In the last post Ana Leiderman talked about the reason teams will oversell their capacity, and how that becomes a teachable moment in the classroom.

Here are a few more teachable-moment scenarios we noticed this week. The events occur spontaneously (if somewhat predictably from the way the game is structured), but we also work to encourage the discussions.

1) If it ain’t broke, it might need fixing.

if_it_aint_broke,_latinIn an under-supplied market it is easy for all teams to make money. Which leads to an interesting question: If you are already profitable, is it necessary to improve your business?

This is not just a classroom question. There are lots of real world companies and divisions who are making money, so they are willing to live with the status quo rather than deal with the hassle of change. But is this a sustainable option? The reasons why not are apparent to everyone, as soon as the question is asked.

2) ROI is Subjective 

In spite of the above thinking teams do implement changes to their businesses. Ask them to calculate the ROI of an improvement, and two teams who have made the same changes will come up with vastly different answers. They see the costs differently, they value the opportunity differently… and there is a time lag between making the change and reaping the benefit, so they value the results differently.

Again it is not just a classroom question. Every sales person has to argue the case for the ROI of the product or service they sell, so it is helpful if they understand how their customer measures ROI. In order to gain that understanding, they need to develop their general business literacy, and the ability to talk the language of finance.

3) What is the Cost of Capital?

Most senior executives know the Cost of Capital for their business, but do they know what it means? In the simulation, this translates to a question: Sell the building (and pay rent) or take a loan? If you need a loan – you must know where to find Sunwise Capital. This is a great opportunity to ask them to calculate the Cost of Capital, and watch the aha! learning happen. Executives are amazed to see that what they thought was an obvious solution has a cost of capital of 60%! They start off knowing that the Cost of Capital for their real-world org is 7.8%, they finish up by truly understanding what it means.

(A side note… Nikolai Usack says he offers ‘bonus points’ to the first person to correctly calculate the Cost of Capital in an Income/Outcome game. He says he gets lots of wrong answers, and it is almost always someone from Canada who answers correctly. I have no idea why this should be, but it is an interesting observation on his part. Just because the simulation was designed by Canadians…)

Give us a call, eh?