What is Business Acumen?

Kevin Cope  |  December 10, 2014

Have you ever found yourself in one of these situations?

You’re talking with a senior leader of your company and wish you could say something really insightful to show your knowledge of the business, but your brain goes numb and you can’t come up with anything meaningful.

You’re attending a meeting with managers or financial types and as they start reviewing financial statements, you get lost. You hope no one discovers the smile on your face or the nod of your head hides the gap in your knowledge. You can’t see what the numbers have to do with what you have to get done today or this week.

Your CEO wants everyone to work harder to meet the company’s overall financial objectives. Your manager asks for ideas from the team, but you’re struggling to see how improving your job performance will impact the company’s revenue or stock price.

You’ve got a great idea for a weekend business that you and a friend or your spouse could start up to bring in some extra money, but you don’t know how much money you would need to get started or how to handle financial matters once you do. You just don’t want to be like all those other start-ups that flop.

If you’ve experienced moments like these, you certainly are not alone. In fact, you’re a member of a fairly large group—businesspeople who struggle to understand how the moving parts of a company work together to make it successful and how financial metrics like profit margin, cash flow, and stock price reflect how well each of those moving parts is doing its job.

The solution to your confusion is developing your business acumen, your ability to see the big picture.

Business Acumen Definition

Years ago a colleague of mine was consulting with a group of senior NASA managers at Cape Canaveral. He tried to explain, in simple terms, an organizational change strategy. The managers seemed confused. In an effort to clarify, he said, “Please don’t make this more complicated than it is. It’s not rocket science.” To which they sincerely answered, “We wish it were. We’d understand it better!”

Many people, even those with jobs that others think of as incredibly complex, view their business much like rocket science: a lot of complexity, hard-to-understand data and formulas, communications in a language that barely resembles English. Yet most of them wish they could more clearly understand the business of their business and how to help their companies perform better. What they are wishing for is business acumen.

Business acumen is keen, fundamental, street-smart insight into how your business operates and how it makes money and sustains profitable growth, now and in the future.

In 2002, after ten years as an executive with FranklinCovey, consulting with and teaching for dozens of organizational clients, I founded my own training and consulting firm, Acumen Learning. We created and began delivering the Building Business Acumen® seminar. Over the last ten years we have expanded and depend the initial course. Our focus became the practical application of business acumen to help people—at all levels, in any company, in any industry—become more effective in their current jobs and more successful in their future careers.

After working with more than one hundred thousand participants in more than thirty countries, including many clients in the Fortune 500 and eighteen of the Fortune 50, the primary lesson we’ve learned is that businesspeople want to become more effective and valuable, to secure their seat at the table and influence decisions, to impact company performance. They want to use their full potential to help their business make money and sustain profitable growth.

They want these things for two reasons. First, we all instinctively seek out greater engagement—a way to feel that the work we do is worthwhile and makes a difference. Second, they understand something crucial. If you want to be in a better position—a job you like more with better pay, better long-term opportunities, and greater security, for example—you need to understand the key drivers of business and use that knowledge to make good things happen.

To do that, you need the ability to…

  • See the “big picture” of your organization—how the key drivers of your business relate to each other, work together to produce profitable growth, and relate to the job you do each day.
  • Understand important company communications and data, including financial statements.
  • Use your knowledge to make good decisions.
  • Understand how your actions and decisions affect key company measures and the objectives of your company’s leadership.
  • Effectively communicate your ideas to other employees, managers, and executives.

For some of you, this list might resonate immediately. For others, it might raise an important question. Why should you care? Isn’t making these connections the responsibility of the executives, the senior leadership, or maybe your boss? Not if you want to be doing something different and better in your career three years from now.

If, through your questions, ideas, comments, analysis, proposals, and performance, you exhibit business acumen, you will be seen as a more valuable contributor. You will demonstrate your worth to the company, and other people will notice.

And that, in a nutshell, is the path to success in almost any career.

