Business acumen is not one skill; it is an amalgamation of many skills. Simply put, business acumen is how keen and quick you are in dealing with risks and opportunities in business to lead to a favourable outcome. Of all the skills it encompasses, two stand out in particular –
“Business literacy” – how well you know the functions within an organisation, and “acumen,” the ability to make quick and fruitful decisions. Business leaders today need both business acumen and interpersonal skills to be effective. You may be the most-liked leader in your organisation but may still struggle if you do not have an overall business sense. A great business leader does not just need to know the in-and-out of their business, but also need a strong understanding of the marketplace. They also must have relevant knowledge and skills, technical or otherwise, relevant to their business.
More than ever, business acumen today is extremely important for business leaders to turn their company strategy into action. Business acumen includes many competencies that directly affect the overall performance of a company. Broadly speaking, business acumen has five core competencies:
Understanding Your Business
It is paramount for a business leader to have a comprehensive understanding of their business. It is not enough to just know how your business operates but also how it creates value for others to successfully create and execute business strategies. An effective business leader is one who has a firm grasp of the main success factors or their current and emerging business. They must have a deep insight into their customer base. They must also know who their competitors are and what they have to offer. Business leaders must keep abreast of the trends that redefine and shape the marketplace.
It is also crucial that a business leader has financial acumen and the ability to strategically think to drive profit and growth.
Making Business Decisions
A hundred decisions need to be made across different management layers and functions in a company that directly affect revenue, profit, and competitiveness. Most companies follow a top-down approach when making business decisions. However, that runs the risk of creating bottlenecks. For an organisation to be agile, decision-making rights need to be distributed.
One of the key responsibilities of a business leader is to smartly delegate decision-making rights wherever necessary. That may mean that all your non-finance managers must also know how to forecast and manage budgets and understand financial implications. They must understand how to utilise best the assets, cash flow and how their decisions impact profitability. Business leaders need to inculcate the spirit of ownership in their subordinates to significantly improve decision-making at all levels in an organisation.
Customer – Centricity
Putting customers at the forefront when making business decisions sets you apart from the competition in the market. You cannot control your customers, their needs and wants are dynamic that change with time. That makes business acumen all the more necessary for business leaders of today to develop business strategies that remain profitable even in the future.
Customers can make or break an organisation. There is nothing more valuable to an organisation than loyal customers. These loyal ones refer new customers, which help in increasing the market share, revenue, and profit of an organisation.
Can you drive a car with a blindfold on? No, right? Business acumen without customer-centricity is like driving a car without being able to see what’s in front. It can only end in a disaster.
Leading Your Value Chain
With time, businesses are getting more complex. A direct customer-supplier relationship is being replaced by complex ecosystems and value chains. Business leaders today need to have a 360-degree vision to grab all opportunities and collaborate with organisations even outside their purview. It is becoming increasingly important to share business insights with customers, suppliers, and other alliance partners.
The evolving industry landscapes are creating many new opportunities, as well as risks. To mitigate risks and to take advantage of the opportunities leaders must increase their exposure, build relationships, and collaborate across companies and industries. It is vital for business leaders and managers to have a deep understanding of the broader industry value chains and ecosystems. Understanding these can help them navigate the uncertainty and unpredictability that the market may present these days.
Traditionally, innovation has been more associated with the R&D department of a company rather than business acumen. It is no longer so. Innovation is an important aspect of business acumen these days. Innovation can be led by business leaders and managers alike. Innovation can happen at all levels- product, process and business model.
To maintain a competitive edge in today’s market, it is important for a business leader to foster the spirit of co-creation among managers. Your managers and leaders must involve customers and other partners in developing future strategies. They all must be capable of protecting and growing the existing business while launching new businesses successfully. Business acumen and innovation skills go hand-in-hand in sustaining growth and creating profitability for both company and its customers.
How to improve Business Acumen?
Can you, as a leader, help improve the business acumen of the team mates in your company? Being big believers in the concept of growth mindset, the answer is a big
“Yes, of course!”
Here are 6 steps that might help you do it well:
1. Make sure everyone knows where the goalpost is.
If everyone in your team understands what is expected of them very clearly, it becomes easier for them to make decisions and complete their day-to-day work. But what motivates people is the larger goal that you as a team is gunning for.
Hence, make it a practice to routinely share with your team what the strategic business goals are and how each person’s role contributes toward achieving these goals.
2. Create opportunities for cross team learning
Often organisations miss opportunities because their employees who could be their eyes and ears don’t completely understand the purpose and function of other departments. Everyone is focused on their individual silos and hence the larger picture is lost.
A few ways to overcome this is:
a) To create opportunities for people to rotate between different functions or departments, even if it is for a small while. This can broaden perspectives, increase awareness, and allow the team to get a better perspective of each other’s challenges.
b) Involve colleagues from other departments while trying to solve a problem
The best perspectives to solve a problem does not always come from someone within the department. Diverse perspectives always help produce more creative and comprehensive solutions to problems. Besides it gives everyone a better perspective of how all their interactions goes on to produce value for their end customer.
3. Explain the customer journey within the organisation
Understanding the different touchpoints of a customer within the organisation, along with how the handover from one department to another happens, can help employees get a wholistic view of the customer journey and their role in creating the wow! Effect.
4. Create learning opportunities for everyone to understand the different levers of a business
Any organisation is a complex interplay of different departments and functions interacting with each other. The decision that one department or function takes has repercussions for all other entities within the organization. And yet, very few other than the senior management of a company generally understand this complex web of linkages.
A great way to improve the business acumen quotient of everyone in the company is through a gamified methodology of using business simulations. For example, in the Build-Your-Business simulation, participants assume the role of the company’s CEO. They are responsible for all the business decisions. Right from pricing, production, quality, advertising, and employee morale to ensuring the successful launch of a new venture.
The simulation allows participants to read financial documents, understand the interdependency between functions, and even take calculated risks. This drives home the importance of efficient collaboration between the different departments for the business to thrive and enable profitability.
5. Encourage reading
Leaders are readers.
Simple as it may seem, the more everyone in your team reads business books and newsletters, the more the business quotient of the team goes up.
A few newsletters you can recommend to your team include, the Morning Brew and Farnam Street. One other good practice is to encourage team members to read and share synopsis of the books they read. Like many other habits, this one is also contagious and helps the team improve.
6. Encourage team members to join professional associations.
It is valuable to be a member of a professional associations. And, it is important for every working professional to get involved with as many professional groups, as possible.
They say, ‘your net worth is your network.’ This simply means that developing business acumen requires focusing on developing a robust professional network. This is because not only will you make friends, but there is much to learn from professionals from different organisations.
Business acumen for business leaders of today, is to think differently about what is needed to compete and win. It is a must-have skill for business leaders to lead their companies on the path of sustainable growth and profitability. Developing business acumen will help improve business decision-making and increase focus on markets and customers. It will help business leaders understand how to minimise risks and embrace innovation. To be an effective business leader, you must have a foundation of business acumen.
Business leadership is not a one-man show. It is a team sport. Successful teams understand the market and their position in it. They understand financial metrics and use financial reports to measure their performance and make adjustments. They understand how their decisions impact the overall business- growth and profitability included. Developing all the competencies involved in business acumen is important to deepen your skillset. It takes courage to be a great business leader because out there, it is indeed, the survival of the fittest.