| The message to CLOs is becoming clearer and | | | | The benefits to an organization of engaging |
| clearer. Company leaders want them to align | | | | managers and employees in this kind of ownership |
| educational offerings with the organization's strategic | | | | thinking are obvious. So how can a company develop |
| objectives. | | | | the business acumen of its people? |
| That's not an easy challenge. They must ensure that | | | | Developing Business Acumen: Two Stories |
| education and communication initiatives reinforce the | | | | Entrepreneurs are generally forced to develop |
| company's goals. They must help employees | | | | business acumen on their own. They are hands-on |
| understand these goals and develop the skills and | | | | with their businesses and have to make all the |
| motivation to contribute to them. | | | | decisions as they go along, whether good or bad. |
| And at the most basic level of alignment, they must | | | | They either learn from their mistakes or fail. |
| make sure that every employee understands how | | | | It's very different for managers and employees in an |
| the company makes money. That includes | | | | organization. |
| understanding how profitability is driven, how assets | | | | They aren't involved in all aspects of the business, |
| are used, how cash is generated and how day-to-day | | | | and they make decisions primarily within their own |
| actions and decisions, including their own, impact | | | | areas of responsibility. Since seeing the connections |
| success. | | | | isn't easy, they need to learn in some other way. |
| Developing business acumen is fundamental to | | | | Books and lectures can help. But business acumen is |
| business alignment. Consider Southwest Airlines, which | | | | best developed experientially. Learners must be able |
| was founded in 1971. With 33 straight years of | | | | to analyze situations, ask questions, discuss issues |
| profitability, the airline has become widely recognized | | | | with other learners, consider options, make mistakes |
| for the motivational culture it creates for employees | | | | and see results. |
| and its extraordinary dedication to customer service. | | | | Although there are a variety of ways to accomplish |
| Much of the industry has suffered during the years | | | | this kind of experiential learning, many companies |
| of Southwest's growth, including many airlines that | | | | have found that simulations, which mirror reality and |
| have merged or declared bankruptcy. Southwest | | | | allow learners to experiment in a safe environment, |
| buys the same planes and the same jet fuel as other | | | | are one of the best ways. Here are the stories of |
| airlines, and pays its employees competitive wages | | | | two companies who chose to educate their learners |
| and benefits. What's the difference? | | | | with business simulations. |
| Unlike some of its competitors, Southwest's | | | | Comcast Cable Communications |
| management team involves employees in the | | | | The NorthCentral Division of Comcast - one of the |
| company's financial results, explaining what the | | | | country's largest entertainment, information and |
| numbers mean and, more important, helping to link | | | | communications companies, specializing in cable |
| everyone's decisions and actions to the bottom line. | | | | television, high-speed Internet and telephone service - |
| The airline has an open culture, one of inclusion at all | | | | set out to ensure that managers and employees |
| levels, and employees understand their roles in | | | | throughout the organization had the financial acumen |
| providing great service and keeping costs in line. | | | | required to make good decisions. A companywide |
| Certainly there are other factors that contribute to | | | | survey had clearly demonstrated this need - |
| the success at Southwest, but it's difficult to ignore | | | | especially for managers of employees who had direct |
| the positive impact of an approach that develops the | | | | contact with customers. |
| business acumen of all employees and managers so | | | | For example, if a customer calls with a service |
| that they can contribute to the airline's success. | | | | problem, frontline employees and their supervisors |
| An Educational Challenge | | | | can issue credits to the customer's account in an |
| Unlike those at Southwest, individual contributors and | | | | effort to resolve the issue. Although this may be |
| managers in many organizations today have not been | | | | exactly what is needed for the situation, Comcast |
| educated about the big picture of their businesses. | | | | realized that employees making these decisions didn't |
| They have a narrow focus on their own | | | | necessarily understand that a $10 credit could |
| departments and job functions and aren't able to | | | | ultimately require more than $100 in revenue for the |
| make the link between their actions and the | | | | company to break even. Similarly, a service |
| company's success. Multiplied by hundreds or even | | | | technician's visit to a customer's home might cost |
| thousands of employees, this lack of understanding - | | | | $50 directly, but the company might have to sell an |
| the lack of true business acumen - means that too | | | | additional $500 in services to cover the cost. |
| many decisions are being made and too many actions | | | | "The lack of financial acumen among supervisors and |
