The Importance Of Business Acumen Training For Managers And Employees
The message to CLOs is becoming clearer and clearer
. Company leaders want them to align educational offerings with the organization's strategic objectives.
That's not an easy challenge. They must ensure that education and communication initiatives reinforce the company's goals. They must help employees understand these goals and develop the skills and motivation to contribute to them.
And at the most basic level of alignment, they must make sure that every employee understands how the company makes money. That includes understanding how profitability is driven, how assets are used, how cash is generated and how day-to-day actions and decisions, including their own, impact success
Developing
business acumen is fundamental to business alignment. Consider Southwest Airlines, which was founded in 1971. With 33 straight years of profitability, the airline has become widely recognized for the motivational culture it creates for employees its extraordinary dedication to customer service.
Much of the industry has suffered during the years of Southwest's growth, including many airlines that have merged or declared bankruptcy. Southwest buys the same planes and the same jet fuel as other airlines, and pays its employees competitive wages and benefits. What's the difference?
Unlike some of its competitors, Southwest's management team involves employees in the company's financial results, explaining what the numbers mean and, more important, helping to link everyone's decisions and actions to the bottom line. The airline has an open culture, one of inclusion at all levels, and employees understand their roles in providing great service and keeping costs in line.
Certainly there are other factors that contribute to the success at Southwest, but it's difficult to ignore the positive impact of an approach that develops the business acumen of all employees and managers so that they can contribute to the airline's success.
An Educational Challenge
Unlike those at Southwest, individual contributors and managers in many organizations today have not been educated about the big picture of their businesses. They have a narrow focus on their own departments and job functions and aren't able to make the link between their actions and the company's success. Multiplied by hundreds or even thousands of employees, this lack of understanding the lack of true business acumen means that too many decisions are being made and too many actions are being taken that don't align with business objectives.
How can training help bridge this knowledge gap? For many companies like Southwest, implementing learning programs designed to develop a strong foundation of financial literacy and business acumen has made the communication of financial results to employees easier and more effective.
Business Acumen: A Definition
Very simply, business acumen is the understanding of what it takes for a business to make money. It involves financial literacy, which is an understanding of the numbers on financial statements, as well as an understanding of the strategies, decisions and actions that impact these numbers.
Someone with financial literacy, for example, would be able to "read" the company's income statement. This employee or manager would understand the terminology (revenue, cost of goods sold, gross margin, profit, etc.) and what the numbers represent (i.e., gross margin equals total sales/revenue less the cost of goods sold).
With business acumen, the individual would be able to "interpret" this same income statement, taking into consideration how company strategies and initiatives have impacted the numbers during specific periods of time.
Consider a simple comparison: In football, it's necessary for players to know how the game is scored as well as how to play the game to change the score. In business, financial literacy is understanding the "score" (financial statements) and business acumen is understanding how to impact it (strategic actions and decisions).
Asking the Right Questions
When business acumen spreads through an organization, employees and managers begin to ask questions. These questions are directed not only at the organization, but also at themselves and their departments questions about processes, products, systems, staffing and more that can lead to necessary and innovative decisions and actions.
Business acumen helps everyone understand that it's not enough to ask, "How do we cut costs?" or to say, "We need to increase sales." Digging deeper, employees with higher levels of business acumen will ask questions that take into consideration the far-reaching impact of potential decisions and demonstrate a greater ability to make the connections between performance and results.
Questions that could get to the root of disappointing operating ratios:
Have production costs gone up? If so, why?
Have we changed prices? If so, how has that affected our margins?
Are there any competitive issues impacting our performance?
Have there been any customer requirement changes?
If our costs per unit produced have gone up, can we better control the efficiency of our production or service delivery?
Is there a way to produce a greater product volume at the same cost?
Can we raise prices, still provide value to the customer and remain competitive?
When questions become more specific, the right decisions can be made.
Business Acumen for Managers
Managers at all levels need a high level of business acumen to do their jobs. Every day, they make decisions about employees, projects, processes, expenditures, customers and much more decisions that ultimately roll up into larger organizational results. Managers who make these decisions while looking through a departmental lens only, with a limited understanding of how these decisions affect financial results or how they are tied to the organization's goals and objectives, are working in silos that can ultimately damage the company.
