Leadership and EI, The Keys to Driving ROI and Organizational Performance

“Leadership development is a very strong organizational investment. We want to have depth in our leaders, and that is becoming increasingly more important. Many organizations start out entrepreneurial with one great leader, but with time and growth, having depth of skills and expertise becomes critical. Organizations need to be surrounded with great leaders.”

—Dr. Steven Stein, Chief Executive Officer, MHS

The State of Leadership Development

As a first step in our survey research, we focused on the current business
investments in leadership development and if those monies have an impact on organizational performance. Although only a minority of respondent organizations prioritize investment in leadership development over other training options, those companies that do are experiencing tangible ROI through positive financial results. Organizations that spend a significant portion—31% or more—of their Training & Development budgets on leadership development are 12% more likely to report increased revenue than those that spend less. This suggests a positive relationship between investment in Leadership Development and financial performance. Of those organizations that are high leadership development spenders, 45% report 5% or higher revenue growth rates over the prior year. By contrast, only 33% of organizations that spend less than 31% of their annual Training & Development budgets on leadership development report positive revenue growth (see Fig. 1).

Fig. 1: Leadership
Development Spending

Figure 1 compares the impact leadership development spending has on an organization’s revenue growth rate. High spenders are more likely to report positive growth rates over the prior year.

Nearly three quarters of respondent organizations (64%) spend only 10% or less of their Training & Development Budget on leadership development.


In addition to the ROI that is a result of investment in leadership development, it is notable that the majority of respondent organizations invest less than 31% of their Training & Development budgets in it. In fact, our data reveal that nearly three quarters of respondent organizations (64%) spend 10% or less of their Training & Development budget on leadership development, and are not experiencing the revenue growth associated with greater investment.

These data indicate a clear opportunity for organizations to consider increasing the budget for leadership development. “Fiscal constraints and budgetary pressures affect both public and private-sector organizations,” Marie Westbrook wrote in 2012. “Intelligent and innovative approaches will result in a sustainable structure for leadership development and efficient use of limited resources in the near term while building a foundation for an attainable “future state” for leadership development […] well-executed and relevant leadership development programs focus attention on the relationship across climate, culture, performance, and mission.”6

In addition to examining the financial impact of leadership development, it is important to identify and consider the satisfaction levels respondents have about the current leadership development in their organizations. The financial impact of leadership development is not always visible to every employee, so it’s important to gauge levels of satisfaction, as they often translate to internal support. If a training program targets the most coveted leadership skills and is successful, that message is often disseminated throughout an organization faster by word of mouth than through any formal efforts.

Our data show that half of survey respondents only rate their organizations’ leadership development efforts as “somewhat effective,” indicating obvious room for improvement (see Fig. 2). More striking is that 1 in 4 report their organizations’ leadership development as ineffective and in critical need of repair. When we look exclusively at responses from managers, the results are equally dire with only 7% of managerial respondents who rate their organizations’ leadership development as “very effective.” The unequivocal message from most HR practitioners individual contributors and managers alike—is that leadership development efforts today are in need of immediate improvement.

Fig. 2: Leadership Development Effectiveness

Figure 2 illustrates how current leadership development eff orts are perceived in organizations today.

“People flock to organizations with emotionally intelligent work environments. We have witnessed these kind of companies grow and move forward—even in times of struggle. By contrast, it’s a risky proposition to disregard the impact of Emotional Intelligence. Organizations that do not invest in EI are going to deteriorate over time. They are going to lose the talent they have. They are not going to be able to attract or retain the talent they need, and they are no longer going to be organizations of the future.”

—Dr. Steven Stein, Chief Executive Officer, MHS

After understanding the different levels of investment in and satisfaction with
leadership development outlined above, we further examined what approaches
to leadership development are most commonly used. Our data find that more
than 3 out of 4 organizations employ at least one type of leadership development
method, suggesting that there is widespread knowledge about the importance
of developing strong leaders through a variety of learning techniques. The most
commonly used approaches are workshops, cross-functional meetings or projects,
and classroom training. Most promising is that more than one-third (37%) of
surveyed organizations use Emotional Intelligence assessments to help inform their
leadership development programs (see Fig. 3).

As the role Emotional Intelligence plays in effective leadership continues to grow,
organizations would be wise to further shift their leadership development dollars in
a way that supports this trend. Dr. Margareta Sjölund of Kandidata Asia remarked
on the global presence and growth of EI. “I have seen and worked with Emotional
Intelligence across three continents and more than 15 countries, and to that end, I
have witnessed how fundamental it is to effective leadership, and the larger role it
continues to play in the success of organizations.”

