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. 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." The Oxford English Dictionary defines acumen as "the ability to make good judgments and quick decisions". 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. Consequently, several different types of strategies have developed around improving business acumen.

Business Acumen Characteristics

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 than those who are lacking the skill. Dr. Raymond R. Reilly of the University of Michigan and Dr. Gregory P. Reilly of the University of Connecticut document traits that individuals with business acumen possess:

• Have an acute perception of the dimensions of business issues
• Can make sense out of complexity and an uncertain future
• Are mindful of the implications of a choice for all the affected parties
• Are decisive
• Are flexible if further change is warranted in the future

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.

"Using Business Acumen to Understand How Your Company Really Works" is the subtitle to Ram Charan's book, What the CEO Wants You to Know. Mr. Charan builds the case that understanding business in it's entirety, or "seeing the big picture" is an essential characteristic of someone with business acumen. He cites Steve Jobs as having strong business acumen because "he saw the potential of a machine that promised independence and freedom." He also suggests that Jack Welch's willingness to, "…learn from anyone, anywhere, anytime," contributes to his ability to exercise his business acumen to define the right business priorities.

Financial Literacy

Financial literacy is an important tenet of business acumen, but is not a synonym. Ram Charan suggests that financial knowledge is the foundation of business acumen, and has described business acumen as, "…the art of linking an insightful assessment of the external business landscape with the keen awareness of how money can be made — and then executing the strategy to deliver the desired results.”.

In a SHRM article entitled, "Business Acumen Involves More Than Numbers" 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 and loses money 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. 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, 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.

In their book, 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. They write that an obvious criteria for selecting a leader is well-developed business acumen.

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.

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. 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. 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. 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. Corporate universities have designed instructional programs around business acumen either in-house or with the help of an outside facilitator such as Acumen Learning. 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.

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. 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.

External links

• [2]
• The Institute for Corporate Productivity (i4cp)
• Acumen Learning
• University of Michigan, Ross School of Business, Business Acumen for High-Potential Leaders
• University of Pennsylvania, The Wharton School of Business