In 12 Skills For Your Career Success I outlined the skills you need to develop to succeed in your career – be it climb your career ladder or just become generally better and more successful in your professional life.
But if you want to move up to the very top in your organisation, then you might want to know what Susan Colantuono advises in her TED talk. While she agrees that typical pieces of career advice such as ‘be more confident’ or ‘build your personal brand’ are essential for career success, it’s not enough if you want to reach the very top. She calls it the missing 33% and it’s a skill set that few career mentors and coaches talk about. Especially when it comes to mentoring women…
Wonder what it is? 🙂
The missing 33% is your ability to use the greatness in you and your team to achieve and sustain the organisation’s strategic and financial goals on a regular basis.
To put it more simply, you’ll need to develop business strategic and financial acumen – an understanding of where the organisation is going, what strategy it’s implementing and what financial targets it has in place.
I did a little bit of research and tried to put my notes into an easy to digest article, so let’s see how well that worked out for me!
What is Business Acumen?
Working at a company doesn’t mean that we automatically get to understand how business is being run. Many of us might understand the importance of our and our co-workers’ roles within the company but fail to really see the bigger picture of where the company is heading.
Business acumen is your understanding of why business performs a certain way, how higher management makes decisions and how each member of the team can make an impact. It’s also about focusing on key business objectives and an understanding of key business measures. In other words, it’s about seeing the bigger picture and how all the smaller components come together to form an effectively functioning organisation.
The more you understand the organisation you work for, the easier it will be for you to obtain essential information about certain situations that you might need to act on. Having business acumen can enable you to identify problems more quickly and figure out what course of action to take in order to solve them.
Yup… Developing business acumen takes time, energy and effort! But it’s very doable. You can develop business acumen through continuous learning and training. And, since businesses in different industries follow different operations, there is no other way to learn but to receive this training from your own company.
Once you develop it, you will discover your ability to make decisions that align with your company’s objectives and find the confidence to take action when required. It will also enable you to work on your own initiative and solve complex problems.
Developing business acumen starts with understanding the business model…
The business model is a plan that maps out how the business will generate revenue and profit from its operations. It typically includes business processes, purpose, target customers, offerings, strategy, infrastructure, organisational structure, sourcing, partner network, distribution channels and many other areas.
Your task is to understand all of these key areas. Go out of your way to find out why they are the way they are and how your business operations enable to fulfil them effectively.
Look at the company’s inputs and outputs. Try to find out the whole process of how your company manufactures its products or prepares services: is everything done in-house or outsourced to another company? Maybe your company collaborates with other companies to build the final product? Try to understand the whole value chain – all the activities (such as where raw materials are coming from, how they are designed and marketed) the company conducts in order to create a product that consumers will value and be willing to pay for.
Find out what problems your business solves with the products it offers, who are the people that have this problem and why they choose your company over others. Identify the core competencies that your company has and how the products are positioned in the marketplace. Find out how the marketing team communicates the company’s offering and how your target audience gets to know about the company and what it does…
Think about the pricing too! Your company’s pricing strategies can make a huge impact on its overall profitability, so consider why certain products and/or services are priced the way they are.
Finally, find out what initiatives the higher management has at the top of their priority list. Consider why they are making certain investments and how they expect these initiatives to improve the organisation.
Strategic Acumen
The strategy is a long-term plan showing how the business chooses to compete in the marketplace and achieve its goals and objectives. It gathers the information about the market, competitors, the products being sold or services offered. In other words, an overall business strategy is a road that your organisation intends to take in order to gain a competitive advantage over time.
The best way to develop strategic acumen is by building and maintaining a network of internal and external contacts and advisers. Find out who are the people who deal with these things and learn from them. This will enable you to understand the future priorities and challenges and think of ways how these could be addressed.
Make sure to analyse Porter’s 5 forces too. This is the framework that businesses use to identify and assess the competitive forces that shape the industry they are competing in. Porter’s 5 forces include the following:
1️⃣ Competitor rivalry. Who are your competitors and how do they behave? Do you have many of them or just a few? Do they compete very fiercely or are they rather laid back?
2️⃣ Buyer Power. Think about it this way: if you have many buyers who spend a similar amount of money on your brand, then you are in power because losing a few buyers will not kill your business. However, if you have just a few key buyers (frequently a case in B2B companies) and each of them spends a decent amount of money to use your services or acquire products, then buyer power is very high. That is, your business might begin to crumble if you lose one of these key buyers.
3️⃣ Supplier Power. How many suppliers are there available to you? Do they compete with each other? If there are many suppliers you can work with, then you are in power. But if there is only one supplier that offers the materials you need – then the supplier is in power. This means that they can increase their prices as they wish, which might affect your business and operations in a negative way.
4️⃣ A threat of New Entrants. How easy is it for new competitors to enter the market? It’s difficult if your potential competitors need to put massive investment or build factories in order to compete with you. It’s easy if all they need to do is to set up a website and start selling.
5️⃣ A threat of Substitute Products. Consider how easy it is for other brands to offer something that would ‘steal’ your customers. Are your products/services highly specialised and differentiated? If yes, then the likelihood of substitutes is low, if not – then other brands might find it quite easy to replace you.
