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July 28, 2009

Power to Your People, Right On

By Raymond Green

An Educational Challenge

At many companies today, managers have not been educated about the big picture of their businesses. They have a narrow focus on their own departments and job functions and aren’t able to make the link between their actions and the company’s success. Multiplied by hundreds or even thousands of employees, this lack of understanding—the lack of true business acumen—means that too many decisions are being made and too many actions are being taken that don’t align with the company’s business objectives.

How can training help bridge this knowledge gap? For companies such as Xcel, implementing learning programs designed to develop a strong foundation of financial literacy and business acumen have made the communication of financial results to employees easier and more effective.

Defining Business Acumen

Put simply, business acumen is the understanding of what it takes for a business to make money. For a start, it involves financial literacy, which is an understanding of the numbers on financial statements, as well as an understanding of the strategies, decisions, and actions that impact these numbers.

Someone with financial literacy, for example, would be able to “read” the company’s income statement. This employee or manager would understand the terminology (revenue, cost of materials sold, gross margin, profit, etc.) and what the numbers represent (i.e., gross margin equals total revenue less the cost of material sold). With business acumen, the individual would be able to “interpret” this same income statement, taking into consideration how company strategies and initiatives have affected the numbers during specific periods of time.

Consider this simple comparison: In football, it’s necessary for players to know how the game is scored as well as how to play the game to change the score. In business, financial literacy is understanding the “score” (financial statements) and business acumen is understanding how to affect it (strategic actions and decisions).