Waves of retiring leaders plus budget uncertainties make finding new federal leaders a tough task. Six veterans' hospitals developed an internal leadership program, and found that for every $1 spent, $2.20 was returned.
Federal agencies may soon be facing an unprecedented need for internal leadership development. Training in succession planning and renewal can keep people in the organization and build commitment to the organization's culture and values.
As many Baby Boomer leaders become eligible for retirement, there is a need for new leaders to fill the gaps left by retirement. However, ongoing proposals from Congress to downsize the federal workforce may thwart agencies' ability to hire new leaders from the outside. Additionally, a declining or stagnant federal budget may force cutbacks in external training and consulting budgets for developing leaders.
One solution is leadership development sponsored and run internally by the agency. The Department of Veterans Affairs (VA) has had excellent internal leadership development, from entry level upward. While there are standards and commonalities mandated by the department, each individual facility has extraordinary leeway to tailor the program to meet its specific mission, vision, and values. These internal programs have many advantages to the agency and can provide a significant return-on-investment, through the innovative use of internal resources and talent.
VISN 9 Leadership Institute
Since 2000, the Midsouth Health Care Network (Veterans Integrated Service Network, or VISN 9) has provided leadership development training for employees of its six sister facilities who are competitively selected as â€œhigh-potentialâ€ employees. These high-potential employees have the desire to learn, work hard, and move into a leadership role; they are high performers in their current position. Plus, they show evidence of mastery of the eight core competencies (personal mastery, technical skills, interpersonal effectiveness, customer service, flexibility and adaptability, creative thinking, systems thinking, organizational stewardship), which are expected of all VA employees.
For its first 10 years (2000-2009), the Leadership Institute (LI) was internally driven, from curriculum development to implementation of curriculum. Each facility in VISN 9 sent five or six participants and a coach each year. A total of 379 participants and coaches attended over these 10 years. In addition to three intense, off-station one-week sessions over some six months, the LI program required participants to devote additional personal time to complete reading, assessments, personal action plans, and leadership shadowing assignments between sessions. They also had to participate in a workplace initiative selected by facility leadership with other LI participants from their facility. In 2010, a new generation of faculty took responsibility of the program. This educational endeavor remains internally driven, although the new team made some curricular changes.
Continuity and Common Values
LI was developed and implemented in a time of federal fiscal austerity much like the current climate. Consequently, facility managers decided to minimize costs as much as possible and to share costs with all stakeholders. Using internal expertise was one important strategy to minimize costs. The VA has long had policies of providing training in cutting-edge educational programs for its own staff to serve as internal trainers and leaders coaching leaders; this helps to reinforce common organizational values.
For example, two VISN 9 leadership faculty were certified Franklin Covey trainers and VA professional clinical staff were brought in to administer and teach the Myers-Briggs Type Inventory. Internal subject matter experts in areas such as generational relationships, quality improvement, and stress management ensured that examples were relevant to the participants. Coaches and mentors, who were higher mid-level and senior-level leaders from the sister hospitals, attended all sessions and therefore received refresher leadership training as they provided a strong organizational context for the participants mentored.
Because the core faculty remained the same and was responsible for LI from year-to-year, efficiency savings were possible. Each of the three-week off-station training sessions was held at the same location and off-season, which enabled discounts in room rates. This stability enabled quantity discounts for larger orders for program materials such as books that would be used over several years.
Leadership Institute Evaluation
In 2004, the VA's VISN 9 Learning Council conducted an evaluation of LI. The council was responsible for the Institute and the VA Employee Education System (EES) and included all Kirkpatrick levels of evaluation (reaction and planned action, learning, job applications, business results, and return-on-investment). The council placed special emphasis on job applications, business impact (the extent to which LI training impacted medical center/VISN/VHA operations) and return-on-investment (ROI) benefits—whether LI provided sufficient benefits to offset the cost of the program.
The Jack Phillips Center for Research, a division of Franklin Covey, provided training for how to conduct the ROI analysis and assisted with the evaluation strategy. The EES provided the funding.
The ROI Process
The ROI process is conservative and guided by strict and proven data collection and analysis standards. It can provide both financial and nonfinancial results. There are several key steps involved to develop ROI. The most important step is collecting data both before and after a program has been conducted. Select data collection methods based on clear indicators of success, credibility, cost, and ease of implementation. Collect data on costs, tangible and intangible benefits, savings, and the portion of savings due to the program.
Finally, the costs and benefits come together in an equation for the ROI. Net benefits (the program benefits minus costs) are divided by costs to get the total investment in the training program. This provides an ROI formula comparable to ROI calculations for other investments, which typically show the net earnings, divided by the average investment.
Collectively, this process provides a framework to measure the business impact and return-on-investment for any type of training or educational program.
Cost. An essential component of ROI is to tabulate the program costs to determine the specific investment, including all fully loaded costs that are related directly or indirectly to the educational program. LI 2004 costs included faculty and participant salaries and travel costs, room rental, materials, and audiovisual equipment. In addition, salaries and travel for initial planning (pro-rated across the four years of LI that had occurred to date), yearly planning, preparation and logistics, and evaluation were included. The fully loaded cost for the 2004 LI was $382,336.
