"We need to show results, or else!"
"That deal was a loser!"
"We should have invested elsewhere."
"The boss wants it, so we're doing it."

Do these statements sound familiar?  Each in its own way defines a key performance indicator ROI, or Return on Investment.  But, ROI doesn't mean what many people think it means.  Let me explain.

Sure, we need to show results.  But how much is enough and by when?
Yeah, that deal was a stinker.  Was it worthwhile nonetheless?
You may be right.  That other option was a good one.  What did we miss?
The boss has made a decision.  What could be the bigger picture?

ROI is a common indicator of decision making effectiveness.  The follow up question must then be, "what is ROI?"

Simply stated, return on investment is the amount of money you earned on an amount of money you invested.

Seems straight forward, but (there's always a "but," and this is a big one) this definition leaves out several things that matter a great deal. Here are a few:

Return
When money comes back, we call it a return.  The return can then be compared to your expectation (goal or target or benchmark).  These are cash flows that flow INTO our company.  

Investment
When we put money at risk expecting a return, we call that an investment.  The investment is often money, but sometimes it can be time, effort, or energy.  These are cash flows that flow OUT of our company.

Time
How long do we have to wait for the return on investment?  It's good practice to clarify what time horizon we're looking at:  Fiscal Year, Quarter, Month, Day, etc.  Money now is generally better than money later. However, money 'later' can be estimated using today's dollars.  This is the time value of money. 

Risk
Nothing is without risk.  So, when we put money at risk, we expect a return that matches that level of risk.  So, if the risk is higher, the chance of losing money is greater, but the chance of making more money may make it worthwhile.

Lost Opportunity 
Money is finite.  You can only put it in one investment at a time.  Your investment means you can't invest in something else.  This second best option is the "lost opportunity" or "opportunity cost."  By comparing your investment to the second best option, you get insight into how well things turned out.

Comparisons
A financial ratio like ROI is only useful when you compare it to something.  What was the ROI of the risk-free alternative?  What did we expect?  What ROI did we use to make the decision?  What actually happened?  What was our benchmark?

A manager may use ROI estimates as he makes a decision to invest in a piece of machinery or technology. What are the cash flows?  What are the risks?  What else could we have done with that money?

​Think you understand?  Test yourself here.

A client recently pointed out that his business unit is evaluated on ROI, but he doesn't know what the "I" is.  His organization wouldn't or couldn't define for him what assets, capital, or other investments his part of the organization was accountable to.  So, when his team showed a return (a profit), he had a difficult time understanding ROI.  He had the "R" but no "I."

Another client pointed out that ROI is useless to her decision making.  She needs a more precise ROI, like Return on Assets, Return on Average Equity, Return on Invested Capital, or Return on Cash Flow.  For example, for Return on Invested Capital, she uses "EBITDA" as her "R" and then uses "Working Capital" as her "I."  This gives her a more precise indicator of how well they're doing.  

Finally a non-financial example:  A good friend said his last meeting was a waste of time.  He invested his time and got nothing for it.

Do this.
There are lots of ways to evaluate ROI.  I suggest you consider the following questions when you hear ROI
being discussed:

How much is the investment? 
What OTHER options do we have with that investment?  What else could be done?
When will we get our investment back? (break even)
When will we earn more than our investment?   Is it enough, soon enough?
What are the risks to this investment?  What can we do to assure we see the return?

By thinking more about the "R" and the "I" of ROI we can ask better questions and make better decisions.  Help others understand how this indicator works and the details that go into it.  There's more there than you think.

A good friend says she LOVES Venn Diagrams.  Especially when they work.  I agree.  Here's a Venn that works to expand the common view of experiential learning programs -- simulations, cases, and the like.  

We need to include three channels of learning to maximize the learning impact.  Without them, you may be leaving some value on the table.

In each of our business simulation programs, we work to leverage learning from these three areas:


1. The simulation 
This is the primary and most visible channel.  Usually, the simulation is scrutinized quite thoroughly to determine if the messages, the inter-relationships, and the overall design meet the needs of the intended audience.  Often, this is the ONLY factor that is considered.  Yet, the simulation must be relatable to be meaningful.  

