The only real security that a person will have in this world is a reserve of knowledge, experience, and ability.
-Henry Ford
Everything should be made as simple as possible, but not simpler.
-Albert Einstein
Have you ever found yourself in one of these situations? You're talking with a senior leader of your company and wish you could say something really insightful to show your knowledge of the business, but your brain goes numb and you can't come up with anything meaningful.
You're attending a meeting with managers or financial types and as they start reviewing financial statements, you get lost. You hope no one discovers that the smile on your face or the nod of your head hides the gap in your knowledge. You can't see what the numbers have to do with what you have to get done today or this week.
Your CEO wants everyone to work harder to meet the company's overall financial objectives. Your manager asks for ideas from the team, but you're struggling to see how improving your job performance will impact the company's revenue or stock price.
You've got a great idea for a weekend business that you and a friend or your spouse could start up to bring in some extra money, but you don't know how much money you would need to get started or how to handle financial matters once you do. You just don't want to be like all those other start-ups that flop.
If you've experienced moments like these, you certainly are not alone. In fact, you're a member of a fairly large group—businesspeople who struggle to understand how the moving parts of a company work together to make it successful and how financial metrics like profit margin, cash flow, and stock price reflect how well each of those moving parts is doing its job.
The solution to your confusion is developing your business acumen, your ability to see the big picture.
Test your Business Acumen and your ability to See the Big Picture:
WHAT BUSINESS ACUMEN CAN DO FOR YOU
Years ago a colleague of mine was consulting with a group of senior NASA managers at Cape Canaveral. He tried to explain, in simple terms, an organizational change strategy. The managers seemed confused. In an effort to clarify, he said, "Please don't make this more complicated than it is. It's not rocket science." To which they sincerely answered, "We wish it were. We'd understand it better!"
Many people, even those with jobs that others think of as incredibly complex, view their business much like rocket science: a lot of complexity, hard-to-understand data and formulas, communications in a language that barely resembles English. Yet most of them wish they could more clearly understand the business of their business and how to help their companies perform better. What they are wishing for is business acumen.
Business acumen is keen, fundamental, street-smart insight into how your business operates and how it makes money and sustains profitable growth, now and in the future.
In 2002, after ten years as an executive with Franklin Covey, consulting with and teaching for dozens of organizational clients, I founded my own training and consulting firm, Acumen Learning. We created and began delivering the Building Business Acumen® seminar. Over the last ten years we have expanded and deepened the initial course. Our focus became the practical application of business acumen to help people at all levels, in any company, in any industry, become more effective in their current jobs and more successful in their future careers.
After working with more than eighty thousand participants in more than thirty countries, including many clients in the Fortune 500 and sixteen of the Fortune 50, the primary lesson we've learned is that businesspeople want to become more effective and valuable, to secure their seat at the table and influence decisions, to impact company performance. They want to use their full potential to help their business make money and sustain profitable growth.
They want these things for two reasons. First, we all instinctively seek out greater engagement- a way to feel that the work we do is worthwhile and makes a difference. Second, they understand something crucial. If you want to be in a better position--a job you like more with better pay, better long-term opportunities, and greater security, for example- you need to understand the key drivers of business and use that knowledge to make good things happen.
To do that, you need the ability to
1. See the "big picture" of your organization-—how the key drivers of your business relate to each other, work together to produce profitable growth, and relate to the job you do each day
2. Understand important company communications and data, including financial statements
3. Use your knowledge to make good decisions
4. Understand how your actions and decisions impact key company measures and the objectives of your company's leadership
5. Effectively communicate your ideas to other employees, managers, and executives
For some of you, this list might resonate immediately. For others, it might raise an important question. Why should you care? Isn't making these connections the responsibility of the executives, the senior leadership, or maybe your boss? Not if you want to be doing something different and better in your career three years from now.
If, through your questions, ideas, comments, analysis, proposals, and performance, you exhibit business acumen, you will be seen as a more valuable contributor. You will demonstrate your worth to the company, and other people will notice.
And that, in a nutshell, is the path to success in almost any career.
Download the course overview for our Building Business Acumen Course:
THE BIG PICTURE
Robert was an excellent call center supervisor . . . or so he thought. He was dedicated to saving the company money because he was worried that they would outsource the call center to an overseas operation. He rarely recommended employees for recognition or raises. If his team presented ideas about new software or equipment that could improve productivity, he would listen but never take them to management for consideration. And he constantly harped on the importance of getting through calls as quickly as possible and up-selling customers as much as possible. He was fanatical about doing his job well.
Robert didn't realize that his narrow focus on cost control and "doing his job well" ignored the big picture of how his company made money and sustained profitability. He wasn't connecting the dots between his efforts, customer relations, and future sales revenue. Or the huge cost of employee turnover the company was incurring every time one of his employees left to go somewhere with better pay and a stronger focus on serving customers. He failed to consider the impact he had on efficiency, profits, and morale by refusing to raise his team's ideas with management.
Ultimately, Robert was viewed by senior management as "a serviceable supervisor in need of development; not likely management material." While he wasn't let go, his performance reviews were never stellar and he could tell that he was being sidelined, but he didn't understand why. Robert missed out on seeing the big picture of his main job: to contribute to building a company experiencing long-term, sustainable, profitable growth.
