By: Brian Hallahan
With a rebound in the economy, 2021 is resulting in a return of the “war for talent.” With the strength of the economy and tight labor market, a corollary is also emerging. “War for retention” – making employment at your company compelling and rewarding so that current employees do not leave for work elsewhere.
Leadership development plays a decisive role in enhancing your employment brand, allowing you to grow talent, and positively affect employee engagement, resulting in better business outcomes.
As with any change, there is disruption. New leadership development will disrupt your current state of training programs and stakeholders’ opinions as to whether a change is needed or that the change represents the best option. Thus, focusing on highly effective programs based on research and real-world outcomes will help you cut through the clutter of options and have specifics to base stakeholder conversations around. Literature in the field has firmly established a strong link of a manager-direct report relationship to higher employee engagement, productivity, and satisfaction. The quality of a manager is the critical element to the success of your business and employee experience.
ICC’s approach to leadership development, Accelerator™, is based on adult learning theory. This can be concisely thought of as using our experiences, our ability to see connections between these different experiences, and our focus on being pragmatic, results-oriented, and adding new information, discussion, and coaching to accomplish new tasks.
Reinforced over time, these become wired into how we approach similar situations as we continue in our career.
The changing labor market and rising labor costs is the situation you face. Yes, the timing is awful – we just spent a year addressing a pandemic (that is not completely gone) which included a shift to remote work, furloughs or layoffs, and quickly shifting economic conditions that made planning almost impossible from one quarter to the next.
Yet, a tightening labor market is quickly becoming a defining characteristic of 2021. How will this impact your organization? And how will you choose to respond? The adage “the best defense is offense” applies – a leadership development program allows you to get in front of this problem. Your organization is staffed with committed and experienced employees. They make your culture. They know the multitude of subtleties that make an organization tick.
They have built relationships inside the organization, so they know how to get things done and problems solved.
They “know” your customers –what’s important to them and how they like to interact. You also have competitors.
What is your differentiator? Your people. What do you have if you can’t keep them?
Given that a leadership development program may represent a strategic shift for a company, affect the individuals who would participate in the program along with their supervisors and other stakeholders, and there’s an expense, there is a high need to build a business case, engage in internal conversations and reviews that lead to a consensus that development is the right solution.
In ICC’s recent complimentary webinar titled, “Protecting Your Organization’s Biggest Investment: ICC’s Accelerator Program™ Product Showcase,” we shared a typical conversation amongst senior HR professionals which is, if there is a direct link from manager effectiveness to retention, engagement, etc., and if finding great talent is even more difficult today, then we must be sure our managers are highly effective. Therefore, we need to make sure they have the skills to manage their direct reports. But what is the best approach to take to equip them with these skills? How do I quantify this problem and its remediation? Should I ignore the problem, build a solution, or buy a solution?
Let’s examine this a bit further. First, what are more details of the labor situation? According to the Department of Labor, U.S. unemployment has already dropped to 6%, a low since the pandemic emerged, and is expected to continue to decline. The U.S. economy grew by 6.4% in Q1. Job postings are exponentially increasing, and companies are finding it difficult to fill positions. Finally, some labor economists predict that up to 40% of employees may voluntarily leave their current job for a position elsewhere, up from a customary ~20%, and attributed to those who kept their job during the pandemic and are now comfortable with it looking for employment elsewhere.
What’s the cost of ignoring this situation? SHRM (Society of Human Resources Managers) estimates that the cost to replace an entry to mid-level manager is between six months and nine months of that person’s salary, and about 16% for white-collar employees who make ~$15-16/hr. Combining these numbers with the expected increase in voluntary job turnover, the total cost of ignoring this situation rises quickly.
What do all these numbers mean exactly? Here’s a demonstration:
A front-line supervisor of administrative support makes $57,000 and supervises a team of 5, each making $36,000. The total compensation for this team is $237,000. If the manager leaves, it can take 50% (6 months) to 75% (9 months) of salary to post, screen, hire, onboard, and bring up a new manager to speed. That’s about $42,750. A 40% turnover of the team equates to 2 positions that have to be filled– each costing you 16% of their salary, or $5,760 each ($11,520 for both).
The cost of ignoring the management problem for just one manager and one team equals a total of $54,270. Multiply that across your organization, and the hidden cost of the strong labor market becomes more than evident – a strong business case that one bad manager can be a hidden cost in your organization. (Job titles and salaries here and throughout taken from O*Net, the Department of Labor database.)
The conclusion here is that doing nothing clearly does not cost you nothing. Not providing leadership development is not saving your company money.
With this realization, you may next ask yourself,” Well, what is the cost to build a leadership development program?” The short answer is the total cost to develop a program includes your time, measured by your salary (not to mention the opportunity cost –while you are developing this program, you are unable to perform other work), and the time and expense to produce the content, and time to deliver.
