Business acumen

Business acumen is keenness and quickness in understanding and dealing with a business situation in a manner that is likely to lead to a good outcome.[1] The term "business acumen" can be broken down literally as a composite of its two component words: Business literacy is defined in SHRM's Business Literacy Glossary as "the knowledge and understanding of the financial, accounting, marketing and operational functions of an organization."[2] The Oxford English Dictionary defines acumen as "the ability to make good judgments and quick decisions".[3] Given these textbook definitions, a strictly literal definition would be "keenness and quickness in understanding and dealing with a business situation."

Additionally, business acumen has emerged as a vehicle for improving financial performance and leadership development.[4] Consequently, several different types of strategies have developed around improving business acumen.

Business Acumen Characteristics

Executive Level Thinking

In his 2012 work, Seeing the Big Picture, Business Acumen to Build Your Credibility, Career, and Company, Kevin R. Cope put forward his research that an individual who possesses business acumen views the business with an "executive mentality" - they understand how the moving parts of a company work together to make it successful and how financial metrics like profit margin, cash flow, and stock price reflect how well each of those moving parts is doing its job.[5] Cope proposes that an individual who has the following five abilities could be described as someone having a strong sense of business acumen:

  1. See the “big picture” of your organization—how the key drivers of your business relate to each other, work together to produce profitable growth, and relate to the job you do each day
  2. Understand important company communications and data, including financial statements
  3. Use your knowledge to make good decisions
  4. Understand how your actions and decisions impact key company measures and the objectives of your company’s leadership
  5. Effectively communicate your ideas to other employees, managers, executives, and the public[6]

Organizational Commitment

Research done by The Corporate Executive Board Company shows that the two most important levers for generating employee engagement are, Connection Between Work and Organizational Strategy and Importance of Job to Organizational Success, both of which are characteristics of business acumen.[7]

When individuals understand the importance of their role in the organization and how they can positively impact the performance of the company, they are more likely to be engaged, and they are more committed to the organization in the long-term.

Business Savvy and Business Sense

"Business savvy" and "business sense" are often used as synonyms, but they don't describe what people with business acumen do differently from those who are lacking the skill. Dr. Raymond R. Reilly of the Ross School of Business at the University of Michigan and Dr. Gregory P. Reilly of the University of Connecticut document traits that individuals with business acumen possess:

Thus, developing stronger business acumen means a more thoughtful analysis, clearer logic underlying business decisions, closer attention to key dimensions of implementation and operation, and more disciplined performance management.[1]

Financial Literacy

Financial literacy is an important tenet of business acumen, but is not a synonym. In a SHRM article entitled, "Business Acumen Involves More Than Numbers"[8] Chris Berger, a principal and member of the human resources practice at CTPartners, explains that business acumen starts with the ability to understand how a company makes decisions, and that leaders must be financially literate and be able to understand numbers on company financial statements. But he says those demonstrating business acumen have the ability to take their knowledge of business fundamentals and use it to think strategically and then take appropriate action. "It's really the ability to think and act," he adds.

An October 2007 research paper based on the book The Three Financial Styles of Very Successful Leaders (McGraw-Hill, 2005) the book's author E. Ted Prince reports that, "Financial literacy is almost never the need for senior managers and high potentials. Most already possess degrees in business, including MBAs, and many have also had significant experience in the business sides of their professional roles. The real need for these managers is to understand how their actions and their behavior impact their financial decision-making and how this in turn affects financial outcomes at the unit and the corporate level." It's evident that an individual with business acumen has some level of financial understanding and knowledge - but someone who is financially literate doesn't necessarily possess strong business acumen.

Business Management & Leadership

Bob Selden, faculty member of Mobilizing People, a leadership development program based in Switzerland, observes a complementary relationship between business acumen and leadership.[9] Selden states the importance of nurturing both the development of strategic skills and that of good leadership and management skills in order for business leaders to achieve effectiveness.

A study published in Human Resource Management International Digest titled, Business acumen: a critical concern of modern leadership development: Global trends accelerate the move away from traditional approaches,[10] reveals why traditional leadership development approaches, which rely on personality and competency assessments as the scientific core of their approach, are failing. The paper demonstrates the importance of business acumen in leadership-development approaches and contends that business acumen will have an increasing impact on leadership development and HR agendas. Research into this relationship resulted in the creation of the Perth Leadership Outcome Model, which links financial outcomes to individual leadership traits.

In a study that interviewed 55 global business leaders, business acumen was cited as the most critical competency area for global leaders.[11]

In their 2011 work, The Leadership Pipeline, Ram Charan, Stephen Drotter, and James Noel study the process and criteria for selecting a group manager, and suggest that the process and criteria are similar for selecting a CEO. According to them an obvious criterium for selecting a leader is well-developed business acumen.[12]

An organization full of high business acumen individuals can expect to see leaders with a heightened perspective that translates into an ability to inspire and excite the organization to achieve its potential.[1]

The Decision Maker

The ability to make sound business decisions is aided by acumen, which is commonly defined as being an intuitive awareness related to a business situation. An example of this developed awareness is Steve Jobs, who through his inherent business instincts and abilities successfully created the iPad, with an original combination of functioning convenience, accessible to consumers. While most of the functions offered by the iPad were available by way of other devices on the market, the insight and foresight of Steve Jobs, led to the creative merging of stakeholder interests, a crucial factor of business acumen.

