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:
Clear standards. Work with your company’s senior leaders to articulate clear standards that define what good capital project selection and management (CPSM) looks like in your business. Your CPSM standards should specify the processes, practices and behaviors required to achieve your “hard” goals, especially targeted gains in ROCE. You can then consciously craft executive education to prepare your company’s executives to meet your CPSM standards.
Certification requirement with consequences. Structure your learning to let executives demonstrate they have gained a full understanding of their roles in CPSM and that they have developed the decision-making and other skills necessary to fulfill those roles. Successful completion of the learning earns executives their CPSM certification. Be sure your certification requirement is backed by consequences. The CEO should be among the first to go through the training and then declare, “Those who successfully complete this learning and subsequently maintain their CPSM certification through continued learning will have access to major capital. Others will not.”
Balance company-specific content with external subject matter expertise. Many executive-level learners will dismiss generic learning content or content borrowed from another company as “too conceptual” or “not relevant.” You should therefore custom develop the main body of your learning content in partnership with your company’s top executives and with your most experienced leaders of successful capital projects. This ensures relevance is not an issue and that the learning you offer distributes company-specific, experience-based knowledge that previously had resided in only a few individuals. Of course, your company-specific content should be tempered and appropriately strengthened by content from leading external experts in fields such as project design, project execution, decision quality and leadership.
Challenging but flexible learning experiences.Some in the learning field might tell you, “Computer-based training just doesn’t work with executives.” But it can work remarkably well when it suits executives’ temperament and sensibilities. The executives who make major capital decisions often have heavy schedules, and computer-based training can be completed almost anywhere and at any time. Chances are not all your capital decision-making education can be delivered 24×7, but you’d be wise to offer much of it at executives’ convenience.
Any learning experience for executives should be challenging. Require executives to demonstrate mastery against a rigorous standard in each section of the learning before they can move on to the next. When executives fail in computer-based training, they fail in private, which allows them to identify and address their individual knowledge gaps without incurring embarrassment. You also should offer participants the opportunity to test out of entire modules and out of particular topics within modules. That way, no executive can resist participating on the premise that they do not need the learning. Notably, your training screens, as with the learning content itself, should be customized to your company. Visual images should be of the participants’ own sites and people.
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.
Immediate support. Anticipate that your executives will be impatient with technical glitches or other obstacles to learning. Have support staff monitoring learner progress and be available 24×7 to ease them through any difficulties they might encounter.
Focus on behaviors. A behavioral focus is the most important success factor in executive education for capital decision making. After all, what your executives say and do ultimately determines the effectiveness of their decisions. Your executive education should be keyed to a critical few behaviors that will have the greatest impact on capital decision making.
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:
States Proposal or Opinion: The executive says, “Here’s what I’m thinking,” or “In my view …”
Provides Reasoning: The executive says, “I took a look at the following three alternatives …” or “What I think will happen if we follow this course of action is …”
Seeks Information from Others: The executive says, “What do you think we should do?”, “Can you clarify what you mean by that?” or “What do you think about my idea to …?”
Asks Others for Their Reasoning: The executive says, “Could you describe the other alternatives you considered?”, “What do you think will happen if we follow the course of action you described?”, “How did you arrive at that viewpoint?” or “Could you give me an example of what you are proposing?”
Encourages Others: The executive says, “Yes, I agree,” or “Thanks for telling me what you thought.”
Asks Others to State Disagreement: The executive says, “When we talked about x, I thought you disagreed because you looked down and frowned. Am I on target? If so, I’d like to better understand your viewpoint.”
Moves to Agreement: The executive says, “From what I’ve heard, we seem to agree on x but not on y,” “Where could we compromise without affecting the quality of our decision?”, “Are we all in agreement?”, “Can we live with that?”, “What’s the next step?” or “Who will follow through on this?”
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:
I think all attendees were able to describe in a logical manner how they arrived at the positions they advocated during the meeting.
The numbers that I brought to the meeting were based on sound reasons and on my best judgment (e.g. they were not made because of a request by my leader to reinterpret one of the core assumptions, they were not made based on my own interpretation of the assumptions, or they were not made because sharing accurate numbers has been punished in the meeting).
When the numbers were adjusted in the meeting, we did so because of sound reasons, not by faulty logic or pressure from somebody in or outside the meeting.
I think any and all negative information was shared, thoroughly understood and incorporated into our final decision. Any negative information I heard before the meeting was discussed during the meeting.
I think all numbers we agreed on as a team will prove to be realistic when we review them later.
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:
Aggressive schedules that don’t allow time to do full analysis.
Unreliable data.
Political pressures.
Competitor dynamics.
Irrational market/partner responses.
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:
Refresher coaching. In the absence of ongoing feedback, even the best-intentioned executives will revert to former behaviors. Most will benefit from periodic, in-the-moment coaching to retain and sharpen their capital decision-making skills.
Annual assessment and recertification. Business unit assessments and periodic individual recertification requirements further sustain improved capital decision making. Annually assess business unit performance against your version of a CPSM standard. Require capital decision-makers to complete recertification at least every third year to ensure they continue to sharpen their knowledge, skills and behaviors.
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 jsmith@clomedia.com.
