“Business acumen is keenness and quickness in understanding and dealing with a business situation in a manner that is likely to lead to a good outcome. The term ‘business acumen’ can be broken down literally as a composite of its two component words: Business literacy is defined in SHRM’s Business Literacy Glossary as ‘the knowledge and understanding of the financial, accounting, marketing and operational functions of an organization.’ The Oxford English Dictionary defines acumen as ‘the ability to make good judgments and quick decisions’. Given these textbook definitions, a strictly literal definition would be ‘keenness and quickness in understanding and dealing with a business situation.’

Additionally, business acumen has emerged as a vehicle for improving financial performance and leadership development.A adsssa Consequently, several different types of strategies have developed around improving business acumen.”

I was delighted by a few of the things I read in the definition.  The first idea was the use of the words “keenness” and “quickness.”  In today’s increasingly competitive global economy, organizations need leaders who can act keenly and quickly in response to changes in their environment in order to stay on top.

Secondly, the definition indicates that business acumen has emerged as a vehicle for improving not only financial performance but, more importantly, leadership development.  In observing leaders from all levels and types of organizations over the past 15 years, I have noticed that leaders who understand of the fundamentals of business are better equipped to tackle all types of leadership challenges that they face.

I recognize that good leadership contains many facets including being a good communicator, knowing how to build strong teams, facilitator, coach, delegator, planner, and so on.  But I’ve always been impressed with leaders who have developed their business acumen, who can speak to and relate to how businesses function at the core.  This leadership mechanism seems to be the lever that makes the best leaders successful when used along in concert with the other fundamental qualities of leadership.  As organizations seek to develop their leadership bench strength, I believe it will be increasingly important for business acumen to be at the core of any organization’s leadership-development process.

After some back and forth discussion and analysis using business acumen, we wound up agreeing on the following:  Most retail outlets price their steaks by the cost per pound.  This is their way of representing the true value of a steak.  However, after discussing this information and challenging each others perspectives a bit, we came to the conclusion that the best valuation is not the cost per pound, but the cost per edible portion.  Steak contains water, fat, and bones that may be cooked off or not consumable.  Ultimately, you are paying a price for a piece of meat and should want to consume as much of it as possible.  Now, I realize that this is not the only way to value a steak, but is the best overall representation of its true cost and value.

I share this simple analysis with you, because if organizations can get managers and employees to think and speak the language of business, it will pay dividends to the bottom line.  The way information in business is represented can be tricky and confusing when talking about finance, economics, and strategy.  By developing business acumen skills, more people will begin to understand and identify the true costs and understand how these decisions can greatly impact the bottom line.

Next time you’re involved in a purchase or assessing how viable an initiative is for your company, take a step back, process the information and ask the question “what is the true cost”?   It might surprise you.

So how does Warren Buffett’s success apply to you?  In November 2009, Warren Buffett and Bill Gates participated in a Town Hall meeting at Columbia University.  During this event the following question was posed by a student:

Student Question: “Mr. Buffett, Mr. Gates, thank you for being here today.  My name is Justin, I’m a second-year MBA, as I get ready to graduate, I was wondering, what’s the one thing that your MBA didn’t prepare you for when you got out into the real world?”

Warren Buffett Response: “Well, I was — it prepared me very well, not the whole degree, but specific professors prepared me very well for what I wanted to go into.  I knew I was interested in investing, like I say, from the time I was six or seven years of age.  So I was lucky that I found what turned me on early on.  And I had these two marvelous professors here at Columbia that just being around — I had read all the stuff they had written.  So it wasn’t I was acquiring lots of incremental knowledge but I was getting inspired.  They were terrific for me.  They treated me like a son.  They would take me out to dinner.  Ben Graham did the same thing for me.  So it gave me confidence in myself.  It just propelled me into a field I already love with a terrific tailwind from these professors that believed in me. [APPLAUSE]  But let me add one point because — to the MBA situation.  Right now, I would pay $100,000 for 10% of the future earnings of any of you.  So anybody that wants to see me after this is over — [LAUGHTER] [APPLAUSE]  If that’s true, you are a million-dollar asset right now, right, if 10% of you is worth 100,000?  You could improve — many of you, and I certainly could have when I got out, just in terms of learning communication skills.  You know, it’s not something that is taught.  I actually went to a Dale Carnegie course later on in terms of public speaking.  But if you improve your value 50% by having better communication skills, that’s another $500,000 in terms of capital value.  See me after the class and I’ll pay you 150-thousand.”

Monetary Value of Learning and Communication
This matters because it illustrates the importance of learning and effective communication.   As individuals, it is important to develop ourselves.  Whether you get an industry trade degree, look at going through a mini MBA program, or complete a Masters Degree at Columbia University, ongoing development of yourself is important to you, your future success, and ultimately your net worth.  Investment in learning will pay huge dividends.  If good communication skills are worth an additional $50,000 to Warren Buffet, it’s worth far more to you individually.

Heavily Invested
Ask yourself this question.  What would an investor ask you at the annual shareholders of YOU meeting?   At a high level, you might hear questions such as:
- Do you understand what it takes for you (and your organization) to win today?
- Do you understand where and how we can increase profit margins?
- Are you cutting operational expense to increase profit margins?
- How can you create distance or differentiation from the competition?
- Is the organization focusing on what matters?

