Business acumen
Encyclopedia
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.
at the University of Michigan
and Dr. Gregory P. Reilly of the University of Connecticut document traits that individuals with business acumen possess:
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 its 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.
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.
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.
and the University of Pennsylvania Wharton School of Business, have programs which have been classified and presented as business acumen development courses. Ram Charan
, cited as one of the top thinkers in business has promoted the idea that business acumen is a characteristic developed on the job and that proper training can help develop business acumen. In 1999 Mr. Charan developed a business acumen course for Ford Motor Company and in 2002 partnered with Kevin Cope and Stephen M.R. Covey to develop a business acumen curriculum based on his 2001 book What the CEO Wants You to Know. 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.
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.
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.
Oxford English Dictionary
The Oxford English Dictionary , published by the Oxford University Press, is the self-styled premier dictionary of the English language. Two fully bound print editions of the OED have been published under its current name, in 1928 and 1989. The first edition was published in twelve volumes , and...
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
Leadership
Leadership has been described as the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task". Other in-depth definitions of leadership have also emerged.-Theories:...
development. Consequently, several different types of strategies have developed around improving business acumen.
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 Ross School of BusinessRoss School of Business
The Stephen M. Ross School of Business is the business school of the University of Michigan. Numerous publications have ranked the Ross School of Business' Bachelor of Business Administration , Master of Business Administration and Executive Education programs among the top in the country and the...
at the University of Michigan
University of Michigan
The University of Michigan is a public research university located in Ann Arbor, Michigan in the United States. It is the state's oldest university and the flagship campus 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
Ram Charan
Dr. Ram Charan is a business consultant, speaker, and writer.- Personal life :Charan worked in his family's shoe shop in Hapur, Uttar Pradesh, India while growing up...
's book, What the CEO Wants You to Know. Mr. Charan builds the case that understanding business in its entirety, or "seeing the big picture" is an essential characteristic of someone with business acumen. He cites Steve Jobs
Steve Jobs
Steven Paul Jobs was an American businessman and inventor widely recognized as a charismatic pioneer of the personal computer revolution. He was co-founder, chairman, and chief executive officer of Apple Inc...
as having strong business acumen because "he saw the potential of a machine that promised independence and freedom." He also suggests that Jack Welch
Jack Welch
John Francis "Jack" Welch, Jr. is an American chemical engineer, business executive, and author. He was Chairman and CEO of General Electric between 1981 and 2001...
'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 CharanRam Charan
Dr. Ram Charan is a business consultant, speaker, and writer.- Personal life :Charan worked in his family's shoe shop in Hapur, Uttar Pradesh, India while growing up...
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 developmentLeadership development
Leadership development refers to any activity that enhances the quality of leadership within an individual or organization. These activities have ranged from MBA style programs offered at university business schools to action learning, high-ropes courses and executive retreats.- Developing...
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
Perth Leadership Outcome Model
The Perth Leadership Outcome Model is a leadership model that aims to characterize leaders by the financial outcome of their leadership, as distinct from the two traditional leadership models of focusing on either the leader's personality or behavioral skills and business competencies. It was...
, 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
Ram Charan
Dr. Ram Charan is a business consultant, speaker, and writer.- Personal life :Charan worked in his family's shoe shop in Hapur, Uttar Pradesh, India while growing up...
, 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 BusinessRoss School of Business
The Stephen M. Ross School of Business is the business school of the University of Michigan. Numerous publications have ranked the Ross School of Business' Bachelor of Business Administration , Master of Business Administration and Executive Education programs among the top in the country and the...
and the University of Pennsylvania Wharton School of Business, have programs which have been classified and presented as business acumen development courses. Ram Charan
Ram Charan
Dr. Ram Charan is a business consultant, speaker, and writer.- Personal life :Charan worked in his family's shoe shop in Hapur, Uttar Pradesh, India while growing up...
, cited as one of the top thinkers in business has promoted the idea that business acumen is a characteristic developed on the job and that proper training can help develop business acumen. In 1999 Mr. Charan developed a business acumen course for Ford Motor Company and in 2002 partnered with Kevin Cope and Stephen M.R. Covey to develop a business acumen curriculum based on his 2001 book What the CEO Wants You to Know. 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 flowCash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.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 financeBehavioral finance
Behavioral economics and its related area of study, behavioral finance, use social, cognitive and emotional factors in understanding the economic decisions of individuals and institutions performing economic functions, including consumers, borrowers and investors, and their effects on market...
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.