So many of us fall into the same trap. Like Robert, over time, we tend to become more specialized and get very good at focusing on the specific parts of our jobs, so much so that we fail to see the big picture- how what we do fits into the overall picture of helping the company make money, achieve its strategic objectives, and be profitable.
Some of us decide to get degrees in management, hoping to get that big-picture perspective. But while management education provides excellent training in areas such as accounting, marketing, or finance, students can graduate without an overall knowledge of how a business runs successfully. Their knowledge of the key drivers of business and how they work together can be fragmented, disjointed from the reality of daily operations.
And as with Robert's managers, many leaders assume that their teams have a much stronger grasp of the big picture of how their com- panes grow profitably- greater business acumen--than they actually do, so few take the time to do on-the-job training to deepen that knowledge.
Do you think you're better off than Robert? That you wouldn't have made the same mistakes? Now's your chance to prove it. Take the Big Picture Quick Quiz shown here. The questions were not picked at random; they are the result of research and interviews with hundreds of executives and CEOs from dozens of different industries. They reflect the areas of performance that senior leaders have on their minds and want employees to have on theirs.
We've administered the Big Picture Quick Quiz to over sixty thousand people. On average, people know the answer to fewer than two of the questions.
These questions focus on the overall business, not the operations of your department or division. I suspect that you might be more familiar with some of the performance measures for your immediate team. But your senior management team wants the entire business to be profitable, not just a single unit. They want all employees to understand and better contribute to how the entire company makes money.
THE BIG PICTURE QUICK QUIZ
Answer the following questions based on your company's performance in the
most recent fiscal year. And don't look up the answers!
1. How much cash was on hand at year-end?
2. How much cash was generated from operations?
3. What was the net income (net earnings, or net profit)?
4. What was the net profit (net income, or net earnings) margin?
5. What was the total revenue (or total sales)?
6. What was the inventory turnover (for retail and manufacturing firms)?
7. What was your return on assets?
8. By what percentage did total revenue (sales) grow or decline over
the previous year?
9. By what percentage did net income (net earnings, or net profit) grow
or decline over the previous year?
10. How do your results compare to your competition?
Now check your answers against any of the financial reports you have on
hand. How did you do? How many questions did you get right? Do you even
know where to get this information?
The problem is that while we understand our jobs, the big picture seems too complex to grasp. 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, competitive realities, unclear decision-making processes, regulatory pressure, 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 (which is not always readily identifiable), we might "fix" the wrong thing as we tinker with the business.
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 the business 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 of a business run.
THE 5 KEY DRIVERS OF ANY BUSINESS
When you break down even the largest, most complex multinational company--like Walmart, Apple, Toyota, or Boeing-into its most fundamental elements, you'll find the same drivers that power your business, or any business. What are those drivers?
Cash
Profit
Assets
Growth
People
How did we distill it down to these five? We used the core financial statements- the statement of cash flows (cash), the income statement (profit), and the balance sheet (assets)-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 providing value to paying customers, the other four drivers cease to exist.
The 5 Key Drivers will help you understand and visualize how even the most complicated business can be analyzed and improved. 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 resources, 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 to
support its mission.
You've probably heard of these essential elements, but you may not really understand their full importance and interdependence in creating success. While each driver is unique, it is also completely dependent on all of the other drivers, as shown in the model. You cannot affect one without influencing the 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 running 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. So in chapters 1 through 5, I will explore each of the five drivers in depth, explaining how they are defined, their importance to a business, how leaders balance each of the drivers as they work toward strategic goals, and how any employee can influence them. In chapter 6, I’ll look at the big picture the five drivers create; how they relate to each other and work together to create sustainable, profitable growth; and how they are influenced by factors in the broader business environment. Management's general objective is to achieve a balance among the drivers; supreme focus on one and neglect of the others can be disastrous over time. Throughout the book, I'll offer up real-world stories to help you understand what the drivers may mean to your business, and I'll use the hypothetical story of Austin's Cycle Shop to deepen your understanding of how the drivers play out in a business month to month and year to year.
A key component of business acumen is being able to communicate about the 5 Key Drivers. The language of business is accounting and finance. And this 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.
While business acumen is more than just accounting, an important part of it is understanding a company's "financials." So in chapter 7 I'll explain how financial statements work, and in chapters 8 through 10 I'll take the three most important financial statements- the income statement, the balance sheet, and the statement of cash flows--and de-intimidate them, simplify them. I'll show how these three financials measure the S Key Drivers and how they describe the real-world performance of your company. You'll be able to look for and understand only the most important data and not be concerned with the rest of the complexity.
I encourage you to explore our website www.seeingthebigpicture. com, which offers tools, resources, and further education to help you continue to develop your business acumen.
INFLUENCING THE WHOLE
If you want to be more visible and valued, 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. Keep in mind, even your managers might not be as knowledgeable in some of these areas as you think. While they may be functionally brilliant, they may not see the big picture. But I encourage you to ask questions of the type raised in this book 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.
I hope you'll refer to the book and the resources in it often and apply them in your present job and throughout your future career.
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