2. The facilitator
Your facilitator preparations are essential. This person can skillfully weave in the learning points most relevant to the target audience.  Also, this person can bring real-world examples and cases into the discussions to extend the learning beyond the simulation exercise.

Beyond that, the facilitator can offer in-depth know-how on topics like finance, marketing, decision making, or strategy.  This expert can be an essential link between the simulation and the real world.

3. The learners' experience
Often overlooked, the learners' experience in the simulation is another vital learning channel. How each learner responds to the challenge is tremendously valuable.  Consider how often each learner needs to correct their course, reflect on their behavior, provide feedback to team members, and deal with the ambiguities of decision making.  These activities are also powerful channels for learning.

Recently, a client decided to get the most out of the learners' experience.  She decided to engage leadership development mentors in the session, in the role of observer/coach.  Each mentor joined a team in the simulation and simply observed behaviors, listened to discussions, and watched them work.  In consultation with the leadership competency model, the mentor could provide specific observational feedback to the team, and tot he individual learners, in between simulation rounds.

There are indeed three channels for learning in simulations.  Leverage all three and you'll see tremendous impact.  Good luck!

Decision making seems to make all the difference in business.  I have come to this conclusion after observing lots of really bright people in my programs and seminars have wildly different results.  They get different results even when presented with much the same set of parameters and opportunities.

The difference seems to be decision making.

For example, in a simulation, many participants ask with a twinkle in their eye, "What do you have to do to win this thing?"

I always give a straightforward answer, "Work well as a team and make great decisions."

They usually find this answer unsatisfactory.  Yet, that is indeed what seems to make all the difference.  I believe they are assuming that there is a set of 'right' answers for the simulation and that if they had them, they'd win.

Simulations, like life, are more complex than that.

In our newest learning program, Decision Mojo from Ten Thousand Feet, LLC., participants learn some essential lessons about what makes for effective decision making.  A number of big and small lessons occur to our participants.  Sometimes, they learn what they assumed about decision making has been incorrect.  A face palm moment, if you will.

Here are three reminders for leaders of all types to keep in mind.  These reminders will help you make better decisions:

1. Balance intuition and reason.  To make your decision making a purely rational process is a mistake.  Our intuitive brains pick up cues MUCH faster than our rational brains.  Learn to trust that intuition has a place in your decision making.
2. Avoid cognitive traps.  We cannot be perfect, nor should we try to be.  However, knowing the traps we fall into, like sunk cost, confirming evidence, anchoring, and others, can help us work to avoid them.  Here's a great article summarizing the traps we explore in Decision Mojo. 
   
3. Apply decision making discipline.  We must act differently if we are to get different results.  That's reasonable.  So, if we want to improve our decision making we must change how we do it.  One significant but somewhat simple discipline is to define "Who has the Decision?"  In our seminar, we say "Who has the D?"  This is an essential decision role question to answer.  Without it, you may be wasting your time.  Our seminar participants borrow this language and use it as needed back at the office.  It's pretty cool to hear.

In an HBR Classic from 2008, The Secrets to Successful Strategy Execution, Nielson and the other authors suggest that success and change are about "Decision Rights" and "Information Flow."  I couldn't agree more.

So, it's not just that we have a great strategy, communicate a clear organizational chart, hire the best people and launch innovative products.  It's about decision making and our decision processes.  Nobody has all the answers, but these few principles can help you tremendously.

Apply them and you'll win this thing.

Recently, a colleague asked me why I go to so much trouble in preparing my presentations, seminars, simulations, and workshops.  He seemed puzzled.  Truly puzzled.  I told him that as a professional, and as a CPT, I am obligated to create value in everything that I do.  So, to me, it's not an option to put effort into my preparations.  It's how its done.

He then asked me, "What principles do you use to guide your preparation?"  I told him that there are essentially three that sum it all up for me.  They are: 

1. Engage your stakeholders beforehand.  This includes your sponsors, learners, and instructors.
2. Get your learners engaged in meaningful, problem-based learning experiences that work
3. Guide your learners' direct application of their learning toward real-world application.  Use planning, incentives, and accountability.