Managers are often promoted to their positions of responsibility because of their "technical" expertise. They've been successful customer service representatives, great salespeople, innovative researchers or well-respected IT professionals. They are now entrusted with decision making, budgets, projects and people. They often do not have financial literacy, nor have they developed a higher-level perspective about the business. Over time, especially if they move up the managerial ladder, they may develop these. Or they may not.
Organizations need managers who operate as part of the management team, taking accountability for their own results as well as the results of the entire company. Therefore, more and more organizations have built financial literacy and business acumen into managerial competency requirements and have integrated
business acumen training into management curriculums.
Business Acumen for Employees
Although there is little debate about the need for managers to develop business acumen, organizations sometimes question the need for this understanding at employee levels. But frontline contributors, those who are most directly involved with production or customer service, for example, take actions every day that impact business results.
Consider the salesperson who discounts products, or the service representative who deals with an unhappy customer, or the maintenance person who notices a problem. The actions each of them takes might erode profit margin, lose a good customer or allow safety issues to escalate. Without an understanding of how their actions impact the company's results, they might not have the context to consider alternatives.
Many organizations have determined that financial literacy and business acumen aren't just for managers anymore. They have decided to develop a company of people who understand the business; who know what return on assets and return on investment mean; who know how inventory turnover rates affect results and the importance of positive cash flow; who see the connection between the company's financial success and their own health benefits, 401(k) plans and more. In other words, they need people who understand the "business" of the business.
In his book Good to Great, Jim Collins says, "We found no evidence that the good-to-great' companies had more or better information than the comparison companies. None. Both sets of companies had virtually identical access to good information. The key, then, lies not in better information, but in turning information into information that cannot be ignored."
With an increased level of business acumen, managers and employees can better interpret information, making the connection between their actions and the company's results.
Another Reality of Today's Business World
A public company's operating results are well known at the end of each quarter. Analysts, investors, the media, employeeseveryone has access to a company's financial results. With a significantly increased focus on accounting improprieties over the past few years, senior management has become highly conscious of the need to provide accurate and timely financial information. And employees have become much more likely to wonder about these numbers. "Is my company being honest? Are the numbers telling the whole story?"
Without a fundamental understanding of financial results and an ability to interpret them, employees may become suspicious and, ultimately, disengaged. Disengaged workers, in turn, negatively impact productivity and profits.
CEOs of public companies, then, must ensure that managers and employees are able to understand the numbers and have confidence in them. That means effective business acumen education as well as ongoing and open communication from the top.
Former GE chairman Jack Welch said in his book Straight from the Gut, "Getting every employee's mind into the game is a huge part of what the CEO job is all aboutThere's nothing more important."
The Big Picture
As we have become a nation of specialists, armed with new information technology and enterprise-wide operating systems, it has become easier for managers and employees to become myopically immersed in their own jobs. This immersion can have the effect of obscuring their view of the big picture. They may not consider the cumulative effect of wasted assets. They may have little regard for the objectives and responsibilities of other team members, departments or divisions. They may lack the motivation to invest personal energy in critical project work.
Organizations that engage in developing business acumen provide a clearer vision and an overall context within which employees can work, while creating an environment that is more likely to break down internal barriers. There is less waste and less ambivalence. There is increased innovation. Employees are more engaged, they understand their role and its impact on business results, and they are more likely to believe that their efforts really matter. They are more likely to think like a business owner.
Think Like an Owner
To be successful, business owners must be able to helicopter above day-to-day issues and see the big picture. They must understand how the pieces of the business fit together to impact profitability and cash flow, and they must be able to assess the risks and rewards of potential decisions. The best business owners study the numbers, ask themselves tough questions, analyze their mistakes and take decisive action.
To truly understand the business, owners have to understand how that business makes money in other words, how it produces sales, profit and cash. Organizationally, they know that it's about people, processes and productivity. On the customer front, it's about satisfaction, loyalty and market share. Ultimately, every action taken and every decision made in any of these areas will impact sales, profit or cash.
When managers and employees begin thinking like owners, they, too, look at the big picture, understand how all the pieces fit together, and assess risks and rewards. They understand, like an owner, how the company makes money, how it stays in business and how they contribute to its success.
