business-acumen

What Is Business Acumen And Why It Matters In Business

Business / By / November 19, 2021

Business acumen describes an ability to understand and deal with business risks and opportunities in a manner that is likely to facilitate a good outcome. At the same time that is the ability to have an holistic understanding of business scenarios which combine both data analysis and heuristics. Thus, knowing when to use data, and when instead to trust intuition.

Understanding business acumen

Business acumen can be difficult to define succinctly and is often synonymous with business savvy and business sense.

Management firm Elgood describes business acumen as “the ability to take a ‘big picture’ view of a situation, to weigh it up quickly, make a logical, sound decision confidently, and influence others to agree with you in order to have a positive impact towards achieving the objectives of the organization.”

Business acumen is a competency not reserved for those occupying management positions. Indeed, the skill can be applied to everyday scenarios such as improving work efficiency or solving complex problems.

Business acumen skills

An individual with strong business acumen invariably displays certain skills that allow them to make sound business decisions.

Though not an exhaustive list, we have compiled some of the most important skills below:

  1. Understanding of the consequences – with opportunity costs attached to every decision, the individual must consider multiple potential outcomes and choose a path with the most benefit and least downside.
  2. Problem-solving ability – a crucial skill for when business plans or operations are subject to unforeseen circumstances. Those with high business acumen can make the necessary adjustments and adapt quickly.
  3. Focus – organizational success is dependent on leaders focusing on high-impact objectives and avoiding distractions. This skill increases productivity since employees do not waste their time on non-productive activities.
  4. Recognizing stakeholder needs – balancing the needs of various stakeholders can be difficult. The organization must consider the impact of its actions and decisions on each stakeholder group.
  5. Financial literacy – or the ability to understand how an organization uses its available resources to achieve the desired outcome. In a commercial context, this is measured by profit and loss and also includes eliminating waste and improving process efficiency. For non-profits, success may be defined by benefits to society or the carrying out of company mission and vision.
  6. Talent acquisition – organizations with strong business acumen recognize the high financial cost of employee turnover and improper recruiting. These organizations tend to make better hiring decisions. Many also discover that a culture of strong business acumen is a place high-quality employees want to work.
  7. Culture – related to talent acquisition is a workplace culture of ownership, accountability, and entrepreneurial thinking. Here, employees make explicit links between their business decisions and the impact of those decisions on organizational success. Individuals then begin to develop the skills associated with business acumen, including accountability, collaboration, responsibility, integrity, and entrepreneurship. 

Key takeaways:

  • Business acumen describes an ability to understand and deal with business risks and opportunities in a manner that is likely to facilitate a good outcome.
  • Business acumen is not reserved for upper management. Indeed, organizational success is driven by employees collectively exhibiting the skills associated with business acumen.
  • Business acumen skills include understanding the consequences, problem-solving ability, focus, recognizing stakeholder needs, financial literacy, talent acquisition, and company culture.

Main Guides:

Related Business Concepts

heuristic
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
recognition-heuristic
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
representativeness-heuristic
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
take-the-best-heuristic
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
biases
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman since 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
bundling-bias
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
barnum-effect
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
nudge-theory
Nudge theory argues positive reinforcement and indirect suggestion is an effective way to influence the behavior and decision making of individuals or groups. Nudge theory was an idea first popularized by behavioral economist Richard Thaler and political scientist Cass Sunstein. However, the pair based much of their theory on heuristic research conducted by psychologists Daniel Kahneman and Amos Tversky in the 1970s.
bullwhip-effect
The bullwhip effect describes the increasing fluctuations in inventory in response to changing consumer demand as one moves up the supply chain. Observing, analyzing, and understanding how the bullwhip effect influences the whole supply chain can unlock important insights into various parts of it.
einstellung-effect
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).
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