What is business acumen and why is it important?

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What is business acumen and why is it important?

The term ‘business acumen’ describes a rather abstract concept without a set definition.

In Seeing the Big Picture, Business Acumen to Build Your Credibility, Career, and Company, Kevin R. Cope suggests that business acumen is the ability to view the business with an “executive mentality”: to understand the moving parts of an organisation and how they interact with one another, and to understand how financial metrics can reflect the success of each of those moving parts.

Global professional services firm, BTS, summarises business acumen as an understanding of how your business makes money, while Dr. Raymond R. Reilly of the University of Michigan and Dr. Gregory P. Reilly of the University of Connecticut define business acumen as “keenness and quickness in understanding and dealing with a business situation in a manner that is likely to lead to a good outcome.”

All these definitions recognise that business acumen is essentially an understanding of how business works. It is a savviness that when harnessed can allow a business to flourish.

Importantly, business acumen is distinct from the interpersonal skills and specific technical knowledge that a good leader also needs. While a leader’s technical and people skills will inform how they use their business acumen, a basic understanding of the nature of business is a body of knowledge and skills that can be developed quite separately. It is usually a set of skills that can be transferred between management levels, across organisations and even across industries.

Often a more senior leader will need business acumen that focuses particularly on strategic thinking ahead of financial acumen, and the inverse is true of a front line manager.

Business acumen can be broken down into three main components:

  1. Financial literacy and competency: able to understand and utilise financial reports and metrics; and an understanding your business’s assets and cash flow.
  2. The ability to make judgement calls: able to make quick yet considered decisions when there isn’t a clear right or wrong answer.
  3. The ability to see the “bigger picture”: able to see beyond the small tasks in front of you that take up the bulk of your time.

The following three articles break down how to develop these three main pillars of business acumen.

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