| are being taken that don't align with business | | | | employees was largely understandable," says Mark |
| objectives. | | | | Fortin, senior vice president of finance for Comcast's |
| How can training help bridge this knowledge gap? For | | | | NorthCentral Division. "Almost 75 percent of the |
| many companies like Southwest, implementing | | | | company's employees are on the front lines in roles |
| learning programs designed to develop a strong | | | | such as call center personnel or field technicians. They |
| foundation of financial literacy and business acumen | | | | are trained to be good at what they do, but their |
| has made the communication of financial results to | | | | backgrounds typically don't include emphasis on |
| employees easier and more effective. | | | | financial literacy." |
| Business Acumen: A Definition | | | | Comcast human resource executives determined that |
| Very simply, business acumen is the understanding of | | | | a fundamental approach to the development of |
| what it takes for a business to make money. It | | | | business acumen was needed. However, this |
| involves financial literacy, which is an understanding of | | | | approach also would need to be fast, engaging and |
| the numbers on financial statements, as well as an | | | | job-relevant. Expanding upon its already robust |
| understanding of the strategies, decisions and actions | | | | Comcast University management curriculum, the |
| that impact these numbers. | | | | executives chose to integrate a high-energy, tailored |
| Someone with financial literacy, for example, would | | | | learning experience that would provide the "basics" |
| be able to "read" the company's income statement. | | | | and, at the same time, deal specifically with Comcast |
| This employee or manager would understand the | | | | terminology, concepts and strategic imperatives. |
| terminology (revenue, cost of goods sold, gross | | | | As they participated, learners made decisions about |
| margin, profit, etc.) and what the numbers represent | | | | products, processes, pricing and more, and they saw |
| (i.e., gross margin equals total sales/revenue less the | | | | how those decisions impacted financial success. In the |
| cost of goods sold). | | | | end, it became easier for them to make sharper |
| With business acumen, the individual would be able to | | | | day-to-day choices. |
| "interpret" this same income statement, taking into | | | | "The thing that sticks out for the frontline leaders, |
| consideration how company strategies and initiatives | | | | the field technicians, and the call center supervisors |
| have impacted the numbers during specific periods of | | | | and managers who attend, is the high cost of sales in |
| time. | | | | our business," says Sophia Alexander, senior manager |
| Consider a simple comparison: In football, it's | | | | of curriculum and metrics for the division. "It's like a |
| necessary for players to know how the game is | | | | bell goes off in their heads when they realize what it |
| scored as well as how to play the game to change | | | | costs for us to earn what we need to earn to run |
| the score. In business, financial literacy is | | | | the organization." |
| understanding the "score" (financial statements) and | | | | Attending the learning session is not mandatory for |
| business acumen is understanding how to impact it | | | | supervisors and managers. However, there is an |
| (strategic actions and decisions). | | | | unwritten expectation that they will participate in |
| Asking the Right Questions | | | | business acumen training as well as other Comcast |
| When business acumen spreads through an | | | | University core programs, according to Jan Underhill, |
| organization, employees and managers begin to ask | | | | senior manager of leadership development for the |
| questions. These questions are directed not only at | | | | NorthCentral Division. That expectation, coupled with |
| the organization, but also at themselves and their | | | | the fact that manager compensation has recently |
| departments - questions about processes, products, | | | | become tied to meeting specific financial goals, has |
| systems, staffing and more that can lead to | | | | kept attendance high. |
| necessary and innovative decisions and actions. | | | | Senior executive support also has been an important |
| Business acumen helps everyone understand that it's | | | | factor in creating interest and awareness around |
| not enough to ask, "How do we cut costs?" or to | | | | financial literacy. "Getting people to sign up is much |
| say, "We need to increase sales." Digging deeper, | | | | easier when senior executives like Mark Fortin are |
| employees with higher levels of business acumen will | | | | strong advocates for the program," says Underhill. |
| ask questions that take into consideration the | | | | Feedback has been resoundingly positive. On |
| far-reaching impact of potential decisions and | | | | average, for example, Level 1 feedback about the |
| demonstrate a greater ability to make the | | | | discovery learning based business acumen sessions |
| connections between performance and results. | | | | has been 4.5 on a 5-point scale. That means that the |
| Questions that could get to the root of disappointing | | | | program has exceeded expectations. Better than |
| operating ratios: | | | | that, says Sophia Alexander, senior manager of |
| Have production costs gone up? If so, why? | | | | curriculum and metrics for the NorthCentral Division, is |
