Business Acumen Blog

Harvard Business Review recently described that business competition used to be like traditional theater; where the actors had clearly defined roles, and the customers paid for their tickets and passively watched what takes place on stage. Now the scene has changed and is more reminiscent of experimental theater of the 1960’s and 70’s where everyone and anyone can be part of the action. A perfect example is the recent debit card fee debacle that was never implemented because of customer outrage.

I recently heard a Banker use a prepositional phrase to describe the condition of the Commercial Finance Business: “Simply put, we are over-regulated, and under capitalized”.

While that may be a quick explanation as to why his organization has seen dips in operating profit margin, and return on assets, I wondered if I were to truly take the time to look under the hood of the organization what I would find? How is his organization doing in terms of client retention, established market expansion, emerging market penetration, customer service, competitive advantages, additional product offerings, etc?

Certainly times have changed since September of 2008, and according to a recent CEO survey published by Price Waterhouse Coopers, 84% of corporations have changed strategies within the past two years. But are external factors, such as regulation, really as big of a head wind for top and bottom line revenue growth, as many seem to think they are?

While it is true that regulators have cracked down on “Asset Quality”, regulators are not preventing banks from offering lower interest rates, reducing fees to incent credit worthy borrowers, speeding up turnaround times, providing faster credit approvals, etc.

CFO magazine published a study last year that 46% of companies’ are “more likely” to change some or all of their banking partners. While CFO’s confidence in their banks has increased, data points still suggest that more are ready to switch. The question begs, how well do banks know their people, involve their customers, and how well do they attempt to align strategies to be mutually beneficial partners. I submit that much can be gained that has been lost in those areas.

We teach that People are at the center of our 5 Drivers business model. Simply explained, people means: good employees connecting with their customers. Whether you’re a health insurer dealing with medical expense ratios, a med device company trying to wrestle with product to market, or a bank trying to adhere to asset quality standards, the better you know your customer, the more adept you can become at navigating the regulatory waters in pursuit of growth.

My first real job was for a struggling software company named Novell. I was actually hired in March of 1997, laid off a week later, and then hired back. As 1998 approached I read an article that predicted that Novell was going to be swallowed up in a merger or an acquisition and that Apple’s survival would be based on who they chose as their CEO. In short, one of these two companies wasn’t going to be around in 1999.

Well, Novell was eventually bought, but it would be more than 10 years later. Apple of course would go on to name Steve Jobs as their CEO and change our relationship with technology forever. Who knew? Nobody saw that coming in 1998.

With the passing of Steve Jobs I’ve consumed my fair share of professional and personal obituaries, commentaries and tributes. And as I sit here and type this out on my iMac I can’t help but admire his many accomplishments. As I’ve watched Novell struggle through the years and Apple succeed, it’s a testament to Steve Jobs’ genius. Steve once said, “Design is not just what it looks like. Design is how it works.” While Steve was the genius behind the design of remarkable products, he was also the genius behind the design of a remarkable company. According to reports, Apple was three months away from filing for bankruptcy when Jobs retook the helm. Today Apple is the world’s biggest company, has more cash than the U.S. government, and if I would have bought Apple stock in 1998 instead of my first Mac I would be $159,721 richer today. Bloomberg reported that Ross Perot’s council to the young Steve Jobs was that the only way investors would let him pursue cool things was by delivering consistent profits, and according to Bloomberg’s calculations Steve ran with that advice; Apple has beaten Wall Street’s expectations by 30 percent, on average, since 2006. Now contrast that with Jobs own words, “You can’t talk about profit, you have to talk about emotional experiences.” Interesting that Apple never released a gussied up annual report exploiting the achievements of the company, and yet their results were the envy of business. Well before the releases of the iPod, iPhone, and iPad Ram Charan wrote that Steve Jobs was someone with remarkable business acumen. This complement coming from a wise professor and business guru directed at Steve Jobs the college drop out.

As we read and learn more about Steve Jobs there’s a lesson to be learned when they highlight his business acumen, they’re not saying that Steve understood finance really well. Which is too often how we define business acumen. Steve understood business really well and finance is a big part of business, but so is marketing, so is creativity, so is organization, so is product development, and so is so much more. Steve understood the big picture, or rather all the components that have to come together to make a company successful. And not only did he understand these components, he understood how to orchestrate the components and the players to accomplish incredible amounts of incredibly important work. Case in point… I didn’t demand an iPhone in 2006, I thought my Motorola Razr was more than I would ever need, but in 2007 there I was standing in line to get my hands on an iPhone that a few months early I would have never imagined needing, now I can’t imagine living without it. It’s said that Steve never personally programed anything and that his whiteboard drawings were sometimes incomprehensible, and yet he’ll go down as one of the greatest innovators and business minds of our day.

“Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes… the ones who see things differently — they’re not fond of rules… You can quote them, disagree with them, glorify or vilify them, but the only thing you can’t do is ignore them because they change things… they push the human race forward, and while some may see them as the crazy ones, we see genius, because the ones who are crazy enough to think that they can change the world, are the ones who do.”

Steve Jobs, thanks for being crazy.

So often in our attempts to get on the same page, we overlook the fact that organizations—like books—have many different pages. It’s how all of the pages combine to create the entire book, or the entire organization, that is most important. In your company (and most others), the various functions and departments (the pages) have different areas of focus, specific divisions of labor. But when they work together, they should all have unity of purpose.

The chart below shows some of the key functions that exist in many organizations and the drivers they usually focus on.

It’s entirely appropriate for different functions to focus on the 5 Key Drivers in different ways at different times. But with this focus, they need to make sure they are not sub-optimizing the whole. They must continually see the big picture and understand how their actions are affecting all of the drivers (cash, profit, assets, growth & people). You can see from the chart above that most senior leaders and CEOs of public companies focus primarily on growth and profit, as these tend to drive stock prices higher. You will often hear CEOs state that the goal of the company is something like “To build a profitable, growing, and enduring company.”

It seems simple when presented, but not so obvious in daily practice. When you talk with people in other departments, look at the issue or topic at hand from their perspective and from their functional responsibility. One of the most important applications of business acumen is communicating with colleagues from other departments on the basis of what’s important to them. When a human resources officer speaks with a finance manager about a key initiative, talking about employee satisfaction might result in impatient yawns. However, discussing cost of capital, return on investment, and the expense reductions realized from the initiative will get the finance manager’s attention. If you connect with what’s important to people in other departments, they’ll pay more attention to your ideas.

Cash is fuel. Without it, the engine of a business can’t run, the various moving parts can’t function, and eventually the business slows down and dies. But for businesses flush with cash, the engine keeps revving faster and faster.  In a 1979 interview, Fred Smith the founder of Federal Express said, “People thought we were bananas. We were too ignorant to know that we weren’t supposed to be able to do certain things” (New York Times, January 7, 1979).  Federal Express’s first two years were grim. In fact, on its first night of business, the fledgling company shipped only 186 packages onto its 14 Falcon jets routed to 22 cities.  It was not uncommon for Federal Express drivers to dig into their own pockets to pay for gas.  Despite Fred’s $84 million in start-up capital (another term for cash), Business Week reported that within a few months of delivering his first packages in March 1973, he was desperate for cash. The challenges and risks of starting a major global business were significant. Federal regulations were severely hampering his efforts to compete with the U.S. Postal Service. Suddenly, he didn’t have enough cash to cover a $24,000 jet fuel bill. So what did he do? He went to Las Vegas and played the blackjack tables. He won $27,000 and wired it back to headquarters. Fred’s company was the first American business to hit $10 billion in profits…and you know the rest of the story.

I wouldn’t recommend using this strategy (blackjack) to get cash for your business—or your life! But it’s tempting for people and businesses to take risks when they need cash now to ensure future survival.

Depending upon your role in your company, you will have different opportunities to impact cash. Just remember that fundamentally you can impact cash by increasing revenues (cash in) or reducing expenses (cash out). For example, if you’re in sales or marketing, you can help generate more cash faster by increasing sales revenue. If you work directly with customers, you can provide excellent service so that customers are more likely to continue buying from the company. If you’re in accounting, you might negotiate longer payment terms with suppliers (but be careful that you don’t negatively impact the relationship or give up discounts for early payment) to hold on to cash as long as possible. Or you might work to make sure more customers pay their bills on time or early. If you’re part of the financial management staff, you might be responsible for looking for better financing terms on loans for new equipment.

HR professionals need to be able to clearly articulate the relationship between their people strategy and the company’s financial strength. A study conducted by Cornell University suggests that employees that are managed with progressive HR best practices are more committed to the company, and that this commitment leads them to exhibit proper role behaviors (thus lower workers’ compensation costs, higher quality, and higher productivity) and not to engage in dysfunctional behaviors (that would result in shrinkage). HR professionals who see the big picture and know how to talk about their people initiatives within the context of strengthening the company’s cash position are seen as leaders in the HR field and earn a seat at the table of the big meetings.

