In order to remain viable, businesses must
grow, make a profit and stay ahead of the competition.
No matter what role a leader plays in an organization,
therefore, he or she must be able to navigate the competitive
business landscape effectively, a skill often referred
to as "business acumen."
Business acumen starts
with the ability to understand how a company makes and loses
money, says Chris Berger, a principal and member of the human
resources practice at CTPartners, a global executive search
firm. But he says it is also important to understand the
company's strategies and decisions and how those strategies
and decisions impact business results.
Leaders must be financially
literate, Berger suggests, 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.
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." But
Webster's New World College Dictionary defines acumen as "keenness
and quickness in understanding and dealing with a situation," in
this case, the ability to understand and deal with issues related
to business.
"When I think of business acumen I think of someone who
is naturally 'with it,'" says Michael R. Losey, SPHR,
CAE, a former president and CEO of the Society for Human Resource
Management (SHRM). "They are always prepared and know
what they are talking about … and they consistently
conduct themselves in a very appropriate and admirable manner."
Losey
says those with a high level of business acumen have a clearly
recognizable capacity for being effective in competitive
environments and in demanding business circumstances, especially
those requiring good communications and interpersonal skills.
Those who possess business literacy, on the
other hand, may possess the knowledge their business function
or discipline requires—which can be imparted to anyone -- but that
knowledge does not ensure effective performance or business
success, according to Losey. "And that is the difference," he
says.
"Of course, almost everyone has some level of business
acumen," Losey says. But it is only when an individual's
business acumen is fully present and identifiable that it contributes
to any type of personal or leadership gain, he adds.
Acumen Is Learned and Innate
Losey says an individual's business acumen often exists as
a result of their upbringing and life experience, but it
might be enhanced with training.
"Today, most employers do not provide actual business
acumen training unless it is remedial," Losey says, such
as when a leader is unaware of his or her poor personal conduct
and how it inhibits the organization's performance.
However,
Losey said, he participated in a training program early in
his career intended to train high-potential employees in
business acumen—a program he and the other participants
referred to as "charm school." The multiple session
program covered topics such as how to be interviewed by the
media in crisis situations, how to give effective presentations,
how to dress and how to ensure that cross-cultural norms are
observed in dining and other situations. "We joked about
this program then, but in retrospect it was important," he
says.
In an October 2007 research paper, The Perth
Leadership Institute, a business acumen assessment and development
firm, suggested that business acumen assessment and development
should be included in leadership development programs to
increase their effectiveness. The paper is based on the book
by E. Ted Prince, founder and CEO of the institute, titled The Three
Financial Styles of Very Successful Leaders (McGraw-Hill,
2005).
According
to Perth, many senior executives feel leadership development
programs focus too much on "soft issues" to
the detriment of the hard issues of finance and profitability.
Those which do address business issues, however, might limit
their focus to financial literacy, the organization suggests.
"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
report suggests. "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."
Advancement Requires Acumen
"An individual's advancement in a competitive environment
without good business acumen is rare," Losey says, because,
as individuals advance, their performance requirements change
from an emphasis on knowledge, education and experience and
how well they do their job to how well they:
- Lead.
- Know how things get done.
- Understand where to go to get help to get things done.
- Demonstrate personal creditability.
- Perform effective follow-up.
- Hold subordinates accountable for their own performance.
- rovide recognition or other necessary performance feedback.
"Thus business acumen becomes increasingly important
the higher up in the organization a person goes," Losey
says.
According to Perth, the presence of an individual in a profitable
company does not mean that the profitability achievements
of the company "rub off" onto the individual. Instead,
the organization says an individual's innate financial traits
will dominate once they are placed in a position where they
have a high degree of discretion over a profit and loss area.
Acumen for HR Leaders
Business acumen is a key competency for HR leaders, according
to Berger. He says those manning the HR function must be
viewed first and foremost as business leaders who just happen
to perform the HR function. "Business acumen is what
enables an HR leader to sit across the table from their CEO
and explain why a program they want to drive makes sense
for the company," he says.
According to Losey, chief human resource officers must recognize
that business acumen:
- Can be a source of improved customer, supplier, employee
and community relations.
- Will usually contribute to increased organizational competitiveness.
- Should be a required standard of performance.
"The outcome of business acumen is that it enables
an HR function to position the functions they lead as strategic
investments in the business," Berger says. "So
they are better equipped to communicate how their function
is going to result in increased revenue, increased profitability
and can demonstrate a return on investment."
Berger says many HR executives now pursue MBAs instead of
HR-related master's degrees as one way to increase their
business acumen and demonstrate their marketability to prospective
employers. "What an MBA will do is it will give someone
the ability to understand generally how business works --
even if they don't understand a specific industry," he
says.
But Perth says the possession of a business
education, including an MBA, is unrelated to the level
of business acumen. The report suggests instead that individuals
in possession of an MBA may actually have lower performance
because of "a
level of overconfidence in their abilities which is not warranted
by their behavior or by the demonstrated outcomes of their
financial performance."
Some HR professionals seek opportunities
to rotate into a role outside of HR -- especially those with
profit and loss responsibility, Berger says, to gain first-hand
experience with other aspects of the business.
Losey predicts that global business acumen will continue
to become more important, particularly as businesses continue
to be affected by social trends such as preferences and requirements
of the available workforce. As such, companies will need
to place greater emphasis on business acumen if they want
to remain competitive.
Rebecca R. Hastings, SPHR, is online editor/manager of
SHRM Online's Diversity Focus Area. |