The other thing that might be useful to look at is how the political, environmental, sociological, technological, legislative, or cultural environment may affect the developed strategy or what changes in these environments may affect it in the future. Take note of all the changes and learn how to reassess and adjust the strategy depending on the circumstances and the behaviours of your competitors.
Finally, what is your organisation’s growth strategy? Knowing the growth strategy that the upper management tries to implement will not only help you understand why certain investments are being made but also enable you to see what opportunities are lying ahead of your company and how you could address them.
There are 5 main growth strategies that companies may choose to follow:
1️⃣ Acquisition. It’s when a company decides to spend a lot of money upfront to generate more profits in the future. With this strategy, your company might buy other companies and use them to expand their product line and enter new markets.
2️⃣ Diversification (aka geographic expansion). Your company might aspire to enter a new market by selling their products in places where they haven’t sold them before. This strategy requires a lot of research in order to find out how likely are new customers to enjoy these products. It also requires large investments upfront as the company will need to build a new supply chain and market presence.
3️⃣ Market Penetration. Maybe your company wants to focus on market penetration strategy and market existing products within the same market? This strategy can lead to growth only when the company increases its market share, which can be done by lowering prices. For example, if there is little differentiation among competing products, then your company might decide to lower the prices of its products so consumers would choose you over the competitors.
4️⃣ Market Expansion. This strategy entails selling current products in a new market. Maybe your company is investing money in researching what other markets could possibly like their current products? It’s a good strategy when if you see that the current market is offering little room for growth but there are other potential consumer segments that might be interested in your products.
5️⃣ Product Expansion (aka product development). Does your company focus on researching and developing (R&D) new products or features in order to expand its product line and increase sales/profits? This strategy means that the company is serving the same market but continuously offers new products/features to keep the customers happy. It requires a big initial investment, but sometimes it’s inevitable. For example, technology companies have little choice but to focus on product development as there is a lot of competition and everything changes so quickly!
Financial Acumen
Finance is primarily concerned with raising and investing in different types of funds that enables owners to raise their wealth, generate profits and revenue, and make decisions about long-term business commitments.
Understanding financial matters are essential in order to implement and monitor business strategies and achieve business objectives. Sound financial acumen enables to understand how scarce resources are allocated in a particular organisation and why.
Sooo… get comfortable reading the company’s Income Statements (Profit & Loss Statements)! These reports show how the business has performed in terms of profit or loss over a certain period of time. It also shows whether the business is economically viable, so it’s really handy to know how to read and interpret them. Aaand it’s the very first step that you need to take in order to develop financial acumen.
It might be best to start by asking the accountant, or someone dealing with finances at your company, to explain the most important figures to you. It’s even better if you can join the management’s financial briefings where they talk about how well the company is performing financially. It will enable you to think of possible business decisions when looking at sales trends, expenses and margins. Moreover, comparing different Income Statements will allow you to see how well the business is performing and what adjustments it needs to make in order to improve certain numbers.
You may soon get to notice certain trends, which, when well interpreted and understood, can really aid in decision-making. Some of the trends to look at include:
👉 Is the business getting more or less profitable over time? Is business accruing more cash allowing the business to grow or less cash?
👉 Are raw materials required for production getting more or less expensive over time? Is headcount increasing or decreasing? Are any other categories of expenditure increasing or decreasing?
👉 Is the market share growing or shrinking? Are the costs of servicing your customers going up or down? Is the fill rate going up or down?
Other things you should be able to understand:
1️⃣ ROI (Return on Investment) – it’s how much money the business makes on a given investment. It’s a key measure showing how successful a certain project was for the business.
2️⃣ Capital Expenditure (CapEx) – the money spent to buy something that will generate some sort of future value for the company, such as certain equipment or software.
3️⃣ Business’ Fixed Costs – all the money that the company needs to pay no matter how many products it produces, such as rent or staff wages.
4️⃣ Business’ Variable Costs – these are the costs that will change depending on the volume of products that the business produce. For example, materials and other inputs required to build the products that the company sells.
5️⃣ SG&A – selling, general & administrative expenses that occurred as a result of selling, promoting and delivering the company’s products and other overheads required to run the business. These are likely to include human resources, finance, legal, marketing, advertising, promotions, etc.
6️⃣ Levers – different businesses have different levers they can pull to improve their business performance. You will know (or be able to assume) what levers to pull when observing to what direction certain trends are going. There are two main levers:
- 👉 Immediate Revenue Lever – such as changes in pricing, volume, or introduction of new product or service discounts. This can enable your company to sell more products quicker and expect to generate more revenue this way.
- 👉 Immediate Cost Lever – the business might decide that the best option would be to reduce the labour or costs of raw materials, advertising or operations. Pulling this lever would help the business to reduce the overall costs very quickly.
Soo… as a high performing employee you have to develop and demonstrate that you are not only capable of leading the team but that you also understand the business, where it’s heading and what your role is in taking it there. You must have a strategic alignment in order to succeed in the organisation and be capable in helping it move to the right direction. This strategic alignment will enable you to use your own skills and talents to utilise the skills and talents of your team members in order to lead the organisation to achieve its strategic goals.