The benefits to an organization of engaging managers and employees in this kind of ownership thinking are obvious. So how can a company develop the business acumen of its people?
Developing Business Acumen: Two Stories
Entrepreneurs are generally forced to develop business acumen on their own. They are hands-on with their businesses and have to make all the decisions as they go along, whether good or bad. They either learn from their mistakes or fail.
It's very different for managers and employees in an organization.
They aren't involved in all aspects of the business, and they make decisions primarily within their own areas of responsibility. Since seeing the connections isn't easy, they need to learn in some other way.
Books and lectures can help. But business acumen is best developed experientially. Learners must be able to analyze situations, ask questions, discuss issues with other learners, consider options, make mistakes and see results.
Although there are a variety of ways to accomplish this kind of experiential learning, many companies have found that simulations, which mirror reality and allow learners to experiment in a safe environment, are one of the best ways. Here are the stories of two companies who chose to educate their learners with business simulations.
Comcast Cable Communications
The NorthCentral Division of Comcast one of the country's largest entertainment, information and communications companies, specializing in cable television, high-speed Internet and telephone service set out to ensure that managers and employees throughout the organization had the financial acumen required to make good decisions. A companywide survey had clearly demonstrated this need especially for managers of employees who had direct contact with customers.
For example, if a customer calls with a service problem, frontline employees and their supervisors can issue credits to the customer's account in an effort to resolve the issue. Although this may be exactly what is needed for the situation, Comcast realized that employees making these decisions didn't necessarily understand that a $10 credit could ultimately require more than $100 in revenue for the company to break even. Similarly, a service technician's visit to a customer's home might cost $50 directly, but the company might have to sell an additional $500 in services to cover the cost.
"The lack of financial acumen among supervisors and employees was largely understandable," says Mark Fortin, senior vice president of finance for Comcast's NorthCentral Division. "Almost 75 percent of the company's employees are on the front lines in roles such as call center personnel or field technicians. They are trained to be good at what they do, but their backgrounds typically don't include emphasis on financial literacy."
Comcast human resource executives determined that a fundamental approach to the development of business acumen was needed. However, this approach also would need to be fast, engaging and job-relevant. Expanding upon its already robust Comcast University management curriculum, the executives chose to integrate a high-energy, tailored learning experience that would provide the "basics" and, at the same time, deal specifically with Comcast terminology, concepts and strategic imperatives.
As they participated, learners made decisions about products, processes, pricing and more, and they saw how those decisions impacted financial success. In the end, it became easier for them to make sharper day-to-day choices.
"The thing that sticks out for the frontline leaders, the field technicians, and the call center supervisors and managers who attend, is the high cost of sales in our business," says Sophia Alexander, senior manager of curriculum and metrics for the division. "It's like a bell goes off in their heads when they realize what it costs for us to earn what we need to earn to run the organization."
Attending the learning session is not mandatory for supervisors and managers. However, there is an unwritten expectation that they will participate in business acumen training as well as other Comcast University core programs, according to Jan Underhill, senior manager of leadership development for the NorthCentral Division. That expectation, coupled with the fact that manager compensation has recently become tied to meeting specific financial goals, has kept attendance high.
Senior executive support also has been an important factor in creating interest and awareness around financial literacy. "Getting people to sign up is much easier when senior executives like Mark Fortin are strong advocates for the program," says Underhill.
Feedback has been resoundingly positive. On average, for example, Level 1 feedback about the discovery learning based business acumen sessions has been 4.5 on a 5-point scale. That means that the program has exceeded expectations. Better than that, says Sophia Alexander, senior manager of curriculum and metrics for the NorthCentral Division, is the empirical evidence that the new insights and knowledge have made a difference. For example:
Participant self-evaluations indicate that financial literacy has increased by at least 25 percent as a result of the business acumen training.
After the training, there was a 20 percent increase in the participants' ability to use basic financial terms and concepts on the job.
Almost 45 percent of supervisory participants report that they are using their business acumen knowledge in daily communications with staff and peers.
"Some people, particularly in big companies, feel like there is an open checkbook. They think I don't own the company. It's not my problem. Somebody will pa
by: Ray Green
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