| Have we changed prices? If so, how has that | | | | the empirical evidence that the new insights and |
| affected our margins? | | | | knowledge have made a difference. For example: |
| Are there any competitive issues impacting our | | | | Participant self-evaluations indicate that financial |
| performance? | | | | literacy has increased by at least 25 percent as a |
| Have there been any customer requirement | | | | result of the business acumen training. |
| changes? | | | | After the training, there was a 20 percent |
| If our costs per unit produced have gone up, | | | | increase in the participants' ability to use basic financial |
| can we better control the efficiency of our | | | | terms and concepts on the job. |
| production or service delivery? | | | | Almost 45 percent of supervisory participants |
| Is there a way to produce a greater product | | | | report that they are using their business acumen |
| volume at the same cost? | | | | knowledge in daily communications with staff and |
| Can we raise prices, still provide value to the | | | | peers. |
| customer and remain competitive? | | | | "Some people, particularly in big companies, feel like |
| When questions become more specific, the right | | | | there is an open checkbook. They think... I don't own |
| decisions can be made. | | | | the company. It's not my problem. Somebody will pay |
| Business Acumen for Managers | | | | the bills. But in today's environment, with some very |
| Managers at all levels need a high level of business | | | | large companies in trouble, everyone needs to be |
| acumen to do their jobs. Every day, they make | | | | part of the solution. Business acumen education for |
| decisions about employees, projects, processes, | | | | managers and employees helps the company as a |
| expenditures, customers and much more - decisions | | | | whole, but it also helps employees. It's about |
| that ultimately roll up into larger organizational results. | | | | self-preservation to some extent." comments Fortin. |
| Managers who make these decisions while looking | | | | Southwest Airlines |
| through a departmental lens only, with a limited | | | | Southwest Airlines is one of the consistently |
| understanding of how these decisions affect financial | | | | profitable companies that makes "business literacy" a |
| results or how they are tied to the organization's | | | | core component of its employee training programs. |
| goals and objectives, are working in silos that can | | | | Every employee has a solid understanding of what a |
| ultimately damage the company. | | | | new customer, and new revenue, means to the |
| Managers are often promoted to their positions of | | | | company. Employees also know how the loss of a |
| responsibility because of their "technical" expertise. | | | | customer can impact the business. |
| They've been successful customer service | | | | According to Elizabeth Bryant, director of leadership |
| representatives, great salespeople, innovative | | | | training at Southwest Airlines, "Our training covers |
| researchers or well-respected IT professionals. They | | | | how the financial ratios such as return on assets and |
| are now entrusted with decision making, budgets, | | | | various margins are determined. Knowing that team |
| projects and people. They often do not have financial | | | | managers, supervisors and all employees have this |
| literacy, nor have they developed a higher-level | | | | knowledge enables the company's leadership to |
| perspective about the business. Over time, especially | | | | present detailed financial reports and explain to the |
| if they move up the managerial ladder, they may | | | | teams where the margins need to be. Management |
| develop these. Or they may not. | | | | can speak more in depth to all the employees, and |
| Organizations need managers who operate as part of | | | | the employees understand what the objectives are." |
| the management team, taking accountability for their | | | | Bryant added, "Because we don't waste the little |
| own results as well as the results of the entire | | | | things, because we track every penny and every |
| company. Therefore, more and more organizations | | | | activity, we've all come to know the importance of |
| have built financial literacy and business acumen into | | | | each cent. With the pennies in hand, we spotlight the |
| managerial competency requirements and have | | | | idea of compound interest- for example, how the |
| integrated business acumen training into management | | | | small savings help us by year's end and how small |
| curriculums. | | | | amounts of waste can conversely add up to hurt us." |
| Business Acumen for Employees | | | | Consider the importance of a key operating metric |
| Although there is little debate about the need for | | | | for the airline industry - operating cost-per-seat mile. |
| managers to develop business acumen, organizations | | | | This is how much it costs an airline to fly one seat |
| sometimes question the need for this understanding | | | | one mile. All the operating costs are divided by the |
| at employee levels. But frontline contributors, those | | | | total number of seat miles (the total number of miles |
| who are most directly involved with production or | | | | of all the seats that were flown for a given period, |
| customer service, for example, take actions every | | | | whether a passenger was in the seat or not). Much |