Fig. 3: Use of Leadership Development Methods

Figure 3 outlines what types of leadership development methods are most commonly used within organizations.

Exploring the specific challenges related to developing leaders today is another critical question we asked. HR managers cite executive support/buy-in and limited time as the top barriers hindering effective leadership development (see Fig. 4). In that vein, it is worth noting that leadership development methods require a commitment of time and consistency in order to be most effective, but the payoff that investment provides in the future is vital. Time and support are critical to implementing leadership development, but both are lacking in many organizations.

Fig. 4: Leadership Development Challenges

Figure 4 displays the top organizational challenges to developing leaders today.

The gaps in executive championship and buy-in exist at precisely the time that such support is urgently needed. One practitioner explored the issue today and wrote:

“It wasn’t so long ago that business leaders were widely admired, even
adulated. In the 1990s they were treated like rock stars…no doubt fueled
by a strong economy….These days that hierarchical model has ceased
to be effective because it fails to motivate people, particularly younger
generations. Today’s successful companies are filled with knowledge
workers who don’t respond to hierarchical leadership.”7

This quote also helps surface a crucial trend in leaders today—that perhaps they are missing something that allows them to motivate and inspire their teams. Emotionally intelligent leaders have bridged that gap successfully; they use skills like empathy, self-awareness and emotional expression to understand the unique needs of their followers and using emotions, appeal to what is individually motivating. In addition to the cultural and generational shifts at play, leaders and decision makers are found throughout organizations today, not just at the top, thereby increasing the need for leadership know-how to be nurtured throughout an organization. And, as one practitioner argues, the ultimate test of all leaders is how well they prepare those who will take their place.8

Interestingly, our data find that managers and individual contributors disagree about the importance of specific leadership behaviors, illustrating a potentially problematic disconnect between leaders and their followers. Most notably, individual contributors highly value coaching skills, while managers tend to downplay them. Managers, on the other hand, are much more likely than individual contributors are to emphasize of the importance of adaptability, problem-solving and stress tolerance (see Fig. 5)


Fig. 5: Importance of Leadership Competencies

Figure 5 compares managers’ and individual contributors’ perceptions of key leadership competencies.

Fig. 6: Important Leadership Competencies Among Managers and Individual Contributors

Figure 6 demonstrates the top three leadership competencies identified by managers and
individual contributors.

“In the past 20 years or so, there has been a lot of discussion about Emotional Intelligence, but its importance in effective leadership is just now becoming much more broadly accepted. For a long time, people were focused on skills development—managing conflict, communicating better, etc.—but the application of these skills in the workplace is not nearly as effective as it needs to be. Many leaders fail to apply the tools and skills they learn. Even if they see the direct, tangible benefit, something is stopping them from doing it—and that barrier is generally associated with their underlying Emotional Intelligence.”

—Drew Bird, Principal, Clearpoint EQ

In addition to measuring the importance of specific competencies, we asked
respondents to think about the future, and determine what behaviors individual
contributors want to see leaders practice more frequently. We find that managers
share some common perspectives about what traits will become significantly more
important in the workplace during the next few years. Specifically, managers and
individual contributors agree that communication, interpersonal skills and self
awareness are all behaviors that will grow in importance in the next 2-5 years.
Steven Stein, Chief Executive Officer of MHS, echoed this finding. “Often, insight—
the ability to communicate a purpose and clearly explain ‘this is why we are here
and this is what we do’—sets apart a good leader from a great one,” he said.

One of the most practical ways to connect EI to leadership is to view EI skills as
the building blocks of larger leadership competencies. Drew Bird, a Principal
at Clearpoint EQ, elaborated on the signifi cance of some of those fundamental
behaviors. “EI is the way in which we understand, interpret and act upon emotional
information,” he said. “One of the most critical EI competencies then is self-regard
or self-perception because it is the root of everything else. If a leader does not
understand what he or she is capable of or what their strengths and weaknesses
are, everything is built on a shaky foundation.”

Looking at the largest gaps between individual contributors and managers
identified on the previous page, it is clear that many of the leadership skills
identified as important by managers and individual contributors require a degree of
Emotional Intelligence at their core (see Fig. 6). For example, to be able to coach,
one must be empathic, considerate, patient and adaptable enough to alter his
or her coaching style to the varying needs of direct reports. This is the approach
taken in MHS’ EQ-i 2.0 leadership model, which uses four common leadership
dimensions inherent to most models of leadership: Authenticity, Coaching, Insight
and Innovation. Each of these dimensions is made up of several Emotional
Intelligence factors, which can be easier to target individually through coaching and
development initiatives than it is to focus on the broader leadership dimension.