Various terms are applied to those, demonstrating business acumen; for example, possessing business sense or “business 'smarts.” They have the capacity of obtaining critical, influencing information about a situation and directing their focus on key issues, but at the same time having an awareness of other relevant options for a solution. This is enhanced by an ability to determine an appropriate course of action that includes the implementation of a plan to complete the task, or reach an objective.

As and when it is found that changes are required to conform to unforeseen developments, a possessor of business acumen will be capable of making necessary adjustments, to keep the operation in motion. These are types of people, male or female, who have been found to be primarily correct in their assessments and decisions and are highly regarded by their peers for their acumen and success in business.

Business acumen and its critical aspects

The acceleration in executing a strategy has a crucial reliance on business acumen, which is critical to accelerate the execution of a determined strategy. A study conducted by internationally recognized Business Training Systems (BTS) and the Economist Intelligence Unit (EIU) concluded that two-thirds of corporate executives, consider that a deficiency of business skills or business acumen, has the capacity to inhibit their organizations, from attaining strategic priorities.

The term business acumen is synonymous with business skills, with the understanding of it being an intuitive and relevant understanding of how a business enterprise gains profits. This is supported by a thorough understanding and market focused approach to business, as well as a comprehensive view of a business and its inter-relationships. A more in-depth perception of business acumen would include skills and competencies; such as, financial acumen and a thorough understanding regarding what generate profitability and cash flow.

It is general for those possessing a high degree of business acumen to utilize an explicit or embedded business framework, designed to ensure unity and integration during their assessment of a business situation. It is a framework that combines the objectives of key stakeholders, competitive strategies needed to succeed and the people and activities essential to the production and selling of products and services. This framework is forceful and accordingly usually applicable to various types of business activities. When used in a specific business form, it is frequently referred to as the “business model.”

Practical and critical thinking

There are differences between practical and critical thinking processes that can prove challenging for some business executives, particularly bridging the divide between functional expertise and the skills associated with general management. There are frequently instances in which specialized skills that were so valuable in a functional capacity, become significantly less useful in a general management position. This may be aggravated by the need for skills in general business and decision making, to be more proficient!

The bridging of practical and critical thinking issues are conducted by some executives with comparative ease, with a particular skill associated with them referred to as business acumen. They have an intuitive understanding regarding how businesses generate profits and the belief that a dominant vision can successfully be transposed into a strategy that is actionable. Business acumen is a skill that can have the effect of motivating those who possess it, to greater achievements than others who rely only on specialized expertise.

Developing business acumen

Gaining knowledge regarding how a business operates is an aspect associated with an executive developing their acumen; supported by increasing their listening capabilities, which aids in making the process easier. A further important factor is the sincere dedication in cultivating relationships, with colleagues in various departments thereby effectively improving inter-relationships and communication structures. These are actions that enable discovery by management, of various concerns and challenges that need to be addressed. It is information that assists in providing criteria and balances for an executive and motivation for business acumen.

A sense of business acumen is reliant and developed on an inherent knowledge gained from research and reports from various departments within an organization. It can have a significant influence in providing informative material on a wide range of company and competitor aspects, especially when supported with information related to production and operational capabilities. In the business acumen sense, this is all designed to help awareness and fine-tune aspects related to decision making. It is of particular use when required to contribute in discussions related to production or marketing strategies and the funding thereof. In addition, what also becomes apparent is the refined insight shown by an executive and which can contribute to their progress within the organization.

With the development of business acumen, comes the responsibility and increased depth of understanding. It can be expected that within an organization, there are experts in accounting, finance, information, marketing, production and technology. However, despite this expertise and specialization; the benefits offered by sound decision making requires the capability of determining how any decisions made in one respect, may affect other departments within the organization. The advantages provided by business acumen, enable an executive to view the success of each individual, as being dependent on the mutual coordination of the efforts of every manager.

The ability of business acumen has particular significance for those making decisions that can affect an entire organization; for example a Chief Executive Officer (CEO), or an entrepreneur. These are highly visible positions, with a need for wide and varied knowledge and could be classified as positions requiring extensive and panoramic vision the decision making perception, of business acumen.