Based on our experience, it takes about 200 hours to research, write, and edit material, develop scenarios, and exercises that are appropriate and engaging, integrate technology, write email scripts, other communications, and collateral, etc. FOR ONLY ONE TOPIC! The time adds up quickly. A program can have up to 5 courses, that’s 1,000 hours — or 25 weeks full-time. Do you have half a year to develop a leadership development program and do nothing else? And during that 25 weeks, your retention issue may be multiplying because, as stated above, the problem hasn’t suddenly stopped simply because you are building a program. In fact, the situation may only be worse in 25 weeks.
The L&D function has not escaped the trend towards lean staffing. We often find that the L&D function at a company may be just one person.
Large departments may be five. Regardless of size, this department is responsible for activities such as new employee onboarding, job-specific training, required training due to being in a regulated industry, compliance training, etc.
Most conversations with L&D professionals indicate that they do not have the bandwidth to build additional programs.
Let’s take this further and add dollars to our example:
Let’s say the median salary for a Leadership and Development Manager is $113,350. This salary for 25 weeks is $55,000. Add a week for program delivery which is another $2,200. Estimate the other costs to build a program a videographer, IT, animation, software, etc.), which may be around $20,000. Therefore, the cost of building a leadership development program would start at around $77,000 and won’t be ready for at least 25 weeks.
Thus far, we have learned the cost of the problem and ignoring it. But it also looks like building a program is more expensive than the problem rather than a solution.
What is the cost to buy a leadership development solution? At ICC, we’ve done the heavy lifting and built our unique Accelerator Program™ to include features such as:
- Microlearning which does NOT take a manager away from their day job
- Reinforcement activities to promote on-the-job application
- Involvement of the participant’s supervisor with action and conversation prompts to increase accountability
- Remote, live, group coaching with a coach who has the right experience and “fit” for a company and cohort
Beyond these aspects, which are part of the program experience, Accelerator also includes:
- Analytics to track participants and unique content for supervisors
- A platform that can deliver on any device: laptop, tablet, or smartphone
- A program that matches a company’s specific needs
- Dedicated implementation manager to ensure smooth operation of the program and prompt response to any questions.
Of course, a robust, proven solution is nice but is it cost-effective?
Just as your company has worked hard to be the best at what you do, so have we. Accelerator is available for between $2,000 and $4,000 per leader based on the number of leaders in a cohort, the number of paths chosen, single or multi-year, etc. So, what are you willing to invest in your people?
In short, as you compare the cost to the three options of ignore, build, or buy:
Ignore the problem: $54,270 for just one manager and team that experiences turnover.
- That’s 23% of the investment you’re making in that team (total compensation for the team: $237,000).
- Build a program: $77,200 and 25 weeks to develop. That’s 28% of what you’re investing in that team.
- Buy a program: Accelerator will cost between $2,000 and $4,000 for each leader. That is only 0.7 to 1.4% of the investment you are making in that team.
The strengthening economy is not hidden –companies are making ambitious goals to seize this opportunity. As one who is responsible for ensuring your organization has the human capability to achieve those goals, effective leadership development needs to be a key component of your arsenal.
While we have used O*Net data from the Department of Labor, use the following spaces to begin to determine the cost of ignoring, building, or buying for your organization.
Cost to Ignore:
- What is your current turnover?
- Is this rising or declining year over year?
- What is a manager position you are having trouble filling or retaining?
- What is the salary for this manager position?
- How many direct reports does this manager have? What are their salaries?
- What is the total salary for the manager and direct reports?
- Calculate 75% of the manager’s salary.
- Calculate 16% of the average pay for the direct reports of this manager?
- Multiply this number by your current turnover. Add to 75% of the manager’s salary. This is the cost of ignoring developing one manager. Repeat this calculation for each manager position.
- Calculate turnover of direct reports times this manager
Cost to Build:
- Who has responsibility for building a leadership development program? (can be one or multiple people)
- What is the salary for those responsible for building a leadership development program?
- How many topics need to be built? (Examples include managing others or a team, communication, managing change, being effective in addressing conflict, performance management, etc.)
- Take the number of topics and multiply by 200 hours.
- Divide hours by 40 to come up with the number of weeks needed to develop a leadership development program.
- Calculate salary for person or persons responsible for building (weeks x pay).
- Who has responsibility for delivering a leadership development program?
- Calculate one week’s salary for the person responsible for delivering the program?
- Do you have in-house resources for audio, video, animation, etc., of the content?
- Does your company already have appropriate software? Estimate $20,000 for these additional costs.
- Add salary to produce + salary to deliver + $20,000 additional costs = cost to build
Cost to Buy:
- $2,000 to $4,000 per person based on factors such as number of leaders in a cohort, number of paths chosen, single or multi-year, etc. Contact ICC, and we will give you a no-obligation quote.
Compare your results. Which is your best option?