Benefits. The tangible benefits for LI were derived from workplace initiatives, specific business accomplishments and improvements, and internal promotions.
Participants from each medical center developed and implemented one or more workplace initiatives during LI, often at the request of the facility director. The initiatives were designed to result in organizational improvement in one or more of the following areas: customer service, work climate, work habits, work output, quality, cost, and time. These soft and hard data are typically used in ROI analysis as measures of performance, according to Jack J. Phillips in the Handbook of Training Evaluation and Measurement Methods (1997).
Participants implemented seven initiatives that met the organizational improvement areas and had a measurable economic benefit. Examples of initiatives included reducing outpatient fee services provided outside VA; reducing patient waiting times; and reorganizing an ophthalmology clinic, which resulted in the sharing eye equipment, reduced wait times, and restoration of a residency program that resulted in not hiring full-time staff. Change in economic parameters was measured pre- and post-initiative implementation.
One of the most important steps in the process focused on isolating the effects of training. In every organizational situation, a number of factors influence the output measures of organizational or business impact. Training is only one of many influences that will drive a particular measure. As an ROI-accepted method of isolating the effects of training, leaders asked participants to estimate the effect of training, its monetary amounts, and their level of confidence in their estimates. These were discussed with the faculty to ensure participants understood the process and were conservative in their estimates.
After isolation, there was a total of $164,776 in benefits. Because most of the initiatives were not completed by the end of the 2004 LI sessions, each monetary value was pro-rated by the percentage completion, for a total of $120,889.
Each participant also identified specific business-related accomplishments and improvements (for example, increased revenue, improved customer satisfaction, improved employee satisfaction, decreased costs, time saved) related to participation in LI. Only five met the ROI standards for inclusion as tangible, measurable benefits. Examples of accomplishments included increasing contract compliance for ordering medication, and standardization of immunochemistry, coagulation, and hematology processes for lab services for the six LI participating sister hospitals. Monetary value was calculated in the same manner as for workplace initiatives. Total business accomplishments benefit was $60,734.
The third set of monetary benefits was savings generated by promoting from within. One purpose of LI was to create a candidate readiness pool, so it was appropriate to capture the efficiency benefits of promotion from within as compared to hiring at the middle manager (GS-12) level externally. This is the essence of succession planning and is one way it pays for itself. For the 2004 class, there were a total of 12 promotions within the VISN and three in the VA that were included in this ROI.
Internal promotion is a standardized part of ROI with internal hiring probabilities, hiring cascade assumptions as employees are promoted up, and turnover replacement costs all pre-specified. As internal candidates fill a middle level manager position and the positions below it, eventually an external candidate is hired for a lower position and the benefit from hiring from the LI readiness pool is the difference between the external replacement cost of a the lower level employee versus a middle level manager.
Using the standardized, pre-specified ROI calculations and the most conservative salary estimates (lower level of each salary range), savings for each LI graduate moving up from the readiness pool was $55,000, for a total of $825,000. However, to ensure that all costs were captured, a pre-specified cost to cover any additional human resources services for the 15 promotions was included ($165,515) for an LI benefit of $659,485. (See sidebar.)
Participants also listed intangible benefits that were important. These included such activities as initiating coaching or mentoring relationships and providing recognition to employees at their worksite. Participants estimated impacts on cost, work output, work habits, customer service, customer and employee satisfaction, turnover, time savings, quality improvement, and response time, but these were not translated into monetary values for the program benefits or included in the ROI.
Total Leadership Institute benefit was $841,473, including seven facility initiatives ($120,889), five business accomplishments ($60,734) and promotion of 15 LI graduates ($659,850). The ROI calculation for Leadership Institute was:
An ROI value of 120 percent means that for $1 spent on LI, the return-on-investment was $2.20.
LI Becomes a Brand
The ROI standard for training programs suggests at least a 25 percent return for the first year ($1.25 return for each $1 spent). This internally driven and staffed training program well exceeded this return, with a $2.20 return for each $1 spent. Participants from 10 years of LI had more than 130 promotions.
Word-of-mouth recruitment by each successive class and a growing internal organizational awareness bolstered the program's success. Leadership Institute has become a recognizable entity (â€œbrandâ€) with a sense of continuity and an understanding of what participants could expect. The program also gave participants opportunities to provide service to their home facilities, which helped increase buy-in from those home facilities.
Intangible benefits that were not captured, but very apparent were the tight bonds that came from three intense weeks spent off site with other participants, coaches, and faculty. Opportunities for informal networking were built into the program through meals and planned social events. Participants made friendships within their facilities and across the VISN; these relationships were tapped later when colleagues ask for assistance and support in developing new projects and exploring job opportunities.
While most evaluations of training programs move past participant reaction to learning and job behaviors, many do not make the leap to measure organizational results. However, in a time of austerity and increased fiscal scrutiny of public sector, the return-on-investment process is relatively straightforward and simple to implement. Careful data collection and recognition that training affects organizational results can inform and promote viable leadership development, particularly when internal talent and resources are used.