Seeing the Big Picture

Robert was an excellent call center supervisor… or so he thought. He was dedicated to saving the company money because he was worried that they would outsource the call center to an overseas operation. He rarely recommended employees for recognition or raises. If his team presented ideas about new software or equipment that could improve productivity, he would listen but never take them to management for consideration. And he constantly harped on the importance of getting through calls as quickly as possible and up-selling customers as much as possible. He was fanatical about doing his job well.

Robert didn’t realize that his narrow focus on cost control and “doing his job well” ignored the big picture of how his company made money and sustained profitability. He wasn’t connecting the dots between his efforts, customer relations, and future sales revenue. Or the huge cost of employee turnover the company was incurring every time one of his employees left to go somewhere with better pay and a stronger focus on serving customers. He failed to consider the impact he had on efficiency, profits, and morale by refusing to raise his team’s ideas with management.

Ultimately, Robert was viewed by senior management as “a serviceable supervisor in need of development; not likely management material.” While he wasn’t let go, his performance reviews were never stellar and he could tell that he was being sidelined, but he didn’t understand why. Robert missed out on seeing the big picture of his main job: to contribute to building a company experiencing long-term, sustainable, profitable growth.

So many of us fall into the same trap. Like Robert, over time, we tend to become more specialized and get very good at focusing on the specific parts of our jobs, so much so that we fail to see the big picture – how what we do fits into the overall picture of helping the company make money, achieve its strategic objectives, and be profitable.

Some of us decide to get degrees in management, hoping to get that big-picture perspective. But while management education provides excellent training in areas such as accounting, marketing, or finance, students can graduate without an overall knowledge of how a business runs successfully. Their knowledge of the key drivers of business and how they work together can be fragmented, disjointed from the reality of daily operations.

And as with Robert’s managers, many leaders assume that their teams have a much stronger grasp of the big picture of how their companies grow profitably—greater business acumen—than they actually do, so few take the time to do on-the-job training to deepen that knowledge.

Do you think you’re better off than Robert? That you wouldn’t have made the same mistakes? Now’s your chance to prove it. Take the Big Picture Quick Quiz shown here. The questions were not picked at random; they are the result of research and interviews with hundreds of executives and CEOs from dozens of different industries. They reflect the areas of performance that senior leaders have on their minds and want employees to have on theirs.

BigPictureQuickQuiz

We’ve administered the Big Picture Quick Quiz to over sixty thousand people. On average, people know the answer to fewer than two of the questions.

These questions focus on the overall business, not the operations of your department or division. I suspect that you might be more familiar with some of the performance measures for your immediate team. But your senior management team wants the entire business to be profitable, not just a single unit. They want all employees to understand and better contribute to how the entire company makes money.

The problem is that while we understand our jobs, the big picture seems too complex to grasp. Complexity is an underlying challenge in any business, regardless of size, industry, or stage of development. Large companies, especially, have many moving parts—departments and divisions (always reorganizing), product lines (always changing), layers of management, competitive realities, unclear decision-making processes, regulatory pressure, shifting budgets, new strategies. A small problem within any single element might produce a ripple effect throughout the organization, requiring major repairs. But without knowing the true source of the difficulty (which is not always readily identifiable), we might “fix” the wrong thing as we tinker with the business.

Developing business acumen helps us cut through this complexity, get a bird’s eye view of a business, and understand our specialized roles within it. Simplifying complexity and broadening our understanding of the business enables us to fix present problems, prevent new ones, and take advantage of opportunities to grow.

How do we simplify the complex? By looking at the key drivers that make all the parts of a business run.

The 5 Key Drivers of Any Business

When you break down even the largest, most complex multinational company—like Walmart, Apple, Toyota, or Boeing—into its most fundamental elements, you’ll find the same drivers that power your business, or any business. What are those drivers?

  • Cash
  • Profit
  • Assets
  • Growth
  • People

How did we distill it down to these five? We we used the core financial statements—the statement of cash flows (cash), the income statement (profit), and the balance sheet (assets)—as the foundation. These are the statements every company uses to judge its current strength and its future prospects. The fourth driver, growth, is reflected in all of these statements and for public companies is an important objective for shareholders. And the fifth driver is quite simple: Without good employees providing value to paying customers, the other four drivers cease to exist.

