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Strategy

Developing Better Commercial Decision Making In Your Employees


by Nick Duffy

Although good commercial decision making is often spoken of as if it were some mysterious quality that only certain individuals possess, it can be treated as any other skills set – as long as we use the right tools. 

--‘Their attitude to a budget is simply “use it or lose it”; no thought to whether they really need to spend, or the implications of their spend on other parts of the business;’
--‘It’s a lack of basic financial literacy – I’m sure some of them don’t know the difference between profit and a margin;”
--‘I had one manager, quite a senior guy, boast about increases in revenue. He hadn’t accounted for the costs!’
 
Sound familiar? You can tell a lot about what matters to senior financial executives when a group gathers and swap stories – the nodding heads, the rolling eyes, the shared sense of despair.
 
The frustration embodied in the above tales reveals the defining aspect of the senior financial executive role: ultimate responsibility for the decisions other people make in spending the company’s money.  Every minute of every day, decisions are made that have commercial consequences – where resources are allocated, where time is invested and how budgets are spent.
 
How confident are you that these decisions are made wisely, that colleagues fully understand the implications of their actions?   I think that if we were to ask most senior financial executives if they trusted the majority of their employees in managing corporate budgets, there would be agreement on what their answer would be.
 
So, how can a senior financial executive change their behaviors and be able to measure their positive progress?  Although good commercial decision making is often spoken of as if it were some mysterious quality that only certain individuals possess, it can be treated as any other skills set – as long as we use the right tools. 
 
Define-Data-Develop: Three steps to commercial decision making you can trust
 
1.   Define
Effective commercial decision making is dependent on a number of factors.  For example, it is dependent on the type of business we are in, the stage in our business’s life cycle, or the point in the yearly budget cycle. This makes good practice difficult to define. Difficult -- but not impossible. 
 
The variables can be resolved through expert-led structured interviews with senior leaders, gathering insights from focus groups and other sources, and applying the principle of factor analysis to reveal the knowledge, skills, attitudes and behaviors that make up best practice for this business right now.
 
This work produces a customized definitional framework that weeds out the component elements that make up best practice. Let’s look at what It might look like for a global insurance business:
 
  • Growth:  the ability to identify and value an opportunity, an understanding of the market, the ability to develop the brand, etc.;
  • Organizational savviness:  including the ability to leverage the connections that the business offers; the ability to prioritize stakeholders; the ability to provide intrapreneurial insight, and so on;
  • Reducing Cost:  knowing how to find savings and efficiencies; a willingness to take action that take cost out of the business, etc.;
  •  Market savviness: a high-level understanding of the market and of your product mix; the ability to make decisions that show an appreciation of your competitors’ offers, etc.
 
In addition to the above strategic skills, more basic financial skills were identified:
 
  • Financial Acumen: the ability to cross reference data points; to apply first principles to test what the numbers mean; to apply logic and an understanding of the commercial issues and their implications; to be able to ally financial skills to their specialist knowledge.
 
2.   Data
With a definition in place, we now turn to gathering the data that will tell us what the current level of understanding and practice is. But how do you know who now possesses those skills and knowledge? How do you know who will know how to confidently apply them in the future?  Self-assessments are quick but unreliable; training needs analyses are revealing but complex, costly and time-consuming.
 
The answer, I believe, lies in Situational Judgement Assessments (SJAs) – in essence, where we present employees with scenarios that reflect their workplace duties and challenges. We favor using SJAs that incorporate measures of competence (do they know this?) with measures of confidence (do they think they know this?).
 
The data reveals the gap between those who have the skills and knowledge we need, and those who don’t. It also tells how confident they are in applying what they know in situations the organization needs them to operate in.
 
One organization we worked with recently was able to identify people who are highly confident but make risky commercial decisions. They were also able to uncover ‘hidden talent,’ those with high competence but low confidence.
 
 
3.   Develop
There is little point in diagnosing a problem and then failing to treat it.  But nor do we want to provide training that may not be required. The data from the confidence/competence assessments provides us with the ability to target the training to the people who need it most (high confidence/low confidence) and in the areas they need.  For example, we may find that ‘market awareness’ is already high but ‘financial acumen’ needs attention.
 
This means we can target and tailor the development and address the specific context of the organization. This is truly professional “development”: we give employees what they need now in order to be better at their jobs immediately, rather than putting them on formal, lengthy and expensive programs, where they would learn concepts that they would find difficult to apply in their day-to-day work. Development can take many forms including face to face workshops, but also problem-solving resources, digital learning opportunities, on the job assignments, coaching and/or mentoring.
 
What we have learnt using the Define-Data-Develop model
We have been applying the methods outlined above for the past three years to great success. In that time, we’ve helped many clients develop their commercial decision making across their business. This experience has also produced a wealth of data - over 3500 SJAs on this topic - that holds some useful insights from companies:
 
  • Smaller teams do better than bigger teams. The smaller the group, the greater the collaboration and sharing best practice;
  • Individuals and teams with ‘skin in the game’ do better – incentives matter, though these need to be managed very carefully. Several times we have encountered misaligned rewards that created internal competition at the expense of better organizational outcomes;
  • Teams whose work connects them to other parts of the business do better – teams working in silos perform significantly worse on measures of commercial decision making;
  • People closer to the commercial decision making ‘front line’ do better – this is partly ‘psychological,’ but the distance between the individual and the commercial reality is a key predictor of effective or ineffective practice;
  • Teams that are cross-functional do better than specialist groups – counterintuitively, this holds even when the specialist group are finance professionals.
 
What you can do differently?
  • Ensure that all your training is through the lens of the definition of commercial decision making – that means all training, including soft skills. How do they contribute to better decisions for the business?
  • Sequence the training around the data - use data to tailor and personalize the training and support you offer;
  • Consider the Organizational Development needed to support best practice – review KPIs, core processes, working practices, including physical spaces and the scope for ‘social connection’;
  • Identify the environmental ‘nudges’ you can effect – ‘bring the front-line to them, offer bite-sized learning and learning resources, and be creative in how you do this;
  • Create and equip leaders to be change agents.
 
Nick Duffy is Head of Corporate Sales at Kaplan Leadership and Professional Development