Why Companies Should Invest in Leadership Development

An Overlooked Budgeting Essential: Leadership Training and Development

As we enter into the year 2025, now will be the time to start effectively planning your 2025 fiscal year. As a leadership coach, I highly encourage companies to consider the financial development of their employees and leadership staff. Investing in leadership training can:

• Improve profitability 
• Reduce employee turnover 
• Create a healthy environment 

The Financial Impact - Employee Turnover

Losing an employee can cost companies up to 200% of their salary! Recent studies reveal just how significant this impact can be. Let's explain..

Example 1: Company A

Company A faces tight budgets and has allocated no funds for leadership or team development for 2025.
Manager: Bob is a star independent contributor and is promoted to manager without proper training. Due to the company's inability to provide proper guidance, Bob struggles with finding the skills to effectively lead. As a result, Bob becomes insecure in his role, which then leads to micromanaging and a toxic work environment. 
Employee: Suzie is a valued teammate who earns $100K. As a result of Bob's poor leadership, Suzie begins to feel undervalued and unhappy. This results in Suzie ultimately prompting to seek employment elsewhere.

Employee Turnover Breakdown: 
Losing Suzie means the company incurs substantial costs:

• Recruitment: $20K (20% placement fee)
• Onboarding: $25K (three-month onboarding process)
• Lost Productivity: $50K (three months without a suitable candidate and additional time for a new hire to reach Suzie's productivity level)

Combined total: Company A faces an additional expense of $100K!

Example 2: Company B 

Company B wisely recognizes that investing in its people is non-negotiable. Every year the company financially contributes a specific portion of their yearly budget to go towards training and development - especially for those that are upcoming and recently promoted managers. 

• Training and development contribution: Company B contributes an annual budget of $10K towards training and development.  
• Manger: A budget of $3K is contributed toward Bob, a star independent contributor that was recently promoted to manager. Bob's training budget will allow him to take part in his company's management program. As a result, Bob gains the tools and confidence to lead his team effectively and produce a healthy team environment.
• Employee: Suzie is a high-performing team member that works alongside Bob. Due to Bob's leadership training, Suzie experiences an increase in her productivity and sales performance. As a result, Suzie feels appreciated and motivated in her role. In addition, company B also experiences an increase in overall profits.

What can we learn from this? 
The examples from both company A and B may have had two different experiences, but they both relay the same message - leadership training is critical and can't afford to be overlooked. Effective planning and budgeting for leadership and team development not only cultivates a thriving workplace, it also acts as a proactive strategy to mitigate high attrition costs. Neglecting this area leaves organizations vulnerable to hidden expenses.

3 Areas of Leadership Training to Budget in 2025:  

1. Leadership Development: Equip new leaders and managers with the skills they need to thrive. This can involve 1:1 coaching or structured training programs tailored for new leaders.
2. Team Building: Organizations should contribute a specific portion of their annual budget to include opportunities for teams to take part in regular activities — this promotes collaboration and connection. According to Gallup, engaged teams are known to experience up to a "+21% increase in profitability and a +17% boost in productivity." In addition, companies with engaged teams report 24% lower turnover rates.
3. Leadership & Team Assessments: Establish a common language for understanding leadership styles and team dynamics through leadership and team assessments. Incorporating assessments not only improves communication and collaboration, it also increases a teams performance. As a result, companies are known to experience a +25% increase in productivity and a 30% reduction in employee turnover.