It's these three principles that are at the heart of what I do and the value I bring.  Often, a client may only consider #2 above.  So, I will ask about #1 and #3.  Other times, a sponsor will advocate for #3, without working on #1 or #2.    Still others will assess and survey, completing #1, without really thinking further about #2 or #3. You get the idea.

I suppose this makes me different from many professionals you may partner with in delivering learning and performance improvement programs.  That's probably a good thing.  Even though I use standard tools (Celemi, Ten Thousand Feet) or custom tools (Tycoon Systems), I work to cover all three principles in every delivery.  All three principles are essential in delivering quality, value, and results.

It's how its done.

Over the years, lots of our seminar participants have reported how they've applied their business acumen skills.  Our seminars inspire them to ask questions they wouldn't otherwise ask.  Also, their learning gives them the confidence their asking is necessary and appropriate.

Our CEO clients couldn't agree more!

A great question has two characteristics as it relates to business acumen:

1. It's focused on the business
2. It requires an answer

So, here they are.  Four questions that our CEO clients want their leaders to ask.


1. Why does it take so long to get paid?
Cash is king.  Cash is freedom to act.  The speed at which a company can convert sales to cash is a critical indicator of overall success.  If a company does not have the cash it needs, it has to get it, and these 'other' sources can be expensive.

A company will send an invoice to a customer and wait as long as 150 days for the invoice to be paid.  Yes, it seems odd to say, but the longer it takes a customer to pay, the more pressure is put on the company's cash.  

Don't be tempted to blame your customers for the delay, however.  Shortening the contracted payment terms may not be the answer.  The opportunities for improvement are in your internal invoicing processes.  Can you confidently say that you get it right every time?  Probably not.  Work to answer this question candidly.  Take steps to get paid faster.  Your CEO will be delighted. 

2. When we spend a dollar, when will we earn it back?
Managing a business is managing the circulation of capital.  That circuit begins and ends with cash on hand.  When a company commits to spend a dollar from cash, it's reasonable to expect that this commitment will earn MORE cash over time.  Right?  Right.

Too often, leaders make decisions to spend money without any expectation or discipline on how that money will be earned back.  A client company purchased bulk raw materials (polymers) to earn a low price from the vendor. It was enough material to last 300 days of three shifts' production.  Considering waste, rework, accounts payable days, and the like, that last dollar spent on excess inventory was not recovered for over 18 months after it was spent.

Of course, that purchasing leader was rewarded for 'saving' the company money with bulk purchasing.  The CEO was not pleased.

3. What are our most profitable products and services?
The goal of any business, as Eli Goldratt pointed out, is to make as much money as possible for as long as possible.  We won't stay in business for long if we continue to offer unprofitable products and services.  That principle is sometimes lost on people.  Your CEO wants you to know and act on this information.

Many companies track their new products launched and monitor the revenues from them.  What portion of our total sales is from products recently launched?  What can we do to accelerate and improve these efforts?

Sales = Price X Volume.  So, if you want high sales, you can either have high prices with low volume, or low prices and high volume.  Rare is the company that can have both high volume and high prices (but see Apple as an exception).  So, if you are working with low profit per unit products, you'll need to get on board with higher volume.  What can you do to sell more?  If you're working with high profit per unit products, you'll need to work to maintain that value to customers.  The CEO needs you to understand these differences and act on them.

4. What can be done to eliminate bad costs?
Bad costs are the "face palm" of the business world.  A colleague of mine defines bad cost as "a dollar out and nothing back."  We can quickly and easily name lots of bad costs around the company.  These include wasted material, poor yield, aimless meetings, lack of timely decision making, etc.

Consider the relationship between cost and profits.  One client of ours earned a penny of profit for every dollar of sales.  That's a factor of 100.  So, to earn another dollar in profits, they needed to sell the equivalent of 100 dollars of sales.  It was much more effective for them to find that dollar of profits by eliminating bad costs as much as possible.   Coupled with new product launches, increased sales volume, and innovative engineering, their leadership set their company on a the road to success. 