| day that impact business results. | | | | of the industry has had cost-per-seat mile results at |
| Consider the salesperson who discounts products, or | | | | or over 10 cents. Southwest Airlines' cost-per-seat |
| the service representative who deals with an | | | | mile is about 6.5 cents. The lowest cost-per-seat mile |
| unhappy customer, or the maintenance person who | | | | in the industry almost 25 years ago was just over 5 |
| notices a problem. The actions each of them takes | | | | cents. |
| might erode profit margin, lose a good customer or | | | | How do they do it? Certainly there are a number of |
| allow safety issues to escalate. Without an | | | | factors that lead to success. However, one of the |
| understanding of how their actions impact the | | | | key influences is Southwest's ongoing training in |
| company's results, they might not have the context | | | | business acumen. This training ensures that |
| to consider alternatives. | | | | employees know: |
| Many organizations have determined that financial | | | | How challenging it is to ensure ongoing |
| literacy and business acumen aren't just for managers | | | | profitability; making a profit can never be taken for |
| anymore. They have decided to develop a company | | | | granted |
| of people who understand the business; who know | | | | The importance of utilizing the benefits of the |
| what return on assets and return on investment | | | | good years to prepare for the tough years |
| mean; who know how inventory turnover rates | | | | The impact of individual actions and decisions to |
| affect results and the importance of positive cash | | | | the bottom line |
| flow; who see the connection between the | | | | In other words, Southwest invests in training to help |
| company's financial success and their own health | | | | employees think like business owners. This, in turn, |
| benefits, 401(k) plans and more. In other words, they | | | | produces real results, like its consistently low |
| need people who understand the "business" of the | | | | cost-per-seat mile. When Southwest's learning team |
| business. | | | | decided to implement a business acumen simulation |
| In his book Good to Great, Jim Collins says, "We | | | | several years ago, there was some initial concern |
| found no evidence that the 'good-to-great' companies | | | | about how well it would be received. |
| had more or better information than the comparison | | | | Bryant explained, "Some people, especially those |
| companies. None. Both sets of companies had virtually | | | | without financial training, were nervous about the |
| identical access to good information. The key, then, | | | | topic. We are such a people-oriented company that |
| lies not in better information, but in turning | | | | we didn't want people to think that now we're just a |
| information into information that cannot be ignored." | | | | financially oriented company and everyone will be |
| With an increased level of business acumen, | | | | judged purely on financial performance. But we |
| managers and employees can better interpret | | | | positioned the need for the business literacy training |
| information, making the connection between their | | | | as another way to prove that we actually care |
| actions and the company's results. | | | | tremendously for each employee. We explained that |
| Another Reality of Today's Business World | | | | if you understand what the numbers mean then you |
| A public company's operating results are well known | | | | can better understand how your work provides an |
| at the end of each quarter. Analysts, investors, the | | | | integral contribution to the business." |
| media, employees-everyone has access to a | | | | Southwest Airlines, according to Bryant, has never |
| company's financial results. With a significantly | | | | had a layoff - a rarity in the airline business. The |
| increased focus on accounting improprieties over the | | | | more their employees understand the challenges of |
| past few years, senior management has become | | | | the business, the better they appreciate the |
| highly conscious of the need to provide accurate and | | | | importance of making smart decisions every day. |
| timely financial information. And employees have | | | | Bryant concluded that the discovery learning |
| become much more likely to wonder about these | | | | techniques in a robust business simulation work well in |
| numbers. "Is my company being honest? Are the | | | | the Southwest culture because of the team |
| numbers telling the whole story?" | | | | orientation. "All the participants learn that they can't |
| Without a fundamental understanding of financial | | | | individually make it all happen," said Bryant. "They |
| results and an ability to interpret them, employees | | | | learn that they have to look beyond themselves, act |
| may become suspicious and, ultimately, disengaged. | | | | and think like an owner, and realize that our efforts |
| Disengaged workers, in turn, negatively impact | | | | and financial results here are not just for a career, |
| productivity and profits. | | | | but for a cause. It's this cause-oriented philosophy |
| CEOs of public companies, then, must ensure that | | | | toward delivering a low-cost, high-quality service that |
| managers and employees are able to understand the | | | | allows people the opportunity to travel. Our success |