If you can answer those questions, you are doing great.  If not, look to refocus your efforts.  Educate or develop yourself to the point where you can answer them.  You are heavily invested in yourself so what do you want your future earnings look like?  Are you a million-dollar person?   It’s hard to argue against hard results.

At a recent Town Hall forum for MBA program students at Columbia University, a Masters student asked Bill Gates the following question:

Student Question:  My name is Erica and I am a second-year student.  My question is for Mr. Gates.  What is the most important thing you do every day?

Bill Gates Answer:  Well, I do a lot of variety.  I think reading a lot, you know, and continuing to learn.  I’m in a lot of new areas in the Foundation, education, health.  And I love reading a lot.  So I think, you know, arming myself with that knowledge and sitting down with people who live the topic and brainstorming with them, that’s what helps me back the right people and make sure I know what’s going on.  So I guess I’d say learning is what is the key thing.

“Arming” yourself and your employees with knowledge is so important.  What would organizations look like if we “armed” people to be results based leaders who understand how to increase profit and drive bottom line results?  This can be done, by exploring and discovering what really matters and how to properly measure results.  I’m not talking about more reports, more charts, more graphs, to bore people with.  I’m talking about engaging individuals to measure and do it in a way that speaks to them as individuals.  It is about how I fit and why I matter.
    
Whether you’re looking to drive key results of your business or looking to simply educate employees on finance for non financial managers, arming your people with knowledge to be prepared for battle will ensure more focus around winning as an organization.  It’s hard to argue with results.

Thomas Cooley, professor of economics and former dean of the NYU Stern School of Business, articulates the importance of having strong financial knowledge:

Many of the most important decisions consumers make in their lifetimes involve financial products: a mortgage to purchase a home, a loan to purchase an automobile, credit to make a large durable purchase, investments for retirement and insurance to keep one’s family secure. All of these financial products have become increasingly complex over time and there is a much wider range of product options offered by different providers, making decision-making more complicated. Consumers need to be financially literate in order to make well-informed choices about such complex products. A growing body of evidence suggests that many consumers lack the knowledge they need to evaluate and make decisions about financial instruments.

Fixing our financial illiteracy and understanding  the fundamentals of business acumen (finance, economics, accounting, and strategy) will not only aid you in your personal, consumer-based life, as Professor Cooley mentioned above, but will open doors for you at work, allowing you to sit at the conference table and make decisions that ensure viability – the life blood of organizations, the ability to stay competitive, profitable, and relevant.

Maximizing Your Profitability

I was watching a report on CNN last week about the strategies of maximizing their acquisition of treats on Halloween.  Instead of just taking a “dash and grab” approach, some people take a more economic approach to their quest for sweets.  The people at Zillow.com have done some research on five major cities to identify the “best” neighborhoods for trick-or-treating.  While there is a common belief that wealthy neighborhoods are the prime place for harvesting the most Halloween treats, it is only a part of the equation for efficiency.  To provide a more holistic approach to Halloween trick-or-treating, the Zillow Trick-or-Treat Housing Index was calculated using four equally weighted data variables: Zillow Home Value Index, population density, WalkScore (point to point distances), and local crime data. Based on those variables, this Index represents neighborhoods that will provide the most candy, with the least amount of walking and safety risks. 

Jackpot

Some may find Zillow’s index to be an unnecessary approach to the trick-or-treating adventure, but for others it is just the kind of thing that makes the holiday even more enjoyable.  After seeing the report on CNN, I saw this holiday as a great time to teach my kids about economics, finance, and getting the highest revenue with the least amount of input (revenue = candy).  What makes this even more of an economical and financial teaching opportunity is that a local dentist is offering $1.00 for every pound of candy brought to their office during the week after Halloween.  What made this offer even more interesting was that CNN also reported a statistic that the average child gathers 17.1 pounds of candy on Halloween.  So, if my kids want to use Halloween as a chance to have fun and make money, there are strategies to do so.

If you ask parents today if they want their children to go through the higher education system, the answer is predominantly, “yes.”  I believe preparing young people to be ready to receive a college education is as important as actually obtaining one.  The same is true for anyone. There are opportunities for education and skill development all around us, just like this “trick-or-treating” example.

Education To Make A Difference

For those of us who are college age or older, but still have a desire for gaining more education, there are diverse opportunities available.  There are accelerated masters programs, online degrees, and Mini-MBA Workshop.  The Mini-MBA Workshop is a great way to learn the fundamental concepts taught in a traditional MBA program, but at much less costs and in a much shorter time frame.  I attended this fantastic course offered by CMOE, developed and Columbia University, and taught by David L. Buckner.  It helped me to understand the key concepts of economics, finance, and accounting, helping me to be more affluent in the language of business.  Knowing more business acumen key terms and concepts has had a great impact on my contribution to our organization.  While I didn’t earn a Masters degree, I have the ability to apply valuable concepts to my everyday efforts and decisions.  As the writer and scientist, Carl Sagan wrote, “Knowing a great deal is not the same as being smart; intelligence is not information alone but also judgment, the manner in which information is collected and used.”