Go ahead, ask these questions.  You'll show your company that you are focused on results and that you're putting your business acumen to work.  Your CEO will thank you. 

"Sure, we could do it that way, but we want it to work."

Often, I'm confronted with this seemingly age-old challenge in my work. That is, can we find the right balance to collaborate with our clients, engage the client organization, and do what it takes to increase the likelihood our project will be successful?

Too often, however, our decision makers in organizations support training for outdated or inappropriate reasons.  Are you doing training for the wrong reasons?  Here are a few (Adapted from Langevin Learning Services):

1. There's money left in the budget.
2. You want to address "the issue of the day"
3. You want to show you care
4. It's a hot topic
5. You have lots of requests
6. You can do it online

Resources are scarce.  Time is tight.  We only meet every so often.  These are all good reasons that we ought to focus on what works, and avoid things that don't.  As a Certified Performance Technologist, I'm always looking for things that work and add value for my clients.

Integrating business simulations into leadership development works.

I don't mean "works" as in the advertising, doublespeak meaning of the word.  I mean it actually increases the likelihood that we will achieve the results we're looking for.

By contrast, I am saying that we should integrate business simulations, rather than deploy them as stand alone learning events.  Surely, we learn a great deal from the experience of stand-alone business learning, but we learn much more if we integrate it into the bigger picture of learning, performance, and business results.

Why is this worthwhile?  Well, most if not all learning and training nowadays is delivered from a distance.  We get together for training and learning in-person meetings infrequently.  This time is precious.  We should focus on what that forum offers that you cannot get through other means.  We ought to get the most out of it that we can.

Integration is the way to get the most out of business simulations and in-person learning events.

Integrating doesn't need to be complicated.  Here is an example of how I use this simple, yet powerful integration principle:

Often, a client will engage me to deliver a simulation.  My first step is to interview the program sponsor, learn the context of the program, learn what is coming before and after my simulation, and define the specific learning and performance results we're aiming for.  I collaborate with the client sponsor, leadership, and other instructors to touch on themes, skill practices and messaging.  

In delivery, I look for opportunities to reference, reinforce, and encourage learners to apply their new learning and take action, consistent with the overall goals of the program.  I adapt in real time.  We integrate impact maps, mission/vision, strategic goals, leadership models, and performance expectations into the experience.  As a result, the learners experience a simulation aligned with their learning and business goals.

In short, we should focus more energy on what comes BEFORE and AFTER our programs, and use that knowledge to inform us on what we do DURING our programs.  Read even more on this point here.

Other integration tactics include:

1. Engaging company leaders and managers as real-time coaches in the business simulation (This also has the side benefit of increasing the visibility of your leader development work!)
   
2. Engage professional coaches to observe, assess, and provide targeted feedback and encouragement
3. Include executive leaders and others to serve on panels to discuss issues uncovered in the business simulation (strategy, markets, plans, etc.) through their own Teachable Point of View.
4. Tie-in relevant reading and research (e.g. Blue Ocean Strategy) to business simulation debriefs
5. Connect business simulations to relevant, specific skill development efforts (e.g. decision making training/skills)
6. Direct learners to speak to their bosses about what they learned in the program.  Use a Success Case Method of evaluation to determine what worked and what had impact and why.

Just a few of these tactics can make a world of difference.  The program is much less likely to be seen as a once-and-done seminar that has no chance of impact.  We can't afford to be "once-and-done."  We need to adopt integration tactics that assure our sponsors that learning will have an impact on business performance.

It really works!

"My front line guys don't need this."

This quote from one of my executive sponsors troubled me.  It troubled me a lot.  So much so I decided to (finally) blog about it today.

We were getting ready to deliver a business acumen program for middle managers.  We discussed the broader implications of the content to other audiences.  He could not see why in the world his front line employees, his workers, the people he depends upon to actually DO the work, would need to know about things like:

• The company's strategy and strategic vision
• The company's brand promise to customers
• The company's financial performance scorecards
• How all of this fits together
• What they're supposed to do to get the results he wants

Sure, I understand that as a CPT, I partner with clients to add value.  The value in my services aligns content and learning with performance.  Our work must be relevant and useful to get the most impact.  Yes, I get that. But, I'm afraid this executive wasn't thinking that way. I asked lots of follow up questions.  What I learned was that he was assuming, "My front line guys aren't smart enough."   