No matter your role or your experience, you can work to contain expenses and reduce the outflow of cash by cutting down on all waste. You can get the most out of resources like computers. You can find ways to get jobs done more efficiently so that less money is spent. You can provide amazing service to those that drive revenues (you’re either selling or supporting those who do). If you can contribute to your company’s cash and cash flow, you’ll be valued as employee who practices business acumen – and you’ll help keep the motor running.

We understand our jobs. The big picture, on the other hand, seems so complex.

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, unclear decision-making processes, 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 (not always readily identifiable), we might “tinker” and fix the wrong thing.

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

How did we distill it down to these five? We used the core financial statements—the income statement (profit), the balance sheet (assets), and the statement of cash flows (cash)—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 and vendors providing value to paying customers, the other four drivers cease to exist.

Like the twenty-six 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 resource decisions, 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.

The 5 Key Drivers will help you to understand and visualize how even the most complicated business can be analyzed and improved. And to learn how you can better contribute to your company’s success, to become more visible and valuable.

You’ve probably heard of these essential elements, but you may not really understand their full importance and interdependence in creating sustainable financial success. While each driver is unique, it is also completely dependent on all of the other drivers. You cannot affect one without influencing 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 leading a business into the ground.

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. But to do this, you need to understand how people communicate about these drivers.

The language of business is finance. And finance means numbers. And numbers intimidate many people. But if you think of financial statements like you would a health report from your doctor, you may not be as intimidated. You don’t need to understand every number or how it was calculated, but recognizing a critical few pieces of information—those that reflect the 5 Key Drivers—will help you understand the health of any company.

• If you want to be more visible and valued, then 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 identified by senior management.

Keep in mind, even your manager might not be as knowledgeable in some of these areas as you think. 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. In short, you’ll be acknowledged as someone who sees the big picture.

Each time I present the asset portion of our Building Business Acumen course one of the participants will usually suggest, “in our company people are our greatest asset”. I will usually push back to determine how strong their conviction is and will find the class as a whole defending their colleague’s expression in adamant agreement.

After multiple experiences such as this, I find myself contemplating two questions on this topic. First, why is this important for our employees to feel like valued contributors, “our greatest assets”, and second, what are some basic business acumen principles that help to establish this type of culture.

Why is it important for employees to feel like our greatest asset?

First, when employees feel as though they are engaged and contributing to the overall success of the organization their intrinsic drive will motivate them to build greater competencies and skills, become more productive, and create an environment ripe for success.

Second, this environment nurtures the desire to succeed. No one is walking into work thinking, “I hope I stink it up today”. Employees want to do a good job. They want the autonomy to make decisions that add value; they want to be in control of their success, and they want to feel a connection to the team and the cause.  Engaged cultures breed individual and organizational success.

Finally, business leaders have not had to worry as much about retention during the last few years. Employees for the most part have been grateful to have a job (as we recover from the great recession though this may change). Employees that question their value or ability to contribute will begin to exit and move to other opportunities. Business may loose strong employees all because they do not feel as though they are successfully contributing to the overall success of the company.

Three Best Practices for Engagement Culture

So, what do business leaders do to build a valued contributor culture? How do these leaders help their employees feel like they are the company’s “greatest asset”?

First, trust your employees—When a leader exhibits trust in the employee the employee develops confidence, which produces better performance. When an employee feels as though they are not trusted, they doubt their performance and they’re fearful of making mistakes, thus decreasing performance. Trust requires a business leader to let go of control and allow for autonomy. It is a must for business to succeed.

Second, recognize employee contribution—Leaders are often pretty good at identifying when things have gone wrong. Work to identify those things that are going right. Never forget that most of the time employees are doing things right, recognize it!

Finally, include employees in decision making—As a leader increases employee involvement in the business, employee commitment to the success of that business increases. Great leaders recognize that they may not have all of the answers and see the value of including others in business decisions.

In the final analysis, employees are the greatest assets for any company. Although cliché, the more a leader recognizes and works to reinforce the expression, the greater the company will succeed.

Up at 5 am and off to the office two hours early to help your team finish up that big project that’s expected to be the next most pivotal moment for your company and personal career.  Well, at least that is what you tell yourself as you race in and battle the daily grind. But do you really know if your two hours of overtime is good for your company? Like it or not, your seemingly insignificant decisions make a bigger difference than you probably think.

Recently a leader in the aerospace and defense industry hired MetrixGlobal (an independent Training ROI research firm) to evaluate their Building Business Acumen® course (that’s us). At the beginning of the course we asked the participants the same ten questions that we’ve been asking at the beginning of every course since 2002.