The 5 Key Drivers will help you understand and visualize how even the most complicated business can be analyzed and improved. Like the 26 characters of the English alphabet, the 5 Key Drivers combine in a multitude of ways to form the foundation of organization, products, market position, financing, human resources, and every other strategy or decision in a company. Leaders must set and achieve goals and obtain results in these five areas in order to achieve the most important objective for any company: long-term, sustainable profitability to support its mission.

You’ve probably heard of these essential elements, but you may not really understand their full importance and interdependence in creating success. While each driver is unique, it is also completely dependent on all of the other drivers. You cannot affect one without influencing the performance of another. Leaders have to take the connections between the drivers into account as they make their decisions, or they risk becoming overly focused on one driver and running an idea into the ground.

Business Drivers™

Your ability to understand these relationships and affect these drivers through your decisions and actions can increase your own ability to contribute to the long-term profitability and growth of your company.

Influencing The Whole

If you want to be more visible and valued, demonstrate that you understand how your department or unit fits into the big picture of the overall business.

If you want to influence the thinking and decisions of your supervisor or manager, address the topics that senior leaders, including your boss, are concerned about. Communicate your ideas and proposals in language that he or she understands.

If you want to be seen as a major contributor, show that you understand the relationships among the key drivers of your overall business—not just how your department works.

If you want to be a more effective leader, better able to engage your team, link your team’s actions with the overall needs and strategic goals of the company. Keep in mind, even your managers might not be as knowledgeable in some of these areas as you think. While they may be functionally brilliant, they may not see the big picture. But I encourage you to ask questions and be willing to act on the answers. You’ll be recognized as a contributor, somebody who demonstrates business acumen through savvy questions and effective actions.

If you are an individual looking to build your business acumen, check out our best selling book and interactive e-learning course. If you are interested company-wide training, check out our customized business acumen training programs.

Kevin Cope Published on Fast Company

Ryan Cope  |  December 2, 2014

Fast-Company-logo

Do you want your employees to think and act like owners of the business? You definitely should. Employees that feel invested in the company are more engaged in their roles. So exactly how do you get your employees to think and act like owners? Kevin Cope tells you in his most recently published article on Fast Company.

Leadership Lessons From Henry Ford

Ryan Cope  |  October 27, 2014

1917 Ford Model T

This month marks the 106th anniversary of one of the most innovative and life-changing products in history, the Ford Model T. Of course, the Model T wouldn’t have been the success that it was without the leadership and business acumen of its creator, Henry Ford.

Before 1908, cars were a luxury that only the affluent could afford. Not only did they have a huge price tag, but they were also expensive to maintain and repair. Ford saw huge potential in the future of the automobile and was determined to build a vehicle that fit the budget of the middle-class.

When Ford introduced the Model T, it started at $825, a price that was much cheaper than anything else on the market. It was also simple to drive and easy to repair, making it an instant success.

Throughout the next several years, Ford did something surprising. He dropped, and continued to drop, the already low price of the Model T. In fact, by 1916, the Model T was less than half of the original price at $345.

That wasn’t the only surprising decision Ford made. In 1914, he decided to offer $5 a day to employees that met certain criteria, which was double the average wage at the time (Just imagine Walmart deciding to pay its employees $18 an hour!). When a company is considering ways to lower the price of its products, doubling employee salaries certainly isn’t the first thing that comes to mind.

So why did Ford decide to lower the price of his product while increasing the salary of his employees when common sense says otherwise? Because one of the skills that made him such an innovative leader was his ability to see the big picture.

Ford knew that if he were able to lower the price of the Model T, then more people would be able to afford it and sales would increase. As you well know, his strategy worked. Sales sky rocketed so that by the 1920, he was producing over 1 million cars per year.

And before Ford raised the wage of his workers, he was having serious employee retention problems. Getting new employees up to speed is time-consuming and costly. By raising wages, Ford was actually saving money as he attracted top talent and retained that talent longer.

Ford was responsible for one of the most influential products of our time, in large part, because he wasn’t afraid to take risks. But what’s more, he had the business acumen to take the right risks, or as we like to say, strategic bets. And that is something that is lacking in most managers and leaders today.

