Bad Business Acumen Flattens Companies' Profits

A lack of business acumen across all levels of employees leads to poor decision-making and bad comm​unications, according to a recent survey.

The Institute for Corporate Productivity (i4cp), in conjunction with HR.com, conducted the Business Acumen Practitioner Pulse Survey in January 2008. A total of 394 organizations participated, defining what business acumen means to their companies and how the lack of business acumen affected their productivity.

Researchers asked the companies how they defined business acumen and got two types of answers, said researcher Mark Vickers.

"There was 'in-house' business acumen—people would talk about 'how our company makes money' or 'how our company serves customers,' " Vickers said. "And there were more-generalized descriptions of knowledge that an MBA or well-educated business person would have."

According to the survey report, common themes include:

• An understanding of the company's business model and how it makes money.
• Knowledge of company-specific processes and product offerings.
• Knowledge of supply chain elements, application of products, markets and economic cycles.
• Knowledge of revenues, expenses, profits, customers and growth.
• Knowledge of accounting, finance, marketing/sales, strategy and the analysis and interpretation of financials.

Four out of five respondents said that lack of business acumen or knowledge is an issue among technical staff. Forty percent of respondents said that the shortfall has a moderate impact on business; 34.5 percent said it had a high impact, and 4 percent said it had a very high impact.

"We interpret this to say that technical workers make decisions that affect business," Vickers said. What employees do daily—regardless of their level in the organization—ultimately affects the business's bottom line. For example, he said, a technical person may need to make decisions about a system that the IT department needs to buy. He may suggest a system that is highly touted among his peers at other companies for its ease of installation, but he may not know that the marketing department, which will be using the system, needs it to be much more flexible and user-friendly. Or that it must also integrate with the customer service department's systems.

"You need the business context to understand the trade-offs" of selecting one system over another, Vickers said.

Business suffers more when managers and higher-level leaders lack business acumen, the report found. Twenty-seven percent of respondents said such a lack had a moderate impact on business, 40 percent said it had a high impact on business, and 25 percent said it had a very high impact on business.

"Organizations today are flatter, meaning that more managers have decision-making authority," Vickers said. "The business strategy should drive the decisions that they are making."

Managers can't make decisions in a vacuum; they have to be able to relate their decisions and actions back to the business's goals and strategies.

"When we asked the respondents why business acumen was so important, they wrote in that the outcome of good business acumen was improved decision-making," Vickers added.

Respondents said that gaps in business acumen existed not only domestically (41 percent,) but also globally (21 percent) and both domestically and globally (38 percent).

Training on basic business principles, on practices specific to a company's success and on a company's goals and strategies can improve business acumen, Vickers said. The most commonly used approaches are in-house customized training, cited by 70 percent of respondents, and off-the-shelf training, cited by 42 percent. Managers and high-level leaders (50 percent) and high-potential workers (46 percent) are the most common recipients of business acumen training, respondents said. Thirty-nine percent said they provide this training to all employees.

For customized training, Vickers said, talk about "what are the sources of revenue for your company, who are the customers, what is our ROI on our products and services. Once employees have that information, they can make better decisions. If a manager is pressing a technical worker to complete a project, and the worker knows that the project contributes only 4 percent revenue to the company's bottom line, the worker can help change the conversation and find out what is really the highest priority for his team."

The people responsible for providing the training should be able to deliver solid information without confusing the employees with too much detail, Vickers said.

"They could throw out spreadsheets and overwhelm them. They won't understand and they'll be bored out of their minds. Instead, make the information come alive; give an example of why it's so important and how each individual can impact the company through better decision-making. It's a tricky thing to do well, but it's important."

Companies usually choose off-the-shelf training when they are trying to shore up general business knowledge among employees, Vickers said. Face-to-face training is normally used for managers and above, Vickers said, as companies hope that the knowledge will trickle down through the rest of the company.

One respondent wrote that he hoped increased business acumen would lead to more collaboration across business functions and, ultimately more profit.

"We get immersed in our own functional expertise, whether that's HR, technology or finance," Vickers said. "But to have a common business understanding leads to better communication" across all segments of a company.

Beth Mirza is senior editor for HR News. She can be reached at bmirza@shrm.org.