Features

Published November 2006

Capital Decisions: Educating Executives

Julie Smith & Amanda Young Hickman

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 24x7, 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.

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