Why business acumen is critical to leadership development and business success – and what to do about it.
As we go out and talk to different organizations about their leadership development needs, we’ve learned a lot. There’s one thing, however, that surfaces again and again: there are a lot of gaps in developing people’s business leadership or business acumen skills. Very often, as our clients assess and evaluate what is needed in their organization, they find that they’re still not clear on what specific business acumen skills are required at different leadership levels.
What exactly is business acumen? Synonymous with business skills, business acumen is defined as an intuitive and applicable understanding of how a company makes money and includes:
Strategic Perspective: An overall big picture understanding of the business; the critical interdependencies across functions and divisions; the short- and long-term trade-offs of decisions.
Financial Acumen: A comprehensive understanding of the drivers of growth, profitability, and cash flow; a firm’s financial statements; key performance measures; implications of decisions on value creation.
Market Orientation: The ability to analyze and synthesize market and competitive data; a deep understanding of the customer’s business objectives and purchasing criteria; an appreciation of the value of each customer to the company.
Leadership & Collaboration: The ability to successfully execute strategy through others; create alignment, a positive mindset and build capability in people; and collaborate effectively with others.
Business acumen cannot be overlooked. As Jeff McCreary, former Chief Sales and Marketing Officer at Texas Instruments, said, “If your organization doesn’t fully understand how your company thrives economically and how it delivers distinct value to the marketplace, you won’t be as successful as you can and should be.” A study sponsored by BTS and conducted by the Economist Intelligence Unit titled “Skills Mismatch: Business Acumen and Strategy Execution,” reports that two-thirds of corporate executives believe a lack of business skills or business acumen inhibits their company from meeting strategic priorities.
So what specific business acumen skills and capabilities should an organization focus on building for their leaders at different levels? In our 30 years of doing this, we’ve consistently found the following:
- Entry level or frontline managers, to properly execute on the company strategy and progress to the next level, need a strong understanding of the company’s business, business model and how it makes money.
- Moving up through the hierarchy, those at the mid-level or director level need to not only think broadly and understand how the company makes money, but also recognize how it uses its assets to create shareholder value. Directors need to get out of the nitty-gritty, tactical mindset and start thinking more broadly and strategically about how different functions and parts of business work together – and the role they play in that themselves.
- At the senior level, business acumen centers on three key things. First, leaders must think about all of the levers that they can impact to drive shareholder value – from making profit to using assets efficiently to managing cash flow effectively. Second, they must have a long term strategic perspective while balancing short term requirements of business. Third, leaders must understand the need for and value of working collaboratively with peers across functions and other parts of the business to make 1+1=3: to make the sum of their combined efforts greater than what they would be if each individual was working alone in siloes. Collaboration is a critical driver of strategy execution and business success. A BTS-sponsored research report conducted by the Economist Intelligence Unit, “Fostering Collaboration,” found that market share-leading companies not only collaborate more often than do their average or below-average competitors, but they also do so better at every level of the organization.
Now here is the secret sauce – developing business acumen is like learning to ride a bike. You don’t just read about it or have someone tell you how to do it. You get on the bike, fall a few times and voila, you are off to the races. Business simulations and other discovery learning technics are ideal for building this important skill set rapidly and in a way that truly sticks with the learner forever.
Having strong business acumen in every leader is essential in driving long-term business results and successful strategy execution. It is no joke. Increasing each individual’s business knowledge not only promotes individual growth but also ultimately gives the whole organization a competitive edge. When your leaders truly understand the business and how they can personally influence the business results, you drive engagement and set the whole company up for success.
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