Business Acumen Development

Programs designed to improve an individual or group's business acumen have been a primary factor in fueling the growth of business acumen as a significant topic in the corporate world. Executive Development Associates' 2009/2010 survey of Chief Learning Officers, Senior Vice Presidents of Human Resources, and Heads of Executive and Leadership Development listed business acumen as the second most significant trend in executive development.[13] A 2011 report published by Merrill C. Anderson Ph.D. explored in detail the impact of business acumen training on an organization in terms of intangibles and more tangible expressions of value.[14] Dr. Anderson's findings support the opinions of Dr. Raymond R. Reilly and Dr. Gregory P. Reilly that business acumen is a learned skill - developed on the job by learning the required skills from knowledge mentors while working in different employment positions. They also suggest that the learning process ranges widely, from highly structured internal company training programs, to an individual's self-chosen moves from one position to another.[1] The combination of these reports and surveys indicate that business acumen is a learned skill of increasing importance within the corporate world. In general, there are three different types of business acumen development programs available:

Business Acumen Courses

Prominent schools, such as those at the University of Michigan Ross School of Business and the University of Pennsylvania Wharton School of Business, have programs which have been classified and presented as business acumen development courses.[15] Ram Charan, cited as one of the top thinkers in business [16] has promoted the idea that business acumen is a characteristic developed on the job and that proper training can help develop business acumen. In 1999 Mr. Charan developed a business acumen course for Ford Motor Company [17] and in 2002 partnered with Kevin R. Cope and Stephen M.R. Covey to develop a business acumen curriculum based on his 2001 book What the CEO Wants You to Know.[18] In these programs, participants are generally involved in seminars, workshops, and highly condensed classes which cover a variety of topics on both the theory and practice of business. Subjects range from introductory financial training to industry- and- position-specific learning. Overall, these courses tend to stress the importance of business knowledge imparted from experienced leaders and managers in a classroom setting.

Business Simulations

A business simulation is another corporate development tool used to increase business acumen. Several companies offer business simulations as a way to educate mid-level managers and non-financial leaders within their organization on cash flow and financial-decision-making processes. Their forms can vary from computer simulations to boardgame-style simulations.

Although these simulations provide participants with a more interactive learning experience, it is debatable as to whether these simulations reproduce the real-world sensation of actual business scenarios. These games never involve obtaining a behavioral base line for the participants so one can never know if they had any measurable behavioral impact. Often the simulation is too artificial to be of real- world relevance.[19]

Psychological Assessments

The advent of personal assessments for business acumen is based in the emerging theories of behavioral finance and attempts to correlate innate personality traits with positive financial outcomes.[20] This method approaches business acumen not as entirely based in either knowledge or experience, but on the combination of these and other factors which comprise an individual's financial personality or "signature". The results from this research have been limited, but noteworthy.[21]

References

  1. ↑ 1.0 1.1 1.2 1.3 Reilly, Dr. Raymond R and Reilly, Dr. Gregory P. "Building Business Acumen", HR West, December 2009.
  2. ↑ SHRM's Business Literacy Glossary
  3. ↑ Oxford English Dictionary's definition of acumen
  4. ↑ Summerfield, Brian. "A Crisis in Leadership", Chief Learning Officer Magazine, April 2008.
  5. ↑ Cope, Kevin (2012). Seeing the Big Picture. USA: Greenleaf Book Group. p. 2. ISBN 978-1-60832-246-6.
  6. ↑ Cope, Kevin (2012). Seeing the Big Picture. USA: Greenleaf Book Group. p. 3. ISBN 978-1-60832-246-6.
  7. ↑ The Corporate Executive Board Company. "Driving Performance and Retention Through Employee Engagement", 2004.
  8. ↑ Hastings, Rebecca R. "Business Acumen Involves More Than Numbers", SHRM, April 2008.
  9. ↑ Selden, Bob. "Is Business Acumen a Substitute for Leadership?", 26 February 2008.
  10. ↑ Prince, Ted (2008). "Business acumen: a critical concern of modern leadership development: Global trends accelerate the move away from traditional approaches". Human Resource Management International Digest 16 (6): 6–9. Retrieved 2011-02-18.
  11. ↑ Cohen, Ed (2007). Leadership Without Borders. USA: John Wiley and Sons. p. 14. ISBN 978-0-470-82227-2.
  12. ↑ Charan, Ram; Noel, James; Drotter, Stephen (2011). The Leadership Pipeline. USA: John Wiley and Sons. p. 139. ISBN 978-0-470-89456-9.
  13. ↑ Hagemann, Bonnie "2009/2010 Trends in Executive Development", 2009.
  14. ↑ Anderson, Dr. Merrill C. "MetrixGlobal Study of Business Acumen Training", March 2011.
  15. ↑ Reilly, Ray. "Ross Executive Education Business Acumen: Developing the High-Potential Leader".
  16. ↑ Charan, Ram. "The Thinkers 50".
  17. ↑ Charan, Ram (1999). Business Acumen: How Every Leader at Ford Can Move the Company Forward. USA: Ford Motor Company. ISBN 978-0-9676520-0-9.
  18. ↑ Charan, Ram. "Acumen Learning".
  19. ↑ Prince, Ted (2010). "Building Better Business Acumen" (PDF). Chief Learning Officer (CLO Media) (August 2010): 40–43. Retrieved 2011-02-18.
  20. ↑ Perth Leadership Institute White Paper:Business Acumen and Leadership Development for CEOs and Senior Executives
  21. ↑ Prince, E. Ted. "Research note: how the financial styles of managers impact financial and valuation metrics." Review of Accounting and Finance 7.2 (2008):193-205

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