The return on investment that organisations can expect from Coaching

by | Nov. 8, 2017 | Blog |
The return on investment that organisations can expect from Coaching

Realistically, coaching is just one of the many factors such as currency fluctuations, political stability, economic conditions that affect the growth of an organisation. But It goes without saying that a strategic investment in “human assets”  for their development would bring about  financial and intangible benefits to an organisation over the long term. But measuring or quantifying the return on investment (ROI) in individuals is not as simple as it sounds.  In the context of intangible results, how can the value of expected changes be measured? It is indeed much more difficult to translate to monetary value the benefits achieved by investing in an individual than, say, computing the contribution of a machine in the production.  Nonetheless, quantifying the ROI of an investment in coaching is not impossible.  This same simple formula for quantifiable benefits is used to calculate intangible benefits:

%ROI = Benefits Achieved – Coaching Costs X 100
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Coaching Costs

As the formula indicates, ROI is a measure of the monetary benefits obtained by an organisation from a given investment, e.g., coaching, over a specified period of time. The challenge here is to convert intangible benefits to monetary value. The most practical way to go about this challenge is to equate intangible changes to what the organisation would have otherwise spent in the absence of coaching.  This can be done using various measures such as estimation, trend analysis and the use of control groups. A case in point is to estimate how much a company would monetarily save if it hires a coach to support a problematic department head instead of spending on a search process for a replacement from outside the company.

Although tangible results are more specific and are easily quantifiable, this doesn’t mean they have  more significant contributions to the overall success of an organisation. In fact, studies have proven that in most cases the intangible behavioural changes in an individual have more far-reaching positive effects in an organisation than tangible changes and oftentimes translate to financial benefits. Studies have proven that treating the workforce as a critical asset by investing in their development significantly increases ROI.

For the sake of clarity, let us consider what the intangible and quantifiable benefits from coaching are:

Tangible or quantifiable benefits include: increase in revenue, increase in the number of new customers, decreased employee turnover, fewer cases of absenteeism, decreased customer complaints, increased productivity and improved bottom-line profitability.

Intangible benefits are made evident by better working and customer relationships, more effective teamwork, enhanced self-awareness, increased self-confidence, more effective self-management, increased motivation to work as a result of greater job satisfaction and stronger organisational commitment.

It goes without saying that these intangible benefits are reflective of behavioural changes brought about by coaching that enhances self and social-awareness. People who are smart and goal-driven rarely pause to contemplate on the workings of their inner selves. Coaching provides them the capacity to apply a break on their hurried and harried lives so that they can ponder on the effect of their words, behaviours and decisions on people around them especially those they are working with. This enhanced self and social-awareness paves the way for the integration of individual needs with organisational needs. As such, individual aspirations become aligned to and become supportive of organisational goals. This kind of development actually provides fertile soil from which a cultural change, beneficial to the organisation, can grow.

Several studies have quantified and translated to numerical values the intangible benefits of coaching. Here are some of the popular ones:

  • A study commissioned by the international Coach Federation (ICF) and conducted by PriceWaterhouse Coopers and Association Resource Centre Inc. (ICF Global Coaching Client Study, 2009), revealed that companies who invested in coaching gained a median return of seven times their initial investment.
  • A similar study conducted by MatrixGlobal came up with an almost the same figure of an ROI of 6.8 times the initial investment.
  • Other studies of ICF also show that for every dollar invested on coaching, an ROI of between $4 and $8 is usually generated.
  • A study made by Laurie Bassi and Daniel McMurrerIn for Harvard Business Review (HBR) (How’s Your Return on People?, March, 2004) indicates that investment in people yields high returns on various indicators including shareholder return. Here are their own words:

“In December 2001, we … created a live portfolio of companies that spend aggressively on employee development. In its first 25 months since inception, that portfolio has outperformed the S&P 500 index by 4.6 percentage points (2.2% versus a decline of 2.4% for the index). In January 2003, we expanded our investment strategy by launching two additional live equity portfolios made up of similar development-oriented companies. The results speak for themselves. While past performance is never a guarantee of future results, and while it is always possible to lose money, each of these three portfolios outperformed the S&P 500 by 17% to 35% in 2003.”

  • A Fortune 500 firm engaged the services of Dr. Anderson through  MetrixGlobal LLC  to determine  the business benefits and ROI on their executive coaching investment (Executive Briefing: Case Study on the Return on Investment of Executive Coaching, Merrill C. Anderson, Ph.D. CEO, MetrixGlobal, LLC).  In this study a survey was conducted among 30 participants and figures indicative of an increase in positive business and workforce impact came up such as:  employee satisfaction by 53%, customer satisfaction also by 53%, work output by 30% and work quality by 40%. According to the report forwarded by Dr. Anderson the bottom line is:

“Coaching produced a 529% return on investment and significant intangible benefits to the business. Including the financial benefits from employee retention boosted the overall ROI to 788%. The study provided powerful new insights into how to maximise the business impact from executive coaching.”

  • According to a study made by Dr. Joy McGovern, et.al., on the impact of executive coaching (Maximizing the Impact of Executive Coaching: Behavioral Change, Organizational Outcomes, and Return on Investment, Joy McGovern, Ph.D., Michael Lindemann, Ph.D., al.) the estimates of ROI , done in the most conservative manner, is 5.7 times the initial estimate. In their survey some estimates were as high as $1million, $5 million, or even $25 million.

To learn more about coaching and the benefits that it can bring to your business or team, contact the Australian Institute of Professional Coaches on 1300 309 360 or email careers@professionalcoachtraining.com.au.We look forward to speaking with you soon.