Five Steps to Improve Business Acumen

Business acumen is defined as: “keenness and quickness in Acumenunderstanding and dealing with a business situation in a manner that is likely to lead to a good outcome.”

Unfortunately improving business acumen is not a pursuit of many business owners and leaders.  Fortunately business acumen is not a gift at birth and can be learned through experience and formal training.  Effective mastery of business acumen will allow you to understand how your business makes money and impacts your bottom line.

What is business acumen in practice?
Kevin Cope, author of “Seeing the Big Picture,” describes business acumen as “the ability of an individual to view the business with an ‘executive mentality’ in that they understand how the moving parts of a company work together to make it successful and how financial metrics like profit, cash flow, return on equity and company value reflect how each of those moving parts is doing its job.”

Specifically someone who has a strong sense of business acumen has the following five abilities:

  • Sees the “big picture” of the organization.
  • Understands important communication and data.
  • Uses knowledge (not emotion or gut feel) to make good decisions.
  • Understands how their actions and decisions impact key company measures and the objectives of their company’s leadership.
  • Effectively communicates their ideas to other employees, managers, executives, and the public.

Current Executive Business Acumen Condition
As a consultant, I come across many business owners and executives that under utilize their business acumen.  A few of these businesses are poor performing but many move along at some level of success but operate at a disadvantage. These leaders are not pursuing the business acumen necessary to improve their business and be more competitive in their markets.

Leaders may be good at what they know, but the business may require more.  Here are a few examples that illustrate leaders that had experience running their business but needed to increase their business acumen to continue to be market competitive.

Example

Weakness

Business Acumen

One Not understanding the cost of a product or service.The owner knows how to sell it but as long as sales are strong this weakness will not be significant.As sales soften attention then turns to internal control measures to minimize cost (material and labor) to make up for margin lost to weak sales. Going from a sales driven to a cost/price management environment requires a different approach to the business.Emphasis is then placed on critical cost/price control points to contain product cost in line with price in addition to paying attention to sales effort in a down market.
Two Not understanding the revenue drivers of the business. This is particularly significant when there is a product or service mix.Unless revenue is broken out by distinct product/service or line of business it is difficult to align and measure company resources that drive revenue. Effectiveness and management of targeted marketing programs and sales campaigns cannot be determined if revenue is consolidated.Consequently, it is necessary to analytically structure and measure each line of business in order to understand market response to each line of business.
Three Business growth can quickly exceed the ability of the organization to absorb new people and adapt them to the vision and values of the business.Many business owners will try to work harder directing old and new employees as if they all had the same experience.However, as the size of the business grows they realize that they need to adopt different practices in order to maintain the cultural vitality and knowledge base of the business. When the organization is diluted by an influx of new employees, leadership needs to increase the amount of time training, directing and compliance of new employees with values and principles of the business.Consequently, the owner and senior leadership will need to delegate more and perform fewer activities personally, if they are to make the best use of the new employees in the organization.

 

In each of these three examples, new business skills were needed to address the changing needs of the business.  By becoming more internal control focused, or analytical sales management or increasing delegation and training; the leader had to increase their business acumen in order to be have greater value in running their business.

Five Steps to Improve Business Acumen?

The following are five steps that you can take to improve your business acumen and improve the understanding of your business, your ability to handle unexpected business situations and improve the likelihood of a good business outcome.

  1. Self Assessment: The best step you can make to improve your business acumen is to invest time and energy in those areas of your business where you feel most uncomfortable or poorly prepared.  This does not mean that you have to become an expert but to at least understand the principles of operation for that segment of your business and how it impacts your bottom line.
  2. External Assessment: Use outside resources to evaluate or assess your business and identify critical areas that are not consistent with generally accepted best practices for your industry. Understand the reasons why areas of your business received low marks. Establish a plan that will address those weaknesses and use that process as a way to get closer to how your business should operate.
  3. Network: Visit leaders of businesses that are similar to yours and understand how and why they do what they do.  In the course of a discussion or plant tour, you can discover policies and practices that may be new to you but are critical to the success of that company.  Use this experience to examine how your company performs similar activities.
  4. Peer Group: Join a peer group where other business leaders will consistently challenge your business practices, strategies, and period performance.  This will heighten your sensitivity to what you know about your business and is extremely beneficial to a small business owner or leader who does not have a formal board to provide this type of accountability.  An additional by product of this experience is the experience you will gain by critiquing other business leaders plans and performance.
  5. Involve Your Leadership Team: Establish a regular review of your business operations among your senior staff.  This is more than just an operations meeting where the same crises are discussed.  The focus needs to be on what measures are being taken to evaluate and measure the performance of each operation.  The responsible leader would report to the group the strengths and weaknesses of their operation and what actions are being taken to leverage strengths and improve the weaknesses.  This emphasis on each operation will increase the overall acumen of the leadership group.

Summary
On a daily basis, you can become absorbed in the myriad of activities necessary to direct the business.  You justify this intense attention as the leader of the company.  However, as the leader of the company you are called to make accurate timely decisions based upon good information to deal with unexpected business conditions.  Doing this better than your competition means you have to be more qualified in the understanding of how your business operates than your competitor.

Successful business leaders aggressively pursue knowledge about their business, their markets and their competitors.  Consequently they are constantly improving their business acumen in order to make the best decisions possible for their business.

Are you including improving your business acumen in your business strategy?

Comments

  1. Nice article on 5 steps to improve Business Acumne.

    May I have permission to sheare your article with my work associates?

    Thanks

    Fred Beck

  2. @Fred Yes, please distribute the link for their review and comment. Mike

  3. Very Nice article on 5 steps to improve Business Acumen, the concepts I’ve taken away from this read will help me gain credibility and a new level of business savvy with the executives in my company.

  4. Rakesh,

    Let me know how it works out.

    Best, Mike

Leave a Reply