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Companies invest in leadership coaching for senior management and high potential employees with the expectation that coaching will improve performance and retention.
But historically, the business impact of this type of coaching hasn’t been adequately quantified. As a result, coaching can be perceived as less valuable than it truly is, and it’s also more vulnerable to criticisms for being “soft” rather than scientifically-grounded, and measurable.
As HR investments become more data-driven, coaching will have no choice but to rectify this ROI evidence gap. At BetterUp, we invested early on in creating a model that can effectively measure behavior change, dramatically rethinking the ROI of coaching from the ground up.
Want to learn more about how we measure ROI, and which employees will drive the greatest returns for your business? Watch our recorded webinar:
How coaching ROI has been measured in the past
At a global level, the most common approach to the ROI of coaching is to simply not measure it at all. Individual coaches lack the data they need to quantify the impact of their work on an individual’s daily output. Over the course of a coachee’s career, coaches can trace the impact of their work through promotions and job satisfaction. But separating the impact of coaching from the impact of other confounders in their lives is all but impossible.
Companies looking to measure coaching impact have taken a variety of approaches. Typically, they follow the levels of worker satisfaction with the coaching service and job engagement over the course of the intervention. Some attempt to map this to performance through a self-report: the coachee is asked to describe the impact of coaching on their own performance. The shortcomings of this approach are obvious: lack of objectivity, lack of measure validation, lack of population baselines, and the influence of confounders.
Correlating coaching with performance ratings can lead to slightly more objective measurements. But performance ratings suffer from many of the same shortcomings of self-reported assessments of performance improvements.
Business unit performance ratings
The most robust approaches correlate business unit performance with coaching. A vendor or employer might track the sales numbers for a team whose leader received coaching, or the customer satisfaction ratings for a customer service team that benefited from coaching. These approaches offer the benefit of tracking a more objective business outcome, with direct translation into top-line improvements. The shortcoming is that because the sample sizes are small and the circumstances unique, there is no population baseline against which to measure those improvements, and through which to sort out confounding variables.
How we think about ROI at BetterUp: A validated, quantitative measure
One of our goals in building BetterUp is to provide both our members and our customers with a validated, quantitative measure of the impact of our service.
One of our goals in building BetterUp is to provide both our members and our customers with a validated, quantitative measure of the impact of our service. This work started with an investment in developing our assessment tools, including our Whole Person Model, which draws upon the best behavioral science measures to track the personal and professional changes that matter most. These measures have been produced through decades of research at Harvard, University of Pennsylvania, Stanford, Claremont, and many other institutions that have invested in quantifying behavior change.
Because of this investment, we have the ability to not only measure different types and units of behavioral change, but to also then map those changes, item by item, to the business outcomes of interest. We think about these business outcomes in three separate buckets:
We want to know that our coaching is improving an individual’s performance on the job. A specific group of the measures we track is designed to tell us how our service is affecting the individual resources most critical to job performance. The size and nature of that impact have been demonstrated over decades of research, some of which we have replicated, so that we can separate out the impact of our coaching from the impact of, say, some new software on the employee’s performance.
Performance also includes days on the job. People miss work for all kinds of reasons, from sickness to vacation to leave. Different psychological factors are at play in determining whether, short of a medical emergency, an employee chooses to come to work. Our ROI algorithm accounts for this and isolates the factors that our coaching service impacts. For any given population, we can predict the number of increased days on the job we would expect our service to provide.
Coaching the leader to increase those strengths results in greater retention among members of that team, a powerful force multiplier of the ROI.
Turnover can in some cases serve as the main driver for an investment in coaching. Coaching provides individuals with a clear opportunity for growth and development that can sustain them in otherwise difficult or stagnant operational stretches. Coaching helps to bolster psychological resources that drive retention, independent of confounders at home or in the workplace.
The other important component of retention is retention of the team members who report to the coachee. The old truism that people quit managers not companies has been well supported in the literature. On a deeper level, we can disentangle the behavioral and psychological traits of a leader that produce loyalty. Coaching the leader to increase those strengths results in greater retention among members of that team, a powerful force multiplier of the ROI.
Across populations, BetterUp’s coaching has been shown to decrease employee stress by 12%.
BetterUp’s ROI algorithm includes a new and critical perspective: wellness. Across populations, BetterUp’s coaching has been shown to decrease employee stress by 12%. That yields returns in terms of performance, but it also yields returns in terms of employee health. Employees who are less stressed are healthier overall and spend less on healthcare services, decreasing employer spend in that area.
By analyzing savings in these three key categories, we’re able to offer our customers a holistic understanding of the financial impact of coaching for their organization. We’re also able to use our findings to refine our coach training and approach in order to drive even greater results for both customers and individual members.
The future of coaching ROI
The greatest shift we expect to see in this area in the next five years will be the expectation among buyers that coaches can demonstrate ROI. Qualitative reporting will have to be supplemented by quantitative reporting. As HR investments become increasingly data-driven, people development will be no exception. Both internal and external coaches will devote more resources to measurement and analysis.
The opportunity this shift presents for the field of coaching is to hone its focus on outcomes and organizational impact. The discipline required by this endeavor will afford coaching the push needed to evolve the state of its science more rapidly, and with a finer lens. It can also motivate the field to integrate the latest and greatest discoveries from the behavioral sciences into practice in the service of our members, and of the organizations they serve.
Designing coaching programs with precision
We also expect to see greater precision in the design of coaching programs. We already know a fair amount about which level of employees offer organizations the greatest return on their investment. How about which departments? Which industries? The level of specificity we can hope to reach over time is mind-boggling: What’s the ideal length and type of coaching for a remotely located senior engineering director looking to scale their team, given that it’s a diverse team including multiple high potentials?
Stay tuned. Coaching’s ROI journey is just beginning.
Original art by Theo Payne.
Chief Product Officer