Not working in Finance? Perhaps you don’t think finance is much of a concern to you?
As financial literacy’s supply drops, its demand is on the rise. The need for financial skills is expected to increase 16 percent by 2028.
U.S. Bureau of Labour Statistics
As the demand for financial skills increases and supply decreases, gaining a competitive edge to improve financial literacy is critical.
Becoming financially literate is only one skill business professionals, across all sectors, can improve their business acumen.
Business acumen, however, can be interpreted in many different ways.
Harvard identifies business acumen as a body of knowledge that employees ‘need to differentiate their company from their rivals and deliver greater value to their customers.’
Source : Harvard Business Publishing (2022)
Ultimately, developing and sustaining a successful business and being agile in a rapidly changing environment is seen as possessing strong business acumen. Complexity, speed, and constant change in the business environment has made business acumen critical. Leaders who deeply understand how their business operates and how businesses ‘tick’ are crucial for success.
Three commonly recognised core competencies of business acumen are crucial for leaders to support the organisation’s goals and to make informed decisions:
- Understanding the Organisation’s Strategy;
- Having Market Orientation;
- Possessing Financial Literacy.
We explore each of these competencies and what it means for leaders, managers and individual contributors in the organisation.
Understanding the Organisation’s Strategy
Decision-making is no longer confined to the highest executive levels; it is increasingly dispersed to lower levels to keep up with the pace of change. Making tactical decisions is more crucial than merely implementing modern technologies and flattening hierarchies. Organisations must act before decisions trickle down – decisions must be quick and effective at all levels to seize opportunities and address challenges on time.
Research conducted by the Economist Intelligence Unit found that over 65% of leaders agreed that insufficient business acumen, was a primary factor in limiting their organisation’s ability to realise strategic goals.
Source: https://bts.com/insights/business-acumen-for-the-21st-century/
Factors like hybrid work arrangements, changes in supply chain models, global tensions highlighting the need for strategic agility, and leaders overcoming obstacles to implement their strategies successfully.
Professionals in various domains, from production to IT, are increasingly expected to provide a strategic perspective to align decisions and actions. Without it, decisions may be disconnected, or leaders may fail to recognise the financial implications, limiting agility, innovation, and maintaining a competitive edge.
For example, corporate sales executives must comprehend the evolving client challenges, enabling them to act as strategic partners, tailoring recommendations and effectively communicating their organisation’s unique value proposition.
Can you explain your company’s strategic goals and the reasoning behind them……if not, then a shift in strategic thinking is required.
Leaders should prioritise the communication of initiatives, allocate resources, and make decisions in line with the strategy. They can use their progressive strategic knowledge from early careers to validate their contribution to the process, enabling them to adapt when market forces change.
For example, when a production team is aligned with the business strategy and tasked with creating a channel strategy, the product’s success in the current product suite would be apparent. A product manager can make effective decisions regarding investments and prioritise team assignments. Leaders can leverage the business strategy to develop the product roadmap and overall trajectory of the product portfolio to differentiate the company long-term while delivering greater value.
Cross-functional teams also play an intricate role in creating goals that follow crucial steps in developing an effective strategy, including linking goals to projected market changes and establishing tracking metrics to determine success.
Having Market Orientation
Fundamental to market orientation is understanding an organisation’s business model and how the organisation creates and captures value, including how the target market can be developed aligned with customer needs, preferences, and behaviours. It outlines how the organisation generates profits through these efforts, and profitability matters in today’s volatile economy.
A strong understanding of stakeholders’ needs and motivations drives innovation, calculated risk-taking, and the creation of new business opportunities. It also fosters robust business relationships, collaboration, loyalty, and mutual benefits.
Professionals should be prepared to make intelligent decisions that generate sales and increase the bottom line.