1. How much cash is on hand?
2. How much cash is generated from operating activities?
3. What are total revenues (sales)?
4. What is the net income?
5. What is the net profit margin?
6. What is your inventory turnover?
7. What is your return on assets (ROA)?
8. How much are sales growing year over year?
9. How much is net income growing year over year?
10. How much is earnings per share (EPS) growing year over year?

This little pop-quiz has probably been conducted tens of thousands of times to over 75,000 business people in over 20 different countries – and the results are pretty consistent: 80% of employees don’t know the answers. This client was no different.

So we got to work helping them understand why these measures are important, how to find the answers to these questions, and how to make better and faster decision based upon their understanding of these questions.

This sounds all very number-ish, but MetrixGlobal’s study didn’t evaluate a participant’s financial understanding, rather they measured how well participants applied what they learned and the impact these actions had on their organization.

The study found that overall two-thirds of participants applied what they learned, resulting in improved business performance, teamwork, collaboration, and communication. It went on to report that manager’s decision-making and people’s actions are now more tightly aligned to business priorities. The report estimated that these benefits produced more than a 300% return on investment (we’ll take that).

There’s no question that participants increased their financial literacy, but that wasn’t the end goal. The client was looking to…

• Increase bench strength
• Accelerate the development of their high-potentials
• Clearly communicate vision and strategy
• Address key business challenges
• Create alignment around their executive initiatives

They recognized business acumen as part of  the solution and this study has validated their strategy. But the study also validates what we’ve been pushing for years, when you help employees understand the measures and teach them how to tap into the right people, processes, and corporate knowledge you get better results – you get people with business acumen – you get business leaders.

You can download the report here: MetrixGlobal Business Acumen Evaluation

If you’ve ever taken our course, or sat in one of Kevin’s presentations you’ve seen our Five Business Drivers model.

Cash is measured on the Cash Flow Statement, Profits are measured on the P&L, Assets are measured on the Balance Sheet, and analyzing these financials over a period of time will help you measure Growth. And then there’s that Fifth Element: People, which sometimes takes a backseat. Just ask any business Executive how they measure the success of their company and they’re likely to have an answer that has something to do with one of the first four drivers. Sure everyone agrees that people are our most important asset, and we all get it… it’s the decisions of people that drive the numbers, but we struggle to measure the performance of people.

Look, in an increasingly complex and global business environment, producing and recruiting top level talent who aren’t afraid of change, who take the right strategic risks, who bring about unseen opportunities, and who don’t flinch when it comes to creating and recreating a competitive advantage will make all of those numbers on your financials look healthy. But too often we measure people by measuring the financial statements; Assuming that if we’re reaching some agreed upon financial goal that we must be managing our people well. While that’s one way to look at, it’s probably not the smartest.

Take Mark Little, his story is shared in Ram Charan’s latest book that he co-authored with Bill Conaty, “The Talent Masters”. Mark was on the path to success as GE’s Vice President of Engineering for their power systems division. This made him one of the top 125 executives at one of the world’s biggest companies. And then disaster.

The rotors that run GE’s turbines were failing, the media picked up on the story, and panic set in that GE would struggle to compete in a very profitable market. The divisions numbers plummeted and Mark was replaced, but he was not let go. Instead he was told that the CEO and Senior Vice President in charge of HR wanted to meet with him personally. What he must of thought would be an exit interview, was anything but. The executives assured him that he had a bright future at GE.

Bill Conaty was that Senior Vice President over HR, and in the book he recalls, “Mark wasn’t just a name on our list, but a guy we knew thoroughly.” If GE would have managed Mark based upon the P&L of his division he would have surly been let go. Today Mark is one of 12 executives that report directly to the CEO. He is a key player in driving the success (the numbers) of General Electric.

Business demands that we measure cash, profits, assets, and growth. If you’re a public company it’s the law that you measure these numbers. There’s a science, agreed upon measurements, and a formulaic system for measuring the numbers. But what about measuring people? Charan and Conaty’s opening sentence hits like a piledrive to the face, “If businesses managed their money as carelessly as they managed their people, most would be bankrupt,” they continue…

“Managing people with precision is without question harder than managing numbers, but it is doable and gets easier once you know how. Companies such as GE, P&G, Hindustan Unilever, and some others analyze talent, understand it, shape it, and build it through a combination of disciplined routines and processes, and something even rarer and harder to observe from outside: a collective expertise, honed through years of continuous improvement in recognizing and developing talent.”

