ROI Warning – Your Mileage May Vary!

Co-authored by Nick Wilkins and Dr Sunny Stout Rostron

Naturally business coaches want to market their services. And what more tempting way to sell business coaching than to quote nice big numbers about the return on investment (ROI) the client firm can reap? Like this, for example: “The latest study on executive coaching ROI is the International Coach Federation’s Global Coaching Client Study of 2009. It found that coaching racks up a whopping 700% ROI for organizations. That means that an $18 000 investment in a coach returns over $110 000 to the bottom line” (Banis, 2010:1). Trouble is, that’s not quite what the ICF study actually said. And even if it were, would it be a valid and useful claim to make for coaching?

How hard can it be?

The seminal ICF Global Coaching Client Study (GCCS) was carried out for the International Coach Federation (ICF) by the Association Resource Centre Inc. and PricewaterhouseCoopers. They were careful to point out that (ICF et al., 2009: viii–ix; 76–79):

• While ROI is a “hot topic” in the coaching world, there are many debates about how it should be calculated.
• While the formula to work out ROI is straightforward ((Gain from investment – Cost of investment) ÷ Cost of investment), defining and measuring the costs of and gains from the investment is not. Costs of coaching (which include opportunity cost and logistical cost) are not always obvious or easy to estimate, while the financial benefits of coaching are difficult to isolate and to measure.
• Most of the 2 165 individual clients surveyed around the world for the study either had not experienced a financial gain (or loss!) from coaching, were not sure whether a loss or gain had been experienced, or were unable to quantify the benefits and costs of the coaching they had experienced. Consequently, “the results of the ROI should be interpreted with caution due to small sample sizes” (emphasis in the original).

Corporate ROI estimates in the ICF study are summarised in Table 1 below. This shows that the return on investment in coaching for their companies could be estimated by only 4 per cent of the study respondents. In addition, it is not possible to assess how accurate these estimates of ROI were.

Table 1       Estimates of corporate ROI to coaching in ICF Study
Did your company experience a financial gain/loss due to coaching?	Can you estimate the company’s gain/loss and the cost of coaching?	Estimated ROI to the company?	% of survey respondents
No	n/a	n/a	41
Unsure	n/a	n/a	19
Yes	No	?	36
	Yes	< 100%	1
		³ 100%, < 1000%	1
		³ 1000%	2
Total			100
Source:   Adapted from ICF et al. (2009), Exhibits 8–5 and 8–6.

Put another way, what the ICF study actually said was that (ICF et al., 2009: 78):

1. Among the small minority of survey respondents (169 people or 7.8 per cent) who reported achieving a personal monetary gain (or loss!) from coaching and were able to estimate the gain/loss and the cost of the coaching, the median ROI on coaching was estimated to be 344 per cent (i.e. half this segment of respondents estimated a lower ROI figure than 344 per cent, the other half estimated a higher ROI figure).
2. Among the even less statistically significant minority of survey respondents (83 people or 3.8 per cent) who reported achieving a monetary gain (or loss!) to their company from coaching and were able to estimate the gain/loss and the cost of the coaching, the median ROI on coaching was estimated to be 700 per cent.

So, it is clearly not valid to infer (or to imply to prospective clients) that all business coaching generates an average ROI to companies of 700 per cent.

Credit or blame?

But there is another, fundamental conceptual difficulty involved in estimating the ROI for business coaching. Let’s assume that you, as a business coach, deliver a programme of individual and team coaching to senior executives of a large company, assisting them in formulating a medium-term strategic plan. The coaching, which costs the company R250 000, helps the executives clarify their thinking on key issues, so that they can draw up a robust strategic plan. The plan focuses on eliminating unnecessary expenditure, more effective product design, further staff development, and better marketing. It certainly seems plausible that the company should achieve an increase in net profit, due to this coaching intervention, of many times the R250 000 investment. But any of the following scenarios might then happen:

Scenario A: The cost-cutting works, and corporate net profit before tax improves by R10 million over the next three years. You, as the business coach involved, are happy to claim an ROI on coaching of 3 900 per cent.

Scenario B: Due to adverse exchange rate movements and stronger overseas competition, the company loses a major export market and net profits decrease by R120 million over the next three years. Are you as the business coach happy to claim a negative ROI on coaching of -48 100 per cent?

Scenario C: Some of the “unnecessary” expenditure eliminated by the strategic plan relates to safety measures. As a result, a serious accident causes an environmental disaster which lands the company with a clean-up bill, fines and penalties of R600 million. As the business coach, are you happy to claim a negative ROI on coaching of -240 100 per cent?

The point is that effective business coaching will deliver an immediate improvement in the quality of executive and managerial thought within the firm (an output, or an intermediate outcome). What the firm’s management does with that enhanced thinking is up to them – and whether those managerial actions in turn actually result in improved financial and other corporate results (an eventual outcome) is also up to a range of other factors.

The business coach is not going to be able to ensure (a) that the actions steps formulated during the coaching are the best options for the company, or (b) that those action steps are actually (and effectively) carried out by the individuals concerned. And there is a wide range of external economic, political, social, institutional and other factors impacting the company’s results, which may counteract the beneficial outputs and outcomes of the coaching process.

So it will not always be valid – or helpful – for business coaching to be viewed in terms of the logical fallacy post hoc, ergo propter hoc (“after this, therefore because of this”, i.e. the change in corporate results happened after the coaching, hence must have been caused by the coaching).

Better measures for business coaching

The ICF Global Coaching Client Study includes a much more useful “metric” on the potential impact of coaching – an index of “return on expectations”, which measures the impact of coaching on aspects of key importance to the client. This provides authoritative evidence, from a majority of the surveyed respondents, of very significant positive impacts on the areas of concern which had motivated clients to seek coaching in the first place (ICF et al., 2009: 79–81).

The study also cites invaluable qualitative evidence, including direct quotes of feedback from coaching clients, of the positive impact of coaching on these key areas – which include self-esteem/self-confidence, communication skills, interpersonal skills, work performance, work/life balance, wellness, personal organisation, business management, time management, team effectiveness, corporate culture, and financial organisation (ICF et al., 2009: 67–75).

Conclusion

The message is clear – ROI figures in general should be treated with a great deal of caution, and will not often be valid for business coaching. It is therefore risky to cite astronomical numbers on the alleged ROI of business coaching. Over-hyping potential benefits may well lead to disappointed and disillusioned clients, and a serious discrediting of business coaching in general. Business coaches should rather emphasise the very real and direct improvements in the quality of executive and managerial thinking that coaching can deliver to corporate clients – which is likely to translate ultimately into significant, but hard-to-quantify, financial and other results.

References

Banis, L. (2010). How can executive coaching impact your bottom line? EzineArticles.com, 5 September. http://ezinearticles.com/?How-Can-Executive-Coaching-Impact-Your-Bottom-Line?&id=4986834

International Coach Federation (ICF), Association Resource Centre Inc. and PricewaterhouseCoopers LLP (2009). ICF Global Coaching Client Study: Final Report June 2009. Lexington, KY: ICF.