This blog post is an expanded analysis of Psychological Capital based on our LinkedIn post from February 2023.
Most of us go about our days using tools without understanding the mechanics behind how they work. Logging into Wi-Fi networks, scrolling on our smartphones, or sitting at 30,000 feet moving from one destination to the next, for example, are things we do without necessarily knowing how they work. We simply trust that these tools will deliver the experience and results we’ve come to expect (the occasional router issue or cracked screen notwithstanding).
Coaching is no different. Since the early 1990s, executive coaching has been the go-to tool for cultivating leadership capabilities. With companies on a never-ending quest for leadership tools that deliver tangible value, the mounting evidence of coaching-derived ROI—often yielding three to five percentage points—continues to draw us in, even as the ‘how’ of coaching remains largely unknown to business leaders.
Fortunately, research studies are beginning to shed light on the mechanics of coaching to definitively find the ‘how.’ These findings center around something called “psychological capital” (PsyCap), a concept that is changing the way organizations approach leadership development.
What is Psychological Capital?
Management professor and organizational behavior expert Fred Luthans introduced the concept of psychological capital (or PsyCap) in 2007, defining it as follows:
“An individual’s positive psychological state of development characterized by: (1) having confidence (efficacy) to take on and put in the necessary effort to succeed at challenging tasks; (2) making a positive attribution (optimism) about succeeding now and in the future; (3) persevering toward goals and, when necessary, redirecting paths to goals (hope) in order to succeed; and (4) when beset by problems and adversity, sustaining and bouncing back and even beyond (resilience) to attain success”
As the American Psychological Association (APA) summarizes it, psychological capital is collection of four synergistic, interdependent psychological states whose “whole is greater than the sum of their parts.” Collectively, the elements of hope, efficacy, resilience, and optimism are often referred to by the acronym HERO.
The introduction of psychological capital as a core factor for organizational success underscores the dynamic nature of the modern workplace and the critical role of positive psychological states in navigating it.
By emphasizing the development and management of these psychological resources, psychological capital can offer organizations a strategic framework for enhancing workforce resilience, motivation, and overall performance.
The Significance of Psychological Capital
While the understanding of how coaching works may be in its relative infancy, the impact it has on leadership is astounding. Citing multiple research studies, the APA found that improved psychological capital directly results in:
- Higher job performance
- Higher worker engagement
- Higher job satisfaction
- Lower rates of turnover intention
- Lower workplace burnout
- Positive health and relationship outcomes
- Higher subjective well-being
- Lower diagnoses of deficits, such as dysfunctional mental health and substance abuse
And the positive impact of psychological capital isn’t limited to the individual. A 2015 study found that “there are numerous studies demonstrating the positive impact of psychological capital on individuals, teams, and organizations across a very broad cross-section of organizations, such as education, military, not for profit, health care, mental health services, volunteer, and global cultures.”
The Role of Coaching in Enhancing Psychological Capital
The unique qualities of coaching make it a critical tool in developing psychological capital within individuals and teams. By focusing on goal setting, mindset shifts, and personal accountability, coaching directly supports leaders in building hope, self-efficacy, resilience, and optimism.
Hope
Hope is a state of motivation characterized by the belief in one’s ability to achieve stated goals and consists of two interrelated parts: agency and pathways. Agency refers to an individual’s motivation to achieve set goals while pathways refers to the means by which those goals are achieved.
Hope is crucial in leadership as it fuels the drive to pursue goals and overcome challenges. It fosters a forward-looking perspective, encouraging leaders to envision and work towards a better future, thereby inspiring their teams to do the same. This optimistic outlook is essential for cultivating resilience and perseverance in the face of adversity, making hope a foundational element for effective leadership and organizational growth.
How Coaching Helps:
Coaches provide guidance and frameworks that help leaders learn and adopt solution-focused thinking when goal setting and planning. Guided reflection also helps leaders to explore more possible paths to goal achievement, ultimately improving their motivation and problem-solving.
Efficacy
Efficacy or self-efficacy is the confidence an individual has in their ability to achieve a task. When efficacy is high, this confidence fosters a proactive approach to problem-solving and decision-making. High self-efficacy in leaders is essential for creating a positive and resilient organizational culture, driving both individual and collective success.
How Coaching Helps:
Coaching supports individuals in recognizing their strengths and capabilities, setting goals, and aligning their actions towards achieving those goals, while afterward helping them to reflect on successes and opportunities for growth. These guided learning experiences instill confidence and self-assuredness that further develop individual leaders.
Resilience
Resilience, a leadership buzzword these days, is one’s ability to withstand or quickly recover from challenging circumstances. In today’s business environment, resilience in leadership is essential for inspiring and empowering teams to navigate difficulties successfully. A resilient leader sets a powerful example, fostering a resilient organizational culture that thrives in the face of adversity.
How Coaching Helps:
In times of change and/or challenge, coaches act as an invaluable sounding board, helping individuals to navigate setbacks, identify alternative paths forward, and seek necessary support or resources. These experiences directly support resilience at the individual leader level, which fosters stronger resilience at the team and organizational levels.
Optimism
Optimism is the expectation of positive future outcomes, despite challenges or missteps that may be encountered. Founders of the PCQ-24 PsyCap assessment scale describe optimism as “leniency for the past, appreciation for the present, and opportunity-seeking for the future.”
This outlook not only drives leaders to pursue ambitious goals but also instills hope and motivation in their teams. Optimistic leaders are adept at maintaining morale and fostering an environment where creativity and innovation can flourish, crucial for navigating uncertainty and achieving long-term success.
How Coaching Helps:
Coaches help individuals to shift mindset and work through fear, discouragement, and other difficult feelings that may arise with change. This equips leaders with the tools to maintain perspective and positive orientation in challenging environments long after the coaching engagement ends.
Psychological Capital and the Future of Leadership Development
For organizations looking to harness the full potential of their leaders, the development of psychological capital offers a pathway to achieving unprecedented levels of engagement, performance, and employee satisfaction. As psychological capital becomes increasingly important, the role of coaching in unlocking these psychological states will undoubtedly become a cornerstone of effective leadership development strategies and essential for organizational success.
Thanks to Fred Luthans and researchers like him, organizations around the world can now realize exactly how coaching delivers immense value.
Ready to build psychological capital in your leaders? Check out our Executive Coaching solutions to learn more!
Additional resources to build psychological capital in your leaders…
Executive Coaching Research: Impact & Return