Remember that the Fifth Business Driver is the true measurement of a company’s success, but it doesn’t (and can’t) stand alone. There’s an opportunity for HR professionals to elevate their departments from second class, to mission critical. The CFO and the Senior HR Executive should be seeing the same things, tackling the same problems, and architecting plans to capitalize on an ever changing marketplace. Of course, in order to do this you need to be respected as a business leader first and an HR professional second. Practice and perfect your business acumen to position the Fifth Driver at the center of your company’s success, champion the interdependence of the Five Drivers, and be obsessed with measuring people and numbers.

The IBM Institute for Business Value and IBM Strategy & Change recently published the results of their biennial study that attempts to better understand the challenges and goals of today’s CEOs (a link to this report is at the end of this article). IBM’s own CEO, Samuel J. Palmisano, gives a concise summary of their findings…

1. The world’s private and public sector leaders believe that a rapid escalation of “complexity” is the biggest challenge confronting them. They expect it to continue—indeed, to accelerate—in the coming years.
2. They are equally clear that their enterprises today are not equipped to cope effectively with this complexity in the global environment.
3. Finally, they identify “creativity” as the single most important leadership competency for enterprises seeking a path through this complexity.

Ok, I get it – the world is becoming increasingly complex, businesses don’t know for sure how to navigate these complexities, but hey… creativity will save the day?

Now if you’re like me, the word “creativity” instantly conjures up images like this…

…and I start thinking, “We’re doomed.”

I recently read that Oprah was invited to give the commencement address at Stanford University, and that she gave each graduate a copy of the book A Whole New Mind: Why Right-Brainers Will Rule the Future, by business writer Daniel Pink. Well I wasn’t about ready to let all of those Stanford grads rule the world, so I picked up my own copy and began to read. Here are the first two lines of Daniel’s book…

“The last few decades have belonged to a certain kind of person with a certain kind of mind—computer programmers who could crank code, lawyers who could craft contracts, MBAs who could crunch numbers. But the keys to the kingdom are changing hands.”

How’s that for laying it all out? After reading the introduction I was a little skeptical (ok a lot skeptical), especially since I work for an office full of number crunching, spreadsheet lovin’, financial geeks. Not to mention that we’re in the business of teaching people how to read financial statements (i.e. crunch numbers). So I had my guard way up and was prepared to punch holes in Daniel’s ideas, but quickly discovered that Daniel was on to something. Further, to my surprise, I found many of his ideas in lockstep with the concept of business acumen. Read this for example…

“Much of the Industrial and Information Ages required focus and specialization. But as white-collar work gets routed to Asia and reduced to software, there’s a new premium on the opposite aptitude: putting the pieces together, or what I call Symphony. What’s in greatest demand today isn’t analysis but synthesis—seeing the big picture, crossing boundaries, and being able to combine disparate pieces into an arresting new whole.”

And now compare that to this statement on our website…

“We find that business acumen is often a missing link in leadership and management training today. While many aspects of business are taught in colleges and universities (i.e. accounting, legal, marketing, medicine), these skills are specialized and segmented. This practice produces an excellent understanding of the profession, or skill set needed to get a degree, but creates distance from the whole of running or impacting a business. We believe that every employee needs to understand how his or her role fits into the big picture and how their decisions impact the business in it’s entirety.”

Our point is this; you can be financially literate and lack business acumen. And Daniel’s point aligns pretty closely with ours; employees who understand the big picture (business acumen) will be more valuable than number crunching MBAs (financial literacy). Now before you attempt to change your logical, linear, by-the-numbers, way of doing things – you need to know that Daniel argues that left-brain thinking still matters, but that it’s simply not enough. We make a similar argument to learning and development leaders every day – having an understanding of the financials matters, but it’s not enough. Think about it, who would you rather hire as your store manager: Someone who can read a P&L and define all of its terms, or someone who knows how to think creatively and make decisions that will positively impact the P&L?

Daniel challenges readers to develop a Whole New Mind, one that doesn’t rely exclusively on traditional left-brain attributes. Likewise, Acumen Learning challenges employees to develop their business acumen – to develop a new way of thinking about their role as a business leader. I think we’re onto something! In business the future will be ruled by employees who combine traditional left-brain thinking with right-brain qualities like artistry, empathy, inventiveness, and big-picture thinking – and to me that sounds like someone who could make a real difference at company – or in other words it sounds like someone with business acumen.

