Have the Client Convince the Coach of the ROI.
{O’Neill’, 2007. Executive Coaching with Backbone and Heart: A Systems Approach to Engaging Leaders with Their Challenges. 2nd Ed.}
How to link clients’ development to measurable business results?
Use the Three Key Factors Methodology
The business results are measured in time, money, quantity, and quality metrics.
The leader and team behaviors are specific and observable actions verifiable by quantity and quality.
Assess Other Variables
Explore other variables besides coaching that affected the success of accomplishing TKFs.
Ask the client about internal success, internal detractor, external success, and external detractor variables.
Truth in Advertising: What it Takes to Get There
Work with the TKFs continually throughout the coaching contract.
Use live-action coaching with the leader and the team.
Focus on three learning challenges: (a) the leader’s most daunting work relationship challenges, (b) the leader’s ability to “learn live,” and (c) a shift in co-created patterns between leader and team.
Benefit-Cost Ratio: Solidify the Connection.
Ask for data on specific business measures.
Ask the client to outline any connection between changes in team functioning with business results.
Ask the same question regarding changes in leader behaviors and business results.
Be a collaborative skeptic.
Benefit-Cost Ratio: Quantify the Impact.
Ask what percentage of change is attributable to the coaching variable.
Be skeptical of the “grade inflation” of satisfied clients, and help them name a conservative impact percentage.
Use the formula to calculate the benefit-cost ratio.
Customize the formula to determine what business results metric has credibility in the client’s system.
When there is a judgment call on which business metrics to use, calculate an intentionally conservative benefit-cost ratio by choosing the lower number.
Use the overview of the ROI process as a guide to steps in the process.
We are interested in a method for demonstrating a quantifiable ROI for coaching work with clients. The validity is to be assured by involving the client in evaluating the bottom-line benefits of coaching. This highlights the financial gains business executives want to see compared to the costs they pay.
The main question we are asking is, “What effects do changed client behaviors have on bottom-line results?”
Here is a strategy, beginning with the contracting phase, that links client development to the bottom-line results and allows the client to retain full responsibility for her business results, linking her developmental challenges and improvements to those business results.
Three Key Factors (TKF) Methodology
Identifying TKFs gives the client targeted goals to work toward, identifying bottom-line results and leader and team variables that could most affect those results. All TKFs lists are measurable.
Business results are measured in time, money, quantity, and quality metrics.
Leader interpersonal behaviors and team interactions are specific and observable actions, verifiable in quantity (Did it happen? How often did it happen?) and quality (How well did it happen? To what extent did the behavior include all the components necessary?).
Aim for observable behavior rather than global terms when the client first creates the list.
During the early work with the client in defining the TKFs, tell the client you and she will return to those lists at the end of the contract to calculate ROI.
Be thorough in setting up TKFs on the front end; it gives the coach and the client a checklist or feedback mechanism to use during the coaching engagement to check progress toward each TKF.
Assessing Other Variables
Early, right after identifying TKFs with the client, explore variables besides coaching that will affect the likelihood of success of all TKFs.
To calculate ROI, we will isolate the coaching variable at the end of the coaching contract.
Ask the client to create four variables:
Internal organizational variables that improve the chance for success, including the leadership team’s and larger organization’s current strengths and assets.
Internal organizational variables that detract from success. For example, internal challenge: Executives higher up in the organization make decisions that diminish the client’s and her team’s ability to control the outcome.
External variables that help lead to successful results. For example, external opportunity: There is untapped revenue in the marketplace.
External variables that may jeopardize success. For example, external challenge: Other formerly reliable customers are cutting back business because of a dip in the economy.
This reminds executives to consider positive internal variables, what they have in their favor.
There should be a list of many items for each variable, easily 3-10 items.
What It Takes to Get There
Use a specific executive coaching implementation methodology that helps clients and their teams achieve results in all Three Key Factors.
Work with the TKFs constantly throughout the coaching process. After setting up in the beginning, they remain a standing agenda item.
Do live-action team coaching with the client and team members while they are all present and working on business issues at their meetings. Help the client sequence a series of concentrated efforts, from communicating TKFs to the team and getting feedback from team members on whether the factors are on target, to gaining commitment to them, to helping them communicate more directly with each other.
Executives have team members who are leaders themselves. This offers the added benefit of teaching team members leadership skills they can apply to their staff. We may focus on three ongoing learning challenges or others:
(1) leadership behaviors and work relationship challenges that the client finds most daunting;
(2) the client’s ability to “learn live” with her team, so members are willing to take on more of their learning challenges; and
(3) a shift by the client and her team to more effective co-created patterns of interaction with each other.
The leader interpersonal behaviors factor list is incomplete until the coach and the leader identify behaviors that stretch the leader and are thus often avoided. Executives are more willing to face their leadership challenges when they see how necessary these behaviors are to achieving specific business results.
Clients must show courage in areas such as entering uncharted territory for themselves and their teams, staying the course, and learning about themselves with an open mind.
Midway through the process, discuss progress on each factor and whether the client and the team will likely achieve them. In the end, have a formal conversation assessing results for each of the Three Key Factors.
Benefit-Cost Ratio: Clarify the Connection
At the contract end or a 10-12 month time frame, review results for each TKF and begin to see the financial benefits from the coaching endeavor.
