Victor L. Magdaraog
“Think and act like an owner!” You may have heard this a number of times. But what does this mean? It means knowing how the business works and taking coherent actions that reflects good business sense. Do you know the primary drivers of the business or the firm you work for? Here’s quick test. What are the top three factors that propel business success? No, it’s not the boilerplate “our products, processes and people” response. It’s more than that. Understanding what sets your business in motion and taking a set of deliberate actions is the essence of business acumen.
Business acumen includes formulating a mental model of your company. A simple example - If you generate more revenue and keep costs down, the company makes profit. Establishing relationships like this is a representation of your business model. Obviously, business is more intricate and has more complex relationships. The idea is to learn both deductive and inductive relationships. In writing software practitioners often refer to the ITTT (If this, then that) logic. Business has similar cogent rules as well. We learn this kind of business logic from others or experience. However, there are other situations when we observe an event, for example a spike in revenues or customer demand, but not know for certain what influenced it. Using inductive reasoning, we attempt to identify probable causes of the event. The business model represents valuable algorithms of business. Business sense influence the coherent actions needed to successfully run the business.
What are some of the essential elements of a business model? These could include perceiving or understanding aspects and their interdependencies like:
What value does the firm offer? To whom?
How is value created by the firm?
What are the most critical elements in the value creation processes?
How is value delivered to or experienced by the customer?
How do we capture value and how fast?
What is the contribution of intangible assets to the firm?
As you develop the mental model and take the coherent actions, it is equally important to keep score and measure value. This is done through the language of management – financial statements. To demonstrate astute business acumen requires knowledge of the business numbers. How is value creation and capture represented through the firm’s profit and loss statement? What does the balance sheet convey? Which financial ratios are most important to inform on what’s going on with the business?
Turning the business model into reality and achieving the targeted financial numbers will not be possible without people. Business acumen includes ensuring everyone in your team understand the model and the numbers. Through experience business proprietors discern their commercial insights and expect their associates to have the same perspective thus, they ask associates to think and act like an owner. Business acumen is not only for the business owner or the CEO. It is for everyone in the firm. Understanding where associates fit in the value chain or figuring out how they contribute to the value creation and capture process is key to supporting business success.
Business acumen is a skill and can be developed. Entrepreneurs learn and hone their business acumen competence mostly through experience. They gain commercial wisdom through the pain of errors and blessing of success made along the way to fortune. The good news is that they have paved the way for others to learn and develop business acumen. Some of these lessons are passed on through books and knowledge sharing events. Although nothing beats experience, it could be too costly, nor can everyone have the opportunity to run the business like an owner.
The next best thing is to utilize business simulations as a platform for learning. Simulations offer an opportunity to develop business acumen through experience. A business simulation like Celemi’s Decision Base provides the instance to understand a basic business model, including value creation and capture while providing the participant the opportunity to take actions that leads to situational awareness of their own firms. Decision Base replicates a business and offers participants the occasion to run it like they would a real company or they can experiment alternate approaches. They keep score and can succeed or fail. The essence of the experience is to develop their own business acumen insights.
Business acumen is insightful understanding of how the business value creation and capture works, taking the relevant coherent actions, keeping score through financial numbers and knowing how everyone in the team or firm adds value to business. Business acumen gets you to think and act like an owner.
Victor L. Magdaraog extends advice to client organizations and provides solutions to strengthen business and financial acumen through the use of Celemi business simulations. Currently he is also Senior Business Advisor for Development Dimensions International (DDI). Formerly Vice President for ASEAN and Korea for DDI. He has over 30 years of experience using business simulations in the talent management domain. You can reach him at email@example.com or firstname.lastname@example.org