Anytime you underestimate the intelligence or capability of your employees, you are asking for trouble. Deming's 14 Points seem to support this conclusion.  At least they do for me.

My direct experience indicates that employees are MORE than smart enough.  They get it.  They get it faster than most and will do more than you expect with the knowledge.  They'll cut out bad costs.  They'll work for simpler work procedures.  They'll advocate for safety.  They'll add value.  They'll improve quality.  In short, the'll do a good job for you.  You simply have to let them in on the bigger picture, the scoreboard, and what's in it for them.  That's all.

Yes.  Everyone needs business acumen.  The best companies in the world engage everyone in learning about business in general and their business in particular.    Keeping things from people is bad for business.

My son has a high school biology textbook that's more than three inches (7.5 cm) thick. It's "advanced placement," so the there's more content presented during the semester than the run-of-the-mill biology course.

I recently attended a conference presentation.  The speaker's 100+ slides were displayed for an average of 15 seconds each.  I estimated 50 words per slide, plus graphs, diagrams, and lots and lots of arrows.

One of my clients recently complained, "We don't have time for the activities because the CFO needs to present last quarter's financials."  She had a dozen or so slides of screen shots from the budgeting software system, in teeny, tiny print, with values in the millions taken to the penny.

In a recent ISPI PerformanceXpress blog post, John Messer marvels at our continued emphasis on content over performance in training. That somehow, by including more content, more information, more description, and more stuff, that more learning will occur.  He says, "We act as if the business of training is finished when we have purveyed some content."  All this, when the evidence shows overwhelmingly that this is a fool's errand.

Only meaningful, relevant, and guided practice improves learning.  Engaging in the content, relating it to prior knowledge, and providing real-world application result in learning that improves performance.  We've known this for many years.  

Learners should work harder than the instructor.  That's right.  Think about that for a moment.  If we are engaging learners in real, meaningful, relevant, real-world, and "I'm going to remember this forever" training, they will work hard.  Really hard.

What would you rather do:  Fly with an airline pilot who trained IN the Boeing 787 Dreamliner; or, fly with a pilot who attended a presentation ABOUT flying in the Boeing 787 Dreamliner?  

I thought so.

Well designed simulations provide exceptional practice opportunities.  It gives learners a chance to learn, do, and reflect in a real-world way that has prima facie relevance to their work.  Simulations provide learners a way to learn from the experience and from the simulation.  It gives them a way to self-assess their mastery of declarative and procedural knowledge for performance.  It's personal.  It's relevant.  It works!

Of course, we can say these things about other practice strategies.  Scrimmages, role plays, drills, mock-ups, and experimentation are also examples.  It's through these learner-centered, performance driven approaches to learning that we get tremendous results from training.

Yet, content-heavy presentations (a.k.a. Lectures) are used far more often than can be reasonably justified.  Some say presentation is the best way to assure the content is "covered."  Yet, whatever the presenter is "covering," your learners most assuredly are not also "covering" it.

But do simulations, activities, and exercises actually teach?  Of course they do, but with some important caveats. Their design must include learner feedback and real-world relevance.  Simulations, coupled with a skilled facilitation or instruction, can unlock the learning process for learners.  Effective facilitator-led debriefing, peer feedback, confirming and corrective feedback, rubrics, and other techniques are vital in providing learners essential guidance in learning how they're learning, and seeing its relevance.  

No, more content does not result in more learning.  Instead, more practice, engagement, application, feedback, and relevance does.  

So, turn off the PowerPoint slides and turn on the simulator for real-world practice.  It works.

"Boy, these young people really know their stuff nowadays!"  This is a quote I recently overheard at a youth leadership development program.  The program is designed for college-aged students who aspire to make a real difference in their communities, for their employers, and for the State of Iowa.  Learn more here.

