Business value is a term used to describe the aggregation of a number of factors that contribute (or not) to the value of a business including both tangible and intangible. It is not merely the quick acid ratio of quick assets minus liabilities. It includes – intellectual property, systems and processes (how stuff gets done, how well, now consistently, etc), brand value, market position, supplier value, its management and its people (capability, achievements, efficiency of the human resource – cost v outcomes), product lifecycle and developments, contracts in hand and the risk to them, its business model, the list goes on. Of course, the tangible measures of ROI on its capital employed, its leveraging of debt, its profit and loss performance and its shareholder value – including who its shareholders are, all contribute. As you read through the above, is there one variable that the business acumen capability of the leaders of the business is not intrinsic to them managing effectively to achieve its strategy?
When people discuss business acumen, most refer to one or at most three capabilities. Financial literacy, systems management and human resource management are among those most frequently citied. None are incorrect, but these are only a part of the multi-factor reality of what is business acumen.
The Business Acumen Gauge model of business acumen developed by Quad Assessment comprises eleven capabilities:
- Broad Scanning
- Strategic Alignment
- Systems and Processes
- Resource Management
- Decision Making
- Talent Development
- Duty of Care
- Financial Literacy
These capabilities were identified by exhaustive research in 2011 which led to the development of the Business Acumen Gauge and its use in assessing, advising and coaching business leaders and this approach to defining and developing the understanding and application of business acumen continues with research continuing at Monash University under the guidance of Prof David Gilbert. PhD. Director of Entrepreneurship.
Why is the business acumen ability of the leaders of an organization the key component to business value? Adam Smith described the importance people in business value in his simple yet prosaically statement:
“It was not by gold or by silver, but by labor, that all the wealth of the world was originally purchased.” (An Inquiry into the Nature and Causes of the Wealth Of Nations). 1776.
The capability of the people in a business defines its ability to succeed. The ability of a business to create and maintain its value is directly related to the sustainability of its business – which is dependent of the capability of its leaders to foresee, plan, respond (not react), and optimise its assets, resources, products and abilities. For all of that, you need people who are able to understand, act and deliver on the eleven capabilities of business acumen, flexing to respond to the changing needs (of course even more so now and for the foreseeable future) to achieve its strategy as its internal and external environments respond to direct and indirect pressures and influences. Whether it be a commercial or not for profit organization it makes no difference. All have to strive to achieve their goals and/or purpose to survive, succeed and shine.
In the work we do, we see clients working constantly to have the right people in the right roles, knowing what capabilities are needed for the leadership to achieve its strategy. We work with them to identify, support, advise and coach their people in the areas of development that will compliment their proven skills and capabilities to increase, enhance and apply their business acumen to their role and organisational responsibilities and strategic goals. The ability to flex and adapt where we focus on a BAU and a strategic level is fundamental in business acumen. However, all too often the focus is on the horizon we favour rather than what is needed.
Business value must be created, maintained and grown. It requires foresight, planning, collaboration, people, systems, financial acuity and most of all, an aligned focus of capabilities, resources and leadership. Business acumen is what provides the framework that aligns, guides and delivers business value.