The Value of Business Acumen

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Performance Management Published March 2010

The Value of Business Acumen Raymond R. Reilly Effective talent management is critical in this time of doing more with less. Everyone who works in an organization has the potential to contribute to the success of the firm. CEOs want a sales force that drives profit-producing revenue, designers who create product offerings appealing to targeted customers and production employees who steadily increase quality and lower costs. Integrating excellent business acumen into the fabric of corporate culture can position a company to thrive and survive in today’s competitive global environment.

Strong business acumen — the ability to quickly understand and deal with any business situation in a manner likely to lead to a good outcome — among individuals across an organization encourages a shared understanding of the opportunities and threats facing a firm, enabling more logical and coordinated responses.

Business acumen is a learned skill. However, some individuals do seem to develop it more quickly and easily than others. These people may get their first exposure to business through formal training in business school, though most people develop business acumen on the job. A talent manager who takes an active approach to coach and develop business acumen in the talent pool is making a wise investment in the organization’s future well-being by accelerating the growth of tomorrow’s great leaders.

Further, business acumen impacts multiple areas of the employee life cycle.

Why Develop Business Acumen?

Retain: Economic challenges have driven every company to critically examine its current talent base, and not just with downsizing in mind. Finding great people and keeping them is a competitive advantage. Companies must take steps to retain star performers, reworking existing performance management systems to act as useful tools in identifying and rewarding those with the highest potential. Further, to establish sustained performance, organizations must clearly identify success metrics.

Retrain: The rate at which a high-potential team member flourishes and chooses to stay and grow with a company is a direct reflection of the manager’s ability to encourage and support development of business acumen. From highly structured internal company programs that provide increasing levels of responsibility and complexity to encouraging the pursuit of advanced business degrees or executive education development programs, high potentials should be given various opportunities to move from one position or department to the next, where they can meet and learn from peers in other roles.

Recondition: The global marketplace demands an acute perception of the dimensions of business issues, including the power of cultural differences and the complexity of developing a global mindset to remain agile in an ever-changing environment. Having a global mindset today doesn’t just mean having work experience in an international setting or working an international project. It is having the ability to make sense of the interdependency that exists around the world. This awareness is a core strength of functional leaders with high business acumen and allows for smooth emersion into other cultures.

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Tools to Build Business Acumen The old school of thought places talent management primarily in the hands of the HR function, but for an organization to be truly successful, responsibility for talent management must be seen as a central responsibility of every individual who manages people. Managers and supervisors at all levels must identify and manage high-potential employees, especially as individuals are asked to take on expanded responsibilities in a difficult economic environment. Strong talent leaders must focus on developing business acumen in high potentials in four key areas: Understand thought processes. Developing stronger business acumen in the talent pool means empowering individuals with tools to foster more thoughtful analysis, clear logic underlying business decisions, closer attention to key dimensions of implementation and operation, and more disciplined performance management.

Developing stronger business acumen in employees provides them with a framework and direction to organize thoughts while allocating attention to the most important issues. In turn, employees will have more confidence in their decision-making abilities and feel like more valued parts of the team.

To help employees further develop these skills, it is imperative that they focus on strengthening three crucial areas.

1. Be mindful of the context, scope and details of the situation at hand. Expectations regarding the future must be reviewed and refined to provide the best possible support. In many cases, it is impossible to know everything relevant to a situation, but it is vital to have the ability to decide when the information available is sufficient to move forward.

2. Be prepared to make sense of the complexity and confusion surrounding most business situations.

This involves understanding the connections between various elements so future implications of actions taken today are better understood.

3. Expect uncertainty and know the future is unlikely to go as planned. Resilience requires continually processing new information and developing the ability to create improvised responses to the unanticipated.

Develop business knowledge. Providing high-potential employees with a deep understanding of each element of a traditional business model is important. High potentials must have a strong appreciation for the firm’s business model and in-depth knowledge of the forces that work constantly to undo its intended success. They also must fully understand the sometimes complex nature of stakeholder interests. Within and among customers, investors and employees, there is always cooperative and competing tension. Those with strong acumen need to be able to appreciate and balance these relationships for the overall good of the organization.

During high potentials’ early development, several things can be done to ensure they have the necessary level of business knowledge to be effective dealing with challenges, including:

Require explicit knowledge of firm business models and those of key competitors.

Demand solid business case analysis for any proposed changes in the firm’s business model.

Expect an in-depth appreciation of each key stakeholder’s concept of how the firm creates and does not create value.

Provide early opportunities to participate in these types of discussions before having the responsibility for related decision making.

Effectively use management processes. Management processes are the tools, procedures and ideas that give structure to organizational thinking and communication about business activities. These frameworks support the development of business acumen by ensuring a logical approach and consistency and completeness in the analysis, assessment and resolution of business issues. High potentials seeking to gain common management processes must focus on strategic planning, decision-making systems and performance measurement systems, among others. However, it is important to note that these processes are not a substitute for the sound business thinking that

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business acumen is all about.

Develop leadership and management skills. The fourth and final element to help employees strengthen business acumen is the ability to develop a deep understanding of the various relationships essential to the enterprise’s success. Managing relationships with employees is perhaps the most important; however, skills also must extend to customers, suppliers, bankers, investors and other key influencers.

For many high potentials, it can be a challenge to alter management style. They already may be practicing delegation, teamwork and conflict management, but their highest potential lies in mastering these techniques in addition to empowerment, change management, time management, creativity and innovation. It is also critical that negotiation and partnering skills are strengthened, not only for relationships with colleagues, but for those outside the company.

To develop and improve leadership and management skills in high-potential employees:

Provide supervisory responsibilities early in their career — even while they are still in a rotational management development experience.

Create an appreciation for the importance of skillfully managing people. This will be a challenge when dealing with specialists who have a preference for individual contribution.

Provide a mechanism to share leadership and managerial successes and failures with peers.

Provide a management mentor who is not in the individual’s management hierarchy to encourage a nonjudgmental relationship.

Reward strong performers in leadership and managerial skills development.

Mastering these four critical focus areas nurtures the ability and latent potential that lies within a firm’s most valuable asset — its employees. An organization full of individuals with robust business acumen can expect to see stronger, more consistent contributions from team members; a better understanding of opportunities for cooperative value creation; better planning, organization, management and control of activities that produce the products and services customers desire; and a heightened perspective that translates into an ability to inspire and excite the organization to achieve its potential.

Nurture Business Acumen With regular practice and training, the following thought processes can lead to stronger business acumen.

Be aware of the current capabilities and shortcomings of the firm and key competitors.

Make sense of the complex and dynamic marketplace to enable a reasonable view of the future.

Be mindful of apparent opportunities and probable risks.

Outline a path to success.

Understand the actions required to move an organization along the success path.

Test the logic of group thinking in the organization.

Allow for analysis and modifications in light of said thinking.

Decide how to proceed.

Communicate the rationale for the decision and explain the roles and responsibilities of people and parts of the organization.

Seek buy-in and support.

Commit to action.

Be resilient in the face of success and failure and be ready to change as necessary.

Raymond R. Reilly is a professor at the University of Michigan Ross School of Business

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Executive Education.

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