Benchmarks are an important consideration when looking at the overall change in improvement or success of a business. Decision makers that are looking to be an agent of change will typically look at three measurements:

1. Internal benchmarks (ROI, ROE, ROA)
2. External competitive benchmarks (company #1 ROI compared to company #2 ROI)
3. External economic benchmarks (Sales growth compared with an average)

Internal benchmarks are the staple of smart employees that are trying to prepare for change or lead change. From a Sales Director trying to beat last quarter’s results, to an HR director measuring the ROI of a new on boarding initiative – thinking in terms of “return” will help you see the path forward and navigate inevitable changes to your business.

Likewise, looking to see how your company compares to those considered competitors is a smart exercise. Unfortunately, too often even the best employees can’t see the forest through the trees. It’s easy to look at personal performance, department performance, and even company performance and assume that all is well. When evaluating your company against a competitor or the economy try to step back and see the big picture.

For example, the S&P 500 has long been looked at as one of the benchmarks of the US economy and in recent years has seen a decline in the overall average revenue reported by each company ($17.9b in 2008 to $16.7b in 2009). That being said, it is important to point out that not every company and not every sector of the S&P 500 has declined in revenues.  Take the telecommunications sector; you will see that the overall sector improved from $427b to $436b. Represented by just 9 companies, that’s approximately a $1b improvement per company in an economy that is showing a decline.

As much as external factors impact the success of the business they are less controllable than internal factors. Nevertheless, employees who practice and perfect their business acumen understand how their decisions play a role in impacting their department, which can impact the company, which can impact the competitive landscape, which can impact the economy.  That’s not to say that employee X who decides to loaf around on the job will bring the economy to a halt, but it is to say that employee X is an important part of our economy. Helping employees understand the financial implications of their internal decisions translates to success and improvement externally.

For instance, encouraging internal best practices like continuous improvement, product development, customer relations, employee training, and the like can enable a business to grow and improve despite the external economy. The opposite also holds true; staying the course with what has worked internally for years could enable an external competitor to catch up and potentially surpass you.

Employees with business acumen understand how to benchmark company performance to consistently make better decisions. They’ll know what it takes to stay competitive despite economic challenges and they’ll lead teams that are a step ahead of the ever changing business environment.

I recently read the book “Rework” by Jason Fried and David Heinemeier Hansson. It begins with this statement…

“We have something new to say about building, running, and growing (or not growing) a business.”

Based on “Rework’s” opening statement, I expected to read about ideas and concepts that would fly in the face of what we teach to some of the world’s most profitable companies; that every business is the same inside and that there are universal principles of business that are the same whether you’re a street vendor or you’re running a billion dollar company. These rules vary of course, but they don’t change… and they are certainly not new.

The ideas presented in “Rework” will make you rethink hiring, growth, profitability, productivity, and other areas of your business. But with every turn of the page it became clear that the authors intimately understand the principles of cash, profit, assets, growth, and people… the principles we teach in our Building Business Acumen course. That’s not to say that all of their opinions on these principles are right. Nevertheless, the authors understand the principles.

Take Fried and Hansson’s argument for doing less and their call for embracing constraints. This logic doesn’t fit the image of the typical heads-down charging-forward business leader who is constantly pushing for growth. Our course teaches growth as an essential business driver, and one could easily conclude that we’d side with the heads-down charging-forward types. But really our teachings on growth are more closely aligned with Fried and Hansson. I’ve heard our owner, Kevin Cope, say a million times…

“The goal is not growth. The goal is profitable and sustainable growth.”

Unconstrained growth isn’t healthy, and it takes business acumen, or an understanding of the bigger picture, to truly understand why growth for growth’s sake shouldn’t be the goal of any business leader, employee, or entrepreneur. Growth must be balanced in relationship with the other four business drivers… cash, profits, assets, and people.

We echo the words of the authors…

“A business without a path to profit, isn’t a business.”

Employees need to be taught how to think through their decisions, and clearly see how their decisions impact profits and the business as a whole, not just how their decisions impact what they’re directly responsible for.

“Rework” takes aim at many traditional business ideas, but respects the essence of business. Some of the ideas are irreverent, and you may feel at times that the author’s crosshairs are squarely aimed at you (or rather your long-held ideas about work). With that said, you’ll close the book thankful for the author’s willingness to share how they approach building, running, and growing their business. Their version of business acumen is unique and worth reading about.

P.S.
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Companies are trying to save costs in big ways—such as reducing capital expenditures, eliminating unprofitable product lines, and in all-too-frequent cases, reducing their numbers of employees.