To deal with current and future challenges, it is crucial that your business makes the right decisions at each level of the organisation. Strengthening the business acumen of your workforce can help reduce the risk of false assumptions and uninformed decisions, in so doing, future-proofing your business. But what is business acumen, and what skills should you focus on developing to set yourself and your organisation up for success?
What is business acumen?
Whether you are a budding entrepreneur, an executive-level manager, or a new hire, having business acumen affects your performance. A study by the Economist Intelligence Unit reported that 65% of leaders believed a lack of business acumen limited their organisation’s ability to successfully reach strategic goals. While one may often hear leaders emphasise the need to hire more people who possess this “skill”, it is less often defined and unpacked as a set of skills necessary to your company’s bottom line.
So what is business acumen?
According to the Professional Leadership Institute, business acumen can be defined as “having a fundamental understanding of how a business operates, then using that knowledge effectively to make logical business decisions”. Solid business understanding is the foundation of any organisation. Leaders, managers and employees with the right business skills are more able to evaluate and prioritise ideas, see opportunities, solve problems effectively, and positively impact an organisation and its employees.
According to Harvard Business Publishing (HBP), people with strong business acumen are more likely to be industry leaders in growth, profitability, and market share. To better understand what skills employers should be looking for, HBP set out to identify “a body of knowledge, called business acumen, that leaders across every level and function need to differentiate their company from their rivals and deliver greater value to their customers”. According to this research, professionals agree that a strong, shared understanding of business strategy, the market, and financial basics will serve every management team—whatever the future holds.
Three critical skills for good business acumen
According to The Business Acumen Institute, business acumen is not one thing, but a portfolio of attributes and skills that can help one effectively contribute to the company’s goals. It is also an essential guide for employees to chart their business careers better.
Certain qualities make for good business leaders. These may include focusing, understanding consequences, problem-solving, and recognising stakeholder needs. However, it is moreover crucial to develop the ability to grasp the three critical pillars on which each business is built: business strategy, market orientation and company finances.
1. Understanding strategy
According to HBP, successful organisations are defined by “a well thought out and clearly articulated business strategy that informs the day-to-day work of the entire organization.”
When employees understand why a particular path forward was chosen, their engagement increases, as does the likelihood that the organisation’s strategy will succeed. It can be tempting to leave business strategy to the senior leadership team, but clearly understanding it is the first step toward people aligning their decisions and actions with it.
It is important that a business strategy is clearly defined and articulated and that it is available across the organisation and can be operationalised at different levels, from individual employees to managers and directors. According to the HBP research, “when employees understand why a particular path forward was chosen, their engagement increases, as does the likelihood that the organization’s strategy will succeed”.
2. Understanding your market
If a business wants to make a profit, its leaders must be market-oriented. This involves understanding how value is created for customers and how the company competes in the marketplace. The company’s business model defines who customers are, how the organisation creates and captures value, and how the organisation generates profits. Employees with a good knowledge of their organisation’s customers and what they value are better prepared to make intelligent decisions that satisfy customers, grow sales, and increase the company’s bottom line. The more you understand how your company makes money, the better your understanding of the consequences of your business decisions will be.
3. Understanding the finances
Every business involves financial metrics. A key component of sound business acumen is understanding the key numbers and the financial mechanics that affect your company’s economic health. While financials may initially seem intimidating, understanding them doesn’t require a finance degree. Regardless of their functional area, all employees must be able to “contribute to a discussion on the company’s performance”. Developing a basic familiarity with key financial terms, spending some time with the numbers, and paying attention to the organisation’s key metrics are within everyone’s abilities. The data will help you focus on what’s important and serve as a means to measure the success of your decisions.
Developing business acumen may take time, but it is easily applied once in development. It is, therefore, important to empower employees by developing their skills and giving them access to key pieces of information. This will ultimately reduce the risk of false assumptions and uninformed decisions, creating cohesion and depth across your organisation and readying your business no matter the future.