(1) Ask the client for specific measures she did or did not accomplish regarding business results.
(2) Team behaviors list: To what extent did the team enact them? How does the leader know that? How often and where do they show up?
(3) Leader behaviors list: use the same line of inquiry as for team behaviors.
During the discovery conversation, repeatedly ask, “What connection do these behaviors have with reaching your business results?” Be a collaborative skeptic. For example, “How did improved decision-making increase your market share?” If there truly is a connection, they can tell you. Still, you may have to continue asking them to show you the connection between the leader and team behaviors factors and the business results factor to identify the link.
Keep pursuing the connections until the client has convinced you there is a link. In this way, they have deepened their confidence in the links among all Three Key Factors.
With each TKFs conversation, the client owns the customization process to create the TKFs methodology, and the factors feel more real and actionable; they come alive, spurring the leader and the team into action.
Solidify the Connections Among the Three Key Factors
With questions such as, “How do you know you and your team’s behaviors make a difference in the bottom line?” many of the behaviors over and above the set goals come to light. The leader and the team’s persistent focus on their behavioral factors create new synergies that allow them to achieve their business results.
By remaining conscious of the decisions and specific commitments necessary within each phase of their work, the leader and the team create efficiencies that affect their bottom line. The leader names specific decisions that executed the TKFs well and directly led to her business results.
Use pre-and post-surveys of leader and team behaviors to track their frequency before and after the contract.
Benefit-Cost Ratio: Quantify the Impact
The client identifies behavioral key factors and shows how they led to the bottom-line improvement. How much has the coaching contract affected her results? What percentage of the change can be attributed to the executive coaching variable as opposed to the other variables the leader named earlier?
Be skeptical about “grade inflation” clients give because they are satisfied with the coaching work. Satisfaction, or a good experience, does not imply effectiveness. Ask the client to connect one key factor to another and to assess to what extent the internal and external variables they named earlier were important to their results. Let them consider more seriously the host of variables at play and paint a realistic picture of the business variables and the impact of the coaching variable.
The coaching may serve as a lever or unleash the potentials of the other variables, but each has its impact on results.
Calculate the benefit-cost ratio to account for the coaching impact’s outcome effect.
Use a generic formula customized to the client, the client’s system, and what the client values and measures when deciding if something is worth the investment. The business results metric has to have credibility in the client’s system.
Business results x % impact of executive coaching / cost of executive coaching
Use Business results as measured by Net Contribution (increased revenue minus customary costs associated with earning more revenue, such as increased labor costs or increased materials).
The client should decide which economic results to put in the business results portion. The real test is whether the formula is useful and credible to your clients and if the formula they choose stands up to the internal scrutiny of their organization.
Although the client may care more about a specific indicator such as market share, the top officers of the company may care more about net contribution; relay this bias of the top to your client and let them choose with discretion.
Use conservative numbers, e.g., the difference between the clients’ results and a control group or base level assuming absent coaching.
Most clients have not calculated ROI benefits for skill development in their divisions. Wait until the end of the contract to discuss a specific formula. By then, you have the highest chance of engaging them in a relevant conversation. Give them your thoughts and perspectives, but let them decide on the actual formula.
The leadership, team, and process skills gained through coaching are transferred to other business issues; they are not counted in the analysis. This reinforces the worth of the coaching engagement/investment. The beneficial waves of the coaching effort will continue after the work with the client is done.
Step-by-Step Process
Use this practical analysis with your clients, so they convince themselves of the executive coaching investment’s value.
The process requires deep listening to uncover crucial facts, striving for concrete behaviors rather than accepting generalities, and understanding how organizational components interact with the external environment to recognize critical areas of impact and development.
Overview of the ROI Process for Executive Coaching
Step 1 Coach the client to identify Three Key Factors she wants to improve that relate to a business need in the organization and a change in the leader and team behaviors. TKFs are business results, leader interactional behaviors, and team interactions.
Step 2 Customize and hone TKFs until they are specific, measurable, and interrelated.
Step 3 Ask the client to identify other variables that affect results, the internal and external advantages, and obstacles.
Step 4 Check-in and assess progress toward achieving results and enacting behaviors of TKFs throughout the process.
Step 5 Evaluate ROI. Your client:
(a) Identifies final business results in dollar amounts and other bottom-line metrics regularly used in the organization. The client may continue to work on these goals, or the results are intended to be ongoing. At some point, however, it’s time to evaluate progress. For significant changes to occur in all Three Key Factors, 10-12 months may be an appropriate time frame.
(b) Assesses any interconnections or synergies created between the improved leader and team behaviors and business results.
(c) Recalls significant internal and external variables that affected business results.
(d) Names the percentage of impact the executive coaching variable had on the results relative to other variables.
(e) Calculates benefit-cost ratio of the executive coaching variable:
Business results x % impact of executive coaching / cost of executive coaching
The rewards of this approach are many. Leaders are more likely to remember behaviors that produce results. They will expect their teams to interact in specific ways that create results. Executives are more likely to invest in using you as a coach in the future when they have a new team or a more challenging set of results to achieve. Clients are happy to be strong references for your executive coaching practice if it specializes in linking leader development to business results.
Consider yourself a business partner with your client.