Imagine you own a construction company and for the most part you’ve built small sheds, maybe some single family homes. As the market shifts you realize you need to build luxury custom homes and office buildings instead, individuals seem to be moving from buying to renting and the market seems to headed towards higher-end partners looking for more. So you decide to build a luxury residence/business skyscraper, your first ever. In fact you’ve never built anything even remotely that large but hey, it’s just a bigger building, right? You figure it will cost about 25% more than your typical project.
Sounds a little foolish or at the very least, naive.
But if any of this sounds familiar, it should, especially if you are in the field of talent development. The building I am talking about is your talent. Leadership Development programs, Talent Development strategies, Leadership Universities; whatever the guise, tend to be training and development departments of old that have been given a new mission – build senior leaders. And while that goal is not wholly unreachable, the amount of resources needed to increase the leadership cache of an organization is typically far beyond what purse monitors estimate or allocate. The expected return is HUGE but the investment made is meager. Which gives your L&D team a lottery-winning chance at reaching your outcome.
Why is talent not seen as an investment like any other business venture?
The problem is, while most talent development professionals are great at designing learning experiences, development programs, and yes, high-grade talent – they are horrible at selling ROI.
Here is the cost of hiring external high-quality talent, mid-career, into a Director level position (assuming $150k/yr) using a search firm (as most companies seem to be doing for Director-level positions and above these days.) =
Search firm commission = 20% of annual salary = $30k
Estimated productivity loss during first year learning-curve (for an external hire)= 40% = $60K
First year bonus (assuming 20% bonus) spent towards productivity loss = $12k
So to hire a high-quality Director, it just cost your company $102,000.
Now, lets break that down into what it might cost to develop someone at your organization to that level. Let’s assume most Directors have been in their career for 15 years; some are a little faster, some are a little slower to get there but most first time Directors are around 35-40 years old. If we use the Cadillac of the leadership development industry (in terms of their reputation for churning out high-qualty leaders) General Electric spends approximately $1 Billion per year developing it’s 301,000 employees. That’s about $3350 each per year, which is on the high end of the scale as organizations go. Back to our example. Even using GE’s hefty development budget, grooming an entry-level employee to a Director in 15 years would cost you half ($50,250) of what it just cost you to hire from the outside.
Now, I am not naive enough to suggest there is not value in an external perspective. I think there are certainly times when you must hire leadership from the outside, if for no other reason, to avoid “group-think” at your higher ranks. My point is to look at your talent development expectations versus the investment you are making. Are you buying a lottery ticket or are you really investing in something that has a proven return?