 2 million dollars in direct costs alone when one considers severance pay, recruitment of replacement CEO costs and replacement of other executives.
In the 1990's, the Manchester group in Boston found that ROI for executive coaching in other industries was over 500%. This ROI was calculated by averaging the ROI cited by executives who had used an executive coach.
In September of 2008, MEDI conducted a national survey of healthcare executives to obtain data on use of Executive coaching in the healthcare industry. As a part of that survey, we asked those who have used an executive coach to report what ROI they gained from using an executive coach. The healthcare executives who invested more than $10,000 in their coaching reported that the ROI for executive coaching was 1031%. This is a return of $10 for every $1 spent on executive coaching.
Wouldn't we be happy if all our organizations' investments would yield such a return?