Saturday, 22 March 2008

ROI on coaching

One of the main ongoing debates in measurement / business benefits / ROI is in connection to coaching.

The CIPD's 2008 Learning and Development survey finds that 71% of organisations use coaching in their organisation (up from 63% in the 2007 survey).

There are so many different levels and approaches to coaching (for example, between line managers using coaching as one approach to supporting employees, internal coaches working with those identified as talent, and executive coaches working with senior leaders) that it is hard to comment on these findings.

But perhaps the most important difference between these approaches is between transactional and transformational levels of coaching.

At a transactional approach, providing coaching to achieve a certain objective, measurement and ROI may be relatively easy to calculate (the difficulty may be identifying investment cost if this is provided internally, but the benefit is likely to be expressed in fairly definite and financial terms).

I think ROI is a lot harder to calculate for transformational coaching - helping someone achieve their potential. Yes, the business' objectives provide an important context for the coaching, but this is provided to deliver a certain improvement in human capital, not to achieve a certain financial result.

Businesses can use a value chain to predict the financial impact of particular human capital outputs, but there are likely to be so many estimates and assumptions involved in doing this, that these numbers cannot be used with any level of confidence.

In particular, coaching is unlikely to be the single source of any improvements in business results, so organisations are often encouraged to calculate a "percentage impact of coaching".

"Calculate the likely impact of coaching, taking into consideration other organisational variables. For example, if other initiatives for increasing profit are to introduce better IT systems, recruit more sales staff and improve distribution, then look at the likely impact that coaching could have on these. Is it 33% for each one or is it 20% for one, 30% for another and 50% for the other? Use this data to define an overall 'percentage impact' of coaching. (It is important to point out that this is an art and not an exact science, so it is best to get all parties involved in a discussion to decide on this figure.) Generally, the percentage impact of coaching can be anywhere between 20% and 100%. The fewer organisational variables involved, the bigger impact the
coaching will have."

Some organisations also try to identify a degree of confidence in this estimate, and work this into their ROI calculations, but people are generally so poor at estimating either of these figures, that it doesn't really make much sense to try to do so.

In a Training Zone article earlier this year, coaching is a fast way to loose money than burning it, Gary Platt suggested that organisations need significant evidence of coaching if they are going to ensure that investment is effective:

"Would you be happy going to the garage and asking for an oil change, pay for it and then discover the oil hasn't been changed? No. Then why pay for a coaching initiative that doesn't deliver? The coaching fraternity is awash with grandiose claims for the benefits of its product so this challenge shouldn't be a problem, provided of course clear goals and targets are agreed up front and a clear and equitable system for tracking progress is installed.

Corporate coaching is not the bad boy of the developmental world but it is an expensive and fairly new approach. It would be highly beneficial to organisations and coaches if there was more clarity about what its purpose and contribution will be within the business, and in that way prove it is a financially viable and responsible approach."

The problem with this is that the analogy doesn't actually work that well. Coaching people isn't the same as giving a car an oil change. You can put oil in a car and nothing much is going to happen other than the car continuing to go. If you coach your employees, you can gain many different, often unexpected and intangible results.

Given these issues, return on expectations (using the output - human capital, rather than the impact - business results) is often going to be a better measure than ROI.

This shouldn't be taken to mean that organisations can't or shouldn't do formal evaluation of their coaching. It is a worry that the CIPD's survey suggests only 8% of organisations evaluate the results of coaching via a regular formal process at an organisation-wide level. Organisations would benefit from doing more.

But this formal evaluation should be a process of conversation, not a number.


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