So what was so impressive?  Their questions.  Interestingly, none of them even pretended to know any answers.  They asked questions.  Lots of them.  And, truth be told, we adults really like getting good questions.  They challenge us to come up with good and reasonable answers, and they reflect positively on the questioner.  Ask good questions!

In my seminar with these same students, we delved deeply into business.  We conducted a three year simulation in which teams of these students took on several executive roles.  They struggled with cash flow, product development strategies, inventory management, forecasting, financial results, and the like.  Working in teams, they came up with plans and tactics to maximize their results.  They diagnosed problems in their businesses and then derived ways to improve the outcomes.  Lots of questions came up.  Lots.

The students immediately put their insights to work in the real world.  They listed questions they encountered in the simulation that are relevant to their mentors, their employers, and their sponsors.  They practiced asking and researching them as well.  All of this is based upon their understanding of business in general and their simulation experience in particular.

Leaders need not have all the answers.  They do need to know the questions.  A great question is one that is relevant and compelling.  It begs to be answered.  It has immediate application to the issues at hand.  

Our students listed these questions that they viewed as "good":

1. What's your most profitable product/service?  Why?
2. Where do you derive most of your sales revenue?  Market, product, service?
3. How much of your revenue comes from products/services launched in the last five years?
4. Who are your best customers?  Who is the best fit for your products/services?
5. How do you make money?
6. If performance begins to slip, where do you look first for causes?  Why?
7. How's business?

Yes.  Good questions.  We all could do well with an improvement in our questioning.  A good question comes from an insight, an understanding, or even a gut feeling that says, "this is worth asking."  Try it.  You'll be amazed at what you learn.

Overheard in the break area . . .

“You guys going to that financial presentation?”

“I don’t know.  I hate finance.  It’s so boring.”

“Yeah.  I think I’d rather work.”

“Yeah.”

Recently, one of my clients was confronted with this attitude about his finance PowerPoint presentation. He presents a ½ day module on company performance for the new supervisor’s course.  He’s done it for years.  This time, about half of the planned group actually showed up.  He was quite frustrated.  But, after further reflection and collecting some data, we determined that it wasn’t WHAT he was teaching that caused the no-shows, but HOW he was teaching it.  He started to feel a little better.

We confuse this cause and effect all the time.  “I’m not good at math.” Or “I am not an artist.” Or “Actuaries scare me.”  We may be right.  These statements could be correct; however, consider for a moment that perhaps we aren’t good at something because of how we were taught.  Teaching does not equal learning.  Teaching effectiveness results in learner engagement, motivation, and persistence.  Here’s another thing to think about:  Evidence suggests that college students follow their best professors to their undergraduate major.  If they have a good professor, they’ll tend to stay in that field and discover their passion.

So, my client discovered that if he used a different method of instruction, namely Celemi Apples & Oranges , his students would be pleasantly surprised.  Guess what?  Yep.  They were.  He got high marks and positive reaction from his students.  He had fun teaching.  And, he had many in-depth discussions that made the time pass quickly.

And here’s the best part.  After conducting Celemi Apples & Oranges the word got out.  Students told one another that his finance presentation was fun, interesting, and worthwhile.  Students signed up, and later, they showed up.  Absenteeism went down, and learning went up. 

Several years ago, Dr. John DeJoy of Union Graduate College did his doctoral research on learner preference in topics related to business finance.  His findings suggest that there is a connection between learner enjoyment of the learning methods and their actual learning performance.  Yeah, they like it because it works.

Anecdotally, I can count on these methods as winners.  I know intuitively and through direct experience that my presentations, seminars, and workshops that include simulations, discussions, engagement, and relevance are better received.  I can count on things going well every time.  My learners are sometimes effusive in their praise of their learning experience, and the evidence we collect seems to support these opinions.  Besides, it isn’t in my long-term personal interest to deliver services customers don’t like. Yeah, it works.

We all need better understanding of business and business finance.  Our stakeholders are depending on all of us to put resources where they’ll do the most good.  Only after we ‘show up’ and learn will we stand a chance to harvesting that business value. 

Yeah.