Why Budgeting for Leadership Development Is Essential for Retaining Top Talent

One of the quickest ways for a company to lose top talent is to fail to make the proper investment in training and professional development for high-potential employees.Organizations need to increase their focus on leadership as a whole to build versatile leaders earlier in their careers. Today’s high-performing companies enable young leaders to learn on the job and promote them at a faster rate.Most business leaders realize talent and leadership development are important, but too often these areas get little or no funding. There may be confusion about where the money should come from, or it may just not be an organizational priority. Whatever the reason, it’s a mistake not to include leadership development in the budget every year — and one that can have long-lasting negative repercussions for your business. Here’s why it matters.

Employment Relationships Have Changed Dramatically

Strong leadership is essential to every organization’s continuing success, and without an ongoing investment in leadership development, you risk diminished performance and an inability to meet challenges as they arise. You’re also at risk for not having a successor in place when a key leader retires or leaves for a new job. In 2015, 86 percent of companies globally cited “gaps in their leadership pipeline” as one of their top three issues, with these gaps occurring at all levels of the organization, according to a survey from Bersin by Deloitte.There are numerous reasons why you should create a sustainable budget for organizational leadership development. At the top of the list is retaining a young talent pool that is untethered from long-term employment and who often want to go where the action is. These young workers have access to vast information about what it’s like to work for companies with dynamic cultures and a dedication to professional development.Executives need to realize that the relationship between employer and employee is undergoing a major reconfiguration. The companies that don’t make development and learning a part of their culture are going to quickly discover they are on the wrong side of that renegotiation. When employees see the company is investing in their future, they’re more likely to be engaged and to stay instead of looking for a better opportunity elsewhere.

Your Strategy Depends on It

Leadership development should mesh with your overall departmental and company-wide business strategy. Your strategic goals must be supported by an equally important plan for people.A major tenet of any leadership development plan should be the identification of high-potentials and top talent in your organization. Other important factors include succession planning, knowledge transfer, and career path and development planning.When crafting a plan, begin by asking these questions:

• What do we need our leaders to be able to do so we can have a high-performing team, create bench strength and prepare for the future?
• What specific leadership skills will the organization need to get the greatest return on investment?
• How will these skills help maintain the organization’s competitive advantage?
• What’s the best way to help our organization’s people learn new leadership skills?
• Do we have the training resources we need in-house or do we need to work with outside consultants?

Consistent Investment Yields Consistent Results

A 2015 study from Bersin by Deloitte found that investment in leadership is wildly inconsistent across businesses of all sizes and types. Companies that excel at leadership development (and reap the benefits) spend four times more compared with those that take it less seriously. But even at that upper echelon, spending is only around $4,000 per leader per year, according to the study. Average spending overall is considerably lower.According to the 2016 Training Industry Report, businesses with fewer than 1,000 employees spent on average $1,052 per person on training in 2016. In contrast, the average for midsize companies, employing between 1,000 and 9,999 people, was $870 per person, and for corporations with more than 10,000 people it was $379 per person.But when we’re talking specifically about leadership development, the numbers don’t always add up. Companies are often quick to dedicate large sums for technical or functional training but fail to consistently budget for developing soft skills through next-level classes, coaching or key experiences that foster development. Investments in organizational leadership dry up incredibly quickly when money gets tight. Other organizations only dedicate money for leadership training when a problem arises. This is a mistake.Leadership development activities don’t have to cost a fortune, but companies need to consistently dedicate resources for them — and need to be strategic about how those dollars are spent. Steady budgeting and detailed planning in leadership development will offer a considerable return on your investment over the long run.Unsure about how to set a leadership development budget? Contact us for help.Success Labs is a leadership development and management consulting firm in Baton Rouge, Louisiana. For more than 25 years, our expert team of consultants has worked with hundreds of companies to explore their business potential and improve their company and cultural performance. Contact us to get proactive about your people strategy.