Of all the missions a learning organization might tackle,educating executives to make effective capital decisions might prove the most consequential over the long term. Major capital decisions tangibly shape the future of a company. Further, as the ultimate objective of this learning mission is improved return on capital employed (ROCE), it is sure to be valued at the uppermost levels of the corporation.
ROCE is a closely watched business scorecard, especially in capital-intensive industries. ROCE, in turn, is largely driven by the quality of capital decisions. “Good” capital decisions focus the company’s capital on projects with the greatest potential return, ensure those projects are cost-effectively executed and free up capital to make more investments without increasing the overall capital budget. It is easy to see that good capital decisions drive good ROCE.
The executives who make capital decisions tend to be very self-confident. They’ve already proven to themselves and others that they are smart, thorough and insightful decision-makers. That is why they now have authority over millions and often billions of dollars.
Can the quality of capital decisions be demonstrably improved through executive education and coaching? And can a corporate learning experience be made valuable and enjoyable even to the self-assured, high-powered executives who make major capital decisions?
The answer to both questions is a resounding yes. That is based on direct experience. The approaches recommended here were developed and proven by hundreds of executives who make major capital decisions.
Executive education to improve capital decisions should include these vital elements:
How will you know whether your executives are personally engaged in self-paced learning? The best indicator is timely completion. When executives complete the training in half the time they were allotted with high scores in each completed section, you can safely assume they found the learning valuable and meaningful.
Some vital behaviors are actions executives can take alone such as analyzing data. Most major capital decisions, however, are made by groups of executives. Therefore, many crucial decision-making behaviors involve interactions. Some executives will find themselves in the role of champion for a major capital project. Others might be asked to develop and win approval for particular project components. Still others will review, improve and decide whether to support those capital projects. And many executives will be involved at various stages of a capital project’s implementation. All have a vital part to play in ensuring that capital decisions are effective. Much of your executive education, then, should be focused on the behaviors associated with effective communication and interaction among executives playing these various roles.
Examples of group-based behaviors that can be observed, measured and reinforced include:
Many executives unconsciously will revert to meeting behaviors that work against decision integrity. Develop checklists to help executives remain highly conscious of their own meeting behaviors, as well as the behaviors of those with whom they interact. Here are a few examples of statements for checklists. You can ask executives to rate the degree to which they agree or disagree with each statement as it pertains to each meeting in which they participate:
Behavioral-based executive education, coupled with one-on-one and team-level coaching to help learners successfully apply the targeted behaviors, effectively initiates the behaviors most critical to successful capital decisions. Ongoing self-monitoring, using behaviorally based checklists, sustains those behaviors.
Learning Through a Risk-Based Simulation
In real life, executive teams often wait years or even decades to find out whether they made good capital decisions. A business simulation, in contrast, can telescope time to let participants gauge decision effectiveness in just a few hours. Simulations also make executives’ finely honed, intuitive decision-making processes visible to others, so they can be validated and improved. Finally, business simulations can replicate the dynamics of group decision making, challenging executives to consciously use and improve their interaction skills. Those factors make business simulation a unique, powerful tool for developing executives’ decision-making prowess.
As you might expect, simulations will be effective only if they meet certain criteria. Executives who make capital decisions are, by definition, risk takers. One requirement, thus, is that participants in your simulation sense early on that this is an exercise in which they might “fail.” A tangible sense of risk will quickly engage most executives in the experience.
It is best to have multiple executive teams go through a simulation at the same time and in the same meeting space, so they can compare the effectiveness of their choices. One team is successful, but the other is even more so. Why? Such comparisons enable all the participating executives to explore the pros and cons of their decision-making rationales. The simulation structure also should provide executives a wealth of safe peer feedback in the moment. As participants debrief their simulated decision-making interactions, they will hear directly from their executive-level colleagues: “This is how I reacted to what you said … Is that the response you were looking for?” Learning by doing, coupled with meaningful and immediate reflection on the doing, is a hallmark of an effective business simulation.
Overall, a business simulation to improve capital decision making should evoke many of the critical tensions and pressures that so often lead executives to make poor capital decisions in the real world such as:
The most powerful business simulations challenge participants not just intellectually but also emotionally and behaviorally. Learners safely achieve powerful insights and highly actionable learning from experience. It’s important to keep two things in mind:
No doubt, significant effort and investment are required to meet all these criteria. But when you are educating executives to make good capital decisions, the investment is warranted. Executive learners are unusually demanding, and the stakes in capital decision making are unusually high.
Julie Smith is a co-founder of CLG, a strategy execution firm based in Pittsburgh. Amanda Young Hickman is a founding partner of Insight Experience, a developer of customized business simulations to support leadership development and strategic change initiatives. They can be reached at email@example.com.