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Business acumen, also known asbusiness savviness,business sense orbusiness understanding, encompasses a combination of knowledge, skills, abilities, and experience that enable individuals to comprehend an organization’s operations, functions, and external environment. This proficiency enables the use of business tools and analytical methods to assess situations, make informed decisions, align initiatives with the organization's strategy, and achieve desired outcomes.[1] It is also defined as "keenness and quickness in understanding and dealing with a business situation (risks andopportunities) in a manner that is likely to lead to a good outcome".[2] It involves having a "big picture" view of the business, financial literacy, strategic thinking, problem-solving, and effective communication.[citation needed]
TheUK government considers business acumen to be a skill required by civil service staff with responsibilities in acontract management role.[3] Additionally, business acumen is viewed as having emerged as a vehicle for improving financial performance andleadership development.[4] Consequently, several types of strategies have developed around improving business acumen.
In his 2012 bookSeeing the Big Picture, Business Acumen to Build Your Credibility, Career, and Company,Kevin R. Cope states an individual who possesses business acumen views the business with an "executive mentality", with the ability to comprehend how the moving parts of a company work together to make to ensure success, and how financial metrics likeprofit margin,cash flow, andstock price reflect how well each of those moving parts is doing its job.[5] Cope proposes that an individual who has the following five abilities could be described as someone having a strong sense of business acumen:
Raymond R. Reilly of theRoss School of Business at theUniversity of Michigan and Gregory P. Reilly of the University of Connecticut document traits that individuals with business acumen possess:
Thus, developing stronger business acumen means a more thoughtful analysis, clearer logic underlying business decisions, closer attention to key dimensions of implementation and operation, and more disciplined performance management.[2] The ability to manage complexity also figures in the UK government's description of a business acumen attribute.[3]
Financial literacy is a comprehensive understanding of the drivers of growth, profitability, and cash flow; an organization's financial statements; key performance measures; and the implications of decisions on value creation.
Financial literacy isnecessary, but not sufficient, to establish business acumen. According to Perth Leadership Institute,
Business acumen is based primarily on behavioral and experiential issues, not on formal learning or education like financial literacy. [...] Financial literacy is almost never the need for senior managers and high potentials. [...] The real need for these managers is to understand how their actions and their behavior impact their financial decision-making [and] financial outcomes at the unit and the corporate level.[7]
Bob Selden observed a complementary relationship between business acumen and leadership.[8] According to Selden, this relationship comprises the importance of nurturing both the development of strategic skills and that of good leadership and management skills in order for business leaders to achieve effectiveness.
According to a study titledBusiness acumen: a critical concern of modern leadership development:Global trends accelerate the move away from traditional approaches,[9] traditional leadership development approaches, which are said to rely on personality and competency assessments as the scientific core of their approach, are failing. The study's intended goal is reportedly to demonstrate the importance of business acumen in leadership-development approaches. Business acumen, according to this study, is projected to have an increasing impact on leadership development and HR agendas. Research into this relationship resulted in the creation of thePerth Leadership Outcome Model, which linksfinancial outcomes to individual leadership traits.
In a study that interviewed 55 global business leaders, business acumen was cited as the most critical competency area for global leaders.[10]
In their 2011 book,The Leadership Pipeline,Ram Charan, Stephen Drotter, and James Noel study the process and criteria for selecting agroup manager, and suggest that the process and criteria are similar for selecting a CEO. According to them an obvious criterion for selecting a leader is well-developed business acumen.[11]
An organization full of high business acumen individuals can expect to see leaders with a heightened perspective that translates into an ability to inspire and excite the organization to achieve its potential.[2]
Programs designed to improve an individual or group's business acumen have supported the recognition of the concept as a significant topic in the corporate world. Executive Development Associates' 2009/2010 survey of Chief Learning Officers, Senior Vice Presidents of Human Resources, and Heads of Executive and Leadership Development listed business acumen as the second most significant trend in executive development.[12] A 2011 report explores the impact of business acumen training on an organization in terms of intangibles and more tangible expressions of value.[13] The findings support the notion that business acumen is a learned skill — developed on the job by learning the required skills from knowledge mentors while working in different employment positions. They also suggest that the learning process ranges widely, from structured internal company training programs, to an individual's self-chosen moves from one position to another.[2]
The combination of these reports and surveys indicate that business acumen is a learned skill of increasing importance within the corporate world. There are different types of business acumen development programs available:
Abusiness simulation is another corporate development tool used to increase business acumen. Several companies offer business simulations as a way to educate mid-level managers and non-financial leaders within their organization oncash flow and financial-decision-making processes. Their forms can vary from computer simulations to boardgame-style simulations. While offering an interactive learning experience, the extent to which these simulations replicate the complexities and pressures of real-world business scenarios remains questionable.[14] Furthermore, the lack of behavioral baselines prevents the measurement of any tangible behavioral impact on participants.[15] Critics also argue that the artificial nature of many simulations limits their real-world relevance.[16]
The advent of personal assessments for business acumen is based in the emerging theories ofbehavioral finance and attempts to correlate innate personality traits with positive financial outcomes.[17] This method approaches business acumen not as entirely based in either knowledge or experience, but on the combination of these and other factors which comprise an individual's financial personality or "signature".[18]