Thought Leadership

Why Your Entire Organization Needs Business Acumen

Business acumen doesn’t get as much attention as it deserves from researchers, but compelling statistics point to why it should:

  • 90% of Leadership & Development (L&D) leaders believe there is a need for business acumen in their organizations.
  • 65% of leaders believe insufficient business acumen will limit their organization’s strategy potential.
  • Only 7% of employees fully understand their organization’s business strategies.
  • 87% of organizations fail to execute their strategy.

So, what exactly is business acumen? It’s more concrete than instinct or “business sense.” Business acumen is a set of learnable attributes and skills that give people an understanding of how a business works and what it takes for the enterprise to make money. Without business acumen, individuals make decisions that fail to consider the financial and strategic impact on the organization. With business acumen, they do, and their better decisions have telling results: positive top-line revenue and bottom-line profitability. Business acumen also equips these individuals to prioritize their day-to-day actions to align with organizational strategy.

It may sound like business acumen is useful primarily for top leaders, but that’s not the case. The value in elevating business acumen across your entire organization is substantial.

  • Executive leaders need it (but often don’t have it).
  • Middle managers become more efficient and more confident in their decision-making with it.
  • Individual contributors gain an ownership mindset through applying it.

Overcome the Surprising Lack at the Executive Level

When employees reach the leadership level, they’re expected to exhibit business acumen and financial literacy on the job. They should know how to combine multiple business factors to make sound decisions that align with organizational strategy and achieve desired results.

There’s data, however, that clearly indicates the need for leaders to improve their skills in this area. Inc. Magazine recently reported that the average score among executives taking a financial literacy exam was 38%. What would be the impact on organizational results if that average was doubled (which at 76% would still be a “C” grade)? Leaders with this increased understanding would be making better decisions that align more closely with their financial strategies and objectives.

Imagine the added impact of executives with an “A” grade. Leaders displaying that degree of understanding bring a significant competitive advantage to their organization. At the highest levels of business and financial acumen, leaders can even reach celebrity status: Bill Gates, Elon Musk, GM’s Mary Barra, Apple’s Tim Cook, and the like.

Foster More Efficient, Confident Middle Management

Compared to executives, everyday decisions made by middle managers have smaller scope. When considered as a group, however, their impact is massive. Business acumen at this level determines the organization’s agility and productivity. Without business acumen, it’s often sheer luck when a manager makes a decision that aligns with overall strategy. With business acumen, managers understand how the money their department spends affects net income, EBITDA, and GPM. They realize how the choices they make impact other departments. They intentionally direct their day-to-day work and decision-making toward achieving organizational objectives.

This greater awareness of the business impact of their daily activity increases their efficiency. Managers with business acumen make quicker, data-driven decisions and require less supervision from the executive level. Knowing where their decisions fit into the process inspires more thoughtful, cost-conscious choices. Without business acumen, a series of ill-founded decisions can turn into a systemic and costly problem.

Importantly, business acumen unifies an organization with a common language, promoting more effective and efficient communication. Leaders and managers who can confidently use financial terminology and concepts in their discussions benefit from a clear understanding of the impact on strategy or decisions.

Shift Individual Contributors to an Ownership Mindset

Now let’s say an organization has made the effort to increase business acumen among its executives and middle managers…but stopped there. Good managers do more than administer day-to-day routines and monitor performance. They provide context—the “why” behind decisions to their teams. Will that communication benefit from the common language managers are now using with executive leadership? Yes! When financial numbers are the basis for explaining decision-making and motivating employees, it’s not effective unless individuals fully understand and can connect their jobs to those numbers.

Consider the warehouse workers who dropped several cases of lightbulbs, destroying the bulbs and the $25 profit they would have generated. Their initial reaction was, “It’s just $25. What’s the big deal?” But after learning about net income margin and that their company’s was 2%, they understood how their store would have to sell $1,250 in merchandise to make up the lost profit on the broken bulbs! After that incident, they worked as if the warehouse and the merchandise inside it was theirs. This was a change in mindset.

With better understanding of the financial realities, decisions, and influences facing their organization, employees learn to think and act like an owner. This “ownership mindset” is difficult to measure, but it’s highly associated with employee engagement, which has been the subject of extensive study. The 2023 report by Gallup shows that engagement has risen since the pandemic but still languishes at 23%. They estimate that disengaged employees cost the global economy $8.8 trillion (9% of global GDP) per year. In the U.S., the estimate is $450 to $550 million, which translates to $3,400 lost for every $10,000 in salary.

Business Acumen Training for Better Results at Every Level

Although these engagement statistics are presented in relation to individual contributors, disengagement occurs at every level of an organization. The situation is troubling, but there is good news:

  • A recent report from Udemy indicates that 80% of employees say L&D opportunities would make them more engaged on the job.
  • Since business acumen is a learnable skill set, it is a viable L&D solution.

This suggests that business acumen training will contribute to increased engagement. That would be a big bonus on top of what this training already offers employees: better decision-making and the ability to align daily work to organizational objectives.

The benefits of business acumen extend to every level of the organization. As executive leaders may significantly need to improve their skills, starting there will reap immediate rewards from better top-level decisions.

At the middle manager level, beyond the increased efficiency and confidence that business acumen gives them, training in this discipline also communicates that they are valued and appreciated. In the 2023 Middle Manager Survey by Capterra, 74% of respondents said they “rarely” or “never” receive managerial training. Translation: There’s a huge opportunity here to upskill and express appreciation (in addition to potentially increasing engagement).

Finally, it’s essential to equip individual contributors with a robust understanding of how the business works and give them the right language to communicate about it. This may seem like an investment that won’t pay off, but employee engagement statistics say otherwise. Developing ownership mindsets at this level boosts productivity and, by extension, all-important profitability.

Maximize Training ROI with “Experiential Learning”

The decision to deploy business acumen training is only half of the battle. What’s the use of training if it doesn’t stick? Retention is key to getting a return on training investments. National Training Laboratories, a behavioral psychology center, measured average retention rates of various training methods. At the low end are methods like lecture (5%), reading (10%), and audio-visual (20%). At the high end are practice by doing (75%) and teaching others (90%).

Until one can teach it, the realistic option for high-retention business acumen training is practice by doing, also known as “experiential learning.” Our simulation experience, Zodiak®: The Game of Business Finance and Strategy falls into that category, adding gamification to increase engagement and boost retention even more. On top of that, the experience is customized with the organization’s unique objectives, metrics, and competitive realities, so that acumen gained is immediately applicable. Learn more about Zodiak here.

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