| numbers and have confidence in them. That means | | | | at achieving positive results translates to individual |
| effective business acumen education as well as | | | | opportunities to work, to grow and to continually |
| ongoing and open communication from the top. | | | | think of innovative ways to improve our business and |
| Former GE chairman Jack Welch said in his book | | | | serve our customers." |
| Straight from the Gut, "Getting every employee's | | | | The Classroom Advantage |
| mind into the game is a huge part of what the CEO | | | | These two companies chose to develop the business |
| job is all about...There's nothing more important." | | | | acumen of managers and employees by using a |
| The Big Picture | | | | classroom-based simulation, facilitated by instructors |
| As we have become a nation of specialists, armed | | | | at company sites. Although online options were |
| with new information technology and enterprise-wide | | | | available and were used in some cases to supplement |
| operating systems, it has become easier for | | | | the instructor-led training sessions, they decided that |
| managers and employees to become myopically | | | | there were significant advantages to tackling this |
| immersed in their own jobs. This immersion can have | | | | subject in a "live" session where they could leverage |
| the effect of obscuring their view of the big picture. | | | | the power of: |
| They may not consider the cumulative effect of | | | | SHARED KNOWLEDGE AND EXPERIENCE: |
| wasted assets. They may have little regard for the | | | | Learners bring their own perspectives and issues to |
| objectives and responsibilities of other team | | | | the session. |
| members, departments or divisions. They may lack | | | | TEAMWORK: Learners work together, make |
| the motivation to invest personal energy in critical | | | | decisions together and rely on each other as they |
| project work. | | | | learn. |
| Organizations that engage in developing business | | | | COMPETITIVE FUN: Small teams "play" against |
| acumen provide a clearer vision and an overall | | | | each other and enjoy a competitive environment. |
| context within which employees can work, while | | | | COMPANY-SPECIFIC DISCUSSIONS: The learners' |
| creating an environment that is more likely to break | | | | common interest in their own company's financial and |
| down internal barriers. There is less waste and less | | | | strategic issues allows for greater analysis and depth |
| ambivalence. There is increased innovation. Employees | | | | of discussions and a true "connection" between the |
| are more engaged, they understand their role and its | | | | learning simulation and the organization's reality. |
| impact on business results, and they are more likely | | | | LEARNING MOTIVATION AND COMFORT: |
| to believe that their efforts really matter. They are | | | | Learners who may not be comfortable with the |
| more likely to think like a business owner. | | | | subject of finance find themselves playing a game in |
| Think Like an Owner | | | | the comfort of a team environment. |
| To be successful, business owners must be able to | | | | Although there are a number of educational |
| helicopter above day-to-day issues and see the big | | | | approaches available to organizations in the area of |
| picture. They must understand how the pieces of the | | | | business acumen, classroom-based training that brings |
| business fit together to impact profitability and cash | | | | together teams of learners can help ensure that |
| flow, and they must be able to assess the risks and | | | | learning occurs and that connections to the business |
| rewards of potential decisions. The best business | | | | are made in ways that prompt action back on the |
| owners study the numbers, ask themselves tough | | | | job. |
| questions, analyze their mistakes and take decisive | | | | The Bottom Line |
| action. | | | | More than ever, successful companies will need to |
| To truly understand the business, owners have to | | | | focus on developing the business acumen of |
| understand how that business makes money - in | | | | managers and employees. These companies will |
| other words, how it produces sales, profit and cash. | | | | realize that when their people understand the |
| Organizationally, they know that it's about people, | | | | numbers, when they understand how their |
| processes and productivity. On the customer front, | | | | departments contribute to the company's objectives |
| it's about satisfaction, loyalty and market share. | | | | and when they see how their own decisions and |
| Ultimately, every action taken and every decision | | | | actions make a difference, they will begin to operate |
| made in any of these areas will impact sales, profit or | | | | as part of a team rather than in a departmental or |
| cash. | | | | personal silo. And a critical piece of the alignment |
| When managers and employees begin thinking like | | | | puzzle will be solved. |
| owners, they, too, look at the big picture, understand | | | | With widespread business acumen, companies can |
| how all the pieces fit together, and assess risks and | | | | have a powerful asset - educated, knowledgeable |
| rewards. They understand, like an owner, how the | | | | and motivated employees. And with this asset, those |
| company makes money, how it stays in business and | | | | will be the companies best positioned to succeed. |
| how they contribute to its success. | | | | |