Mark Zuckerberg got it right when he said, “The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”

So happy anniversary to the Model T, and let’s all make it a goal to take more (smart) risks!

Your Service Sucks And You Don’t Know It

Ryan Cope  |  October 22, 2014

There is no question that good customer service is vital to any healthy company. Just as important, if not more, is the service given between colleagues and departments (or internal customers) within the organization. In fact, how employees treat each other is highly reflective of the way they treat their customers. Stephen R. Covey once said, “Always treat your employees exactly as you want them to treat your best customers.”

Stephen-CoveyQuote

At Acumen Learning, we have the opportunity to work with thousands of employees from some of the greatest companies in the world – companies such as GE, Coca-Cola, Verizon and Cisco. During each course we teach, we ask these two simple questions:

  • Question 1: On a scale from 1–5, how would you rate the service you receive from your colleagues?
  • Question 2: On a scale from 1–5, how would you rate the service you give your colleagues?

To date, we have surveyed more than 30,000 people from both companies large and small, and what we have found is fascinating. Every single person has responded that they give significantly better service than they receive! While it’s possible that we’ve just happened to survey the 30,000 employees who give exceptional service – we highly doubt that’s the case. What we’ve found is this:

People tend to judge themselves by their intentions, and others by their actions.

In other words, there is a gap between the grade of service people think they give and the grade of service they actually give. And this gap isn’t just found with the service given to internal customers (colleagues), but with the service given to external customers as well.

So how do you bridge the service gap? Well, the single most impactful thing you can do is to improve your communication skills. Most people could spend their entire lives trying improve their ability to communicate, so don’t think that I am going to cover the entirety of the subject here. However, I do have a couple of simple tips that, if implemented, will make a big difference.

Listen To Understand

Before you start talking about what you think your customers (whether internal or external) want, try asking questions and really listen to what they need. No matter how hard you work, if your understanding of their needs is off, you will never have satisfied customers.

Communicate More Frequently

It’s easy to think that everyone knows what you know, but they don’t. Your actions just aren’t as clear as you think they are, so make it a goal to communicate more information more frequently.

When is the last time you asked a colleague or customer how satisfied they are with your service and for suggestions on how to improve? Asking this question on a regular basis will do wonders for your relationship with your internal and external customers.

In the end, a good rule of thumb is that if you think you communicate enough, you probably need to double it.

Where is innovation born?

Mike Wright  |  October 15, 2014

Consider this…

Where is innovation born? Sure, sometimes it happens like Newton where an apple falls and you get that stroke of genius, but probably more often than not, innovation isn’t a singular individual ah-ha moment.

Instead, most innovations are born in places where ideas can combine, even collide with one another, to form newer ideas, bigger ideas, and better ideas. In short, the place (or the space) where innovation happens probably plays a bigger role than most people think.

Take Alcoa, the aluminum giant. In the early nineties they followed people into their homes to study how they consumed soda pop. They found that consumers would put a few cans of soda in the fridge from their 12 pack, which were sold in a suitcase type package back then, and the rest of the cans they’d put in the pantry. This presented a problem, when all the cold pop in the fridge was gone, consumers would choose a different cold drink instead of taking the time to put more cans (aluminum cans mind you) in the fridge.

Alcoa developed an ingenious solution, but how they developed it was equally ingenious. Check out the slides below to see what we mean…

Where is innovation born?

Acumen In Action™

In your next team meeting click through the slideshow and use your business acumen to explore the following: 

  • What stood out to you about the story of Alcoa?
  • Why are the simplest ideas sometimes the best ideas?
  • What innovations has our team implemented?
    You may want to remind everyone that the goal is an innovative culture where even a simple idea that improves a process is celebrated.
  • Are there any ideas that we’ve passed on that we should maybe revisit?
  • How would you rate our environment? Have we created a place where ideas can connect?
  • How can we improve our space to foster more innovation?

Seeing the Big Picture

If you and your team have the book Seeing the Big Picture(Greenleaf, 2012) turn to page 30 and read the introduction to Profits. Why do so many innovative dot-coms no longer exist? What’s the relationship between innovation and profits?