Employees may use market orientation throughout their careers to develop their leadership roles. For example, an IT executive uses customer focus to better support go-to-market teams with technology needs, such as supporting the marketing function set up product webinars with prospective customers. They can effectively balance risk management and innovation to solve future customer problems, such as running experiments on tools that are not highly used to drive improved services while at the same time not impacting high-value clients.
Possessing Financial Literacy
If your financial literacy needs attention, don’t worry, you’re not the only one!
‘Developing a basic familiarity with key financial terms, spending some time with the numbers, and paying attention to the key metrics of the organisation is within the abilities of everyone and can produce a range of benefits, from elevating decision making and negotiation skills to improving overall company performance.’
Business acumen is crucial for understanding the fundamental drivers of financial performance and leveraging them in areas of responsibility to ensure actions align with financial goals. Understanding the profit and loss statement, balance sheet, cash flow, and key metrics relevant to an organisation empowers leaders to have a holistic experience of its financial position and align their strategies and actions accordingly.
Leaders should consider the costs, for example, of winning a big deal by accessing different markets and assess whether the revenue generated outweighs the operational cost or expense involved.
Leaders value individuals who can go beyond departmental boundaries, bringing problem-solving skills, and decision-making abilities that focus on delivering results to benefit the bottom line. When domain expertise and business acumen converge, both careers and companies experience growth.
Developing business acumen requires access to critical information such as competitive intelligence, financial reports, and strategy documentation. Many employees need assistance finding these resources to enhance their understanding and decision-making capabilities. It cultivates a growth mindset essential for optimal performance, as it is necessary to embrace a core skill set that can be adopted to avoid career stagnation and ensure the survival of businesses.
Building business acumen requires a combination of hard and soft skills and attributes while nurturing an entrepreneurial mindset and developing credibility, confidence and courage within the organisation’s leadership pipeline.
Core skills that can help develop business acumen, from both an organisational and personal development perspective include:
- Financial Skills – understanding basic financial statements, financial analysis, financial modelling, and critical financial metrics allows leaders to comprehend the financial aspects of their organisation and make informed decisions.
- Strategic Planning and Prioritization – helping leaders develop action plans for the future, utilising available resources and prioritise initiatives to achieve organisational goals. These are practical skills that can be learned and applied to understand the business environment.
- Analytical Skills – involving proficiency in gathering, analysing and interpreting data. Attention to detail and numeracy enables leaders to make data-driven decisions and identify trends and insights.
- Problem Solving – enabling employees to make sound decisions. Reflecting on past experiences, and learning from them, contributes to developing enhanced problem solving skills.
- Marketing Skills – understanding the target audience, marketing concepts, and various marketing channels help leaders align products and services with customer needs and preferences.
- Interpersonal Skills – skills such as empathy and effective communication, are vital for collaborating and working with others in the organis
- Creative Thinking – enhances innovative thinking and efficiency in solving complex problems. Trying new approaches, networking and experimenting with ideas fosters
- Effective Communication Skills – utilising various communication skills dependent on the business or organisational scenario, are essential for retrieving and providing information in any setting and are crucial for building strong business acumen and fostering effective relationships in the workplace.
Developing these skills through practice, learning opportunities, and seeking feedback from peers can enhance business acumen and contribute to personal and organisational success.
In Conclusion
In a rapidly changing business environment where financial literacy is increasingly in demand, developing strong business acumen is crucial for professionals across all sectors.
Business acumen encompasses understanding the organisation’s strategy, having market orientation, and possessing financial literacy. Leaders who possess these core competencies are essential for the success of their business, as they can differentiate their organisation from rivals, deliver greater value to customers, and effectively navigate complexity and change.
Insufficient business acumen has been identified as a primary factor in limiting an organisations’ ability to realise strategic goals. Therefore, leaders and managers need to prioritise gaining a strategic perspective, aligning decisions and actions with the organisation’s strategy, understanding market dynamics and developing financial literacy.
By enhancing these skills and attributes, individuals can make informed decisions, drive innovation and foster collaboration, while contributing to personal and organisational success.