At Insight Experience, we believe in the value of using the business simulation methodology to teach business acumen concepts. We sat down with Insight Experience expert facilitator Tim Goodman, who has over 25 years of experience in executive education and management consulting and asked him to share his insights on the benefits of experiential business simulations for participants learning all about financial decision-making processes.
Insight Experience: How do Insight Experience’s business acumen simulations impact the learning experience for participants?
Tim Goodman: So many of our participants seem to have sporadic or ad hoc access to resources or experiences related to business acumen. In some cases, they may have had some business acumen related classes, yet their training was not systematic. They are picking up bits and pieces of business acumen but much of what is learned is done as they go along doing their jobs and it’s almost always live and in real-time without much time for reflection. In team sports, there is a clear difference between practice sessions and game day. For many of our participants, it’s always game day with respect to developing their business acumen knowledge and skills. Our business acumen simulations provide a time bounded, high impact practice field where they can learn by doing without the stifling pressure of working with real risk, real working relationships and real money. In addition, because our business acumen simulations place participants in the role of a General Manager, their practice field learning experience is multidisciplinary and multivariant. For many, if not all, of our participants this is extremely important and provides a novel learning experience for many participants who, in their real-world jobs, are leaders of specific functional areas.
In a functional leadership role, the focus is on optimizing the results in a specific area. By stepping into a General Manager role in a simulation, the participants have the opportunity to elevate their perspective beyond a functional area to the business as a whole. The challenge they face is one of orchestration as they face tradeoffs and tensions in the decisions they must make during each simulation round. For example, they must meet multiple objectives such as improving profitability, while also maintaining a focus on developing people and recognizing that leaders deliver results through others. Given that business acumen simulations typically run through multiple quarters, the participants also practice delivering short term results while positioning the enterprise for long term viability and growth.
For many of our participants, this opportunity to practice the control and responsibility inherent in decision-making is a brand-new, and daunting, experience. Ultimately, it is a good thing, and necessary to learn, in order to take on more senior positions in a firm. Business simulations give participants an opportunity to practice thinking like a senior leader and learn powerful lessons from the results they generate.
Insight: Where do you think business acumen concepts and leadership competencies intersect?
Tim: Nick Noyes, Insight Experience co-founder and partner, explains this in a succinct and effective way. I once attended a program in which he wrote “business system” on a flip chart. He drew a line under that and then wrote: “people system.” On the right side of the diagram, he drew an arrow looping from “business system” to “people system” and on the left side, another arrow looping back from “people system” to “business system”. The point Nick makes is that these two systems are always functioning in a business and they are highly interdependent. This is the precise intersection in question: Even if you expect to learn the numbers in one of our business simulations, what you leave with is an acute understanding that it is also a team effort. It is about numbers and people. Our simulations are explicitly designed to impart the importance of both elements. It would simply not be as realistic or authentic if one of those elements were missing or under-represented.
Insight: Why is it important for non-financial employees to understand the business acumen concepts we teach?
Tim: Understanding business acumen and the role that financial measurement and accounting systems play in real life helps to understand not just the “what” and “how” of a business but also to get to the “why.” Accounting is the language of business. Many of our participants know some nouns and some verbs, but they are unable to form full sentences in the grammar of accounting. It is incredibly important that they more readily comprehend financial and accounting terms, acronyms, and synonyms. Once they become fluent in this language, participants can better comprehend the data around them. They can see the trends and the connections and, most importantly, will have the confidence to have fluent conversations with their more numerate colleagues. As a result, everyone will be on the same page with regard to what the numbers are telling a business.
Insight: What is your favorite financial concept to teach?
Tim: This is pretty easy to answer: the way that the three financial statements (the income statement, the balance sheet, the cash flow statement) are interconnected. Specifically, if you look at the balance sheets at the beginning and at the end of a year of operations, all the changes for any line item on those snapshot balance sheets can be traced through the other two documents. If you line them up, you can trace changes horizontally. It’s a closed system operating in an open environment. Many of our program participants only have familiarity with the income statement, so they only have a partial picture of the economic performance of their company.
Insight: What is the most rewarding part of teaching business acumen simulations?
Tim: I have noticed in our business simulations that the “ah-ha!” moment for participants tends to happen after running multiple rounds of a simulation. Repetition is the mother of learning. On the athletic practice field it’s sometimes referred to as “getting in your reps”. What is especially fun to see is the transformation from a deer-in-the-headlights look from some participants during the first round, to significantly more relaxed and inquisitive looks on their faces during the final round. At this point, they are not so much concerned as they are curious: They are looking at the numbers; their comprehension is increasing; and they now have mental models to interpret the data. It is rewarding to see their analytical abilities, and confidence, grow given that they’ve had time to develop their knowledge and skills on the business simulation practice field.
Insight: What advice would you give to someone who is intimidated by business acumen concepts?
Tim: There is no magic wand. You must learn the details. Much of the intimidation factor comes from the lack of comfort with financial terminology. My advice is: Learn accounting terminology. Learn financial concepts. Learn to speak the language.
I like to think of business simulations as a shortcut to this kind of learning. Often at the close of a simulation, I tell participants that what we did in four days might take them a year and a half of business school to learn. To boot, such experiential learning tends to stick with them. It lingers in a way that textbook learning often doesn’t.
Working through a business simulation requires participants to think through how the whole system works. Experiencing the cause-and-effect relationships between their decisions and the results they achieve over time yields powerful insights and learning. Participants in business acumen simulations often come away from the experience with a much clearer understanding of how their real-world work connects to financial results and metrics. In other words, how their job touches the numbers. In many cases, they come away with ideas for specific ways to improve their contribution to financial performance. Additionally, many of the participants come away with the sense that they will feel more comfortable, more curious, and less intimidated when having conversations with the representatives they work with from the finance function in their business.
We always appreciate hearing these takeaways that participants share with us at the end of a program because it tells us that their time on the practice field has put them in a better position to perform on game day.
For more on how a business acumen program can help develop your leaders, click here.
Tim Goodman is an expert facilitator with Insight Experience, a Boston-based firm delivering contextually rich business simulations and learning experiences to accelerate and integrate leadership, business acumen, and strategy execution.