Business Acumen is the ability to analyze, understand, and determine certain business situation. This ability is a key factor within business development. It requires intense mental activity because understanding business development greatly depends on qualitative logic and the ability to scope, judge, and adopt multiple assumptions, all at once.
An Indian business advisor, Ram Charan in his book What The CEO Wants To Know reveals that there are similar skills possessed by a fruit merchant and a world-class CEO. First, both of them have to generate cash and manage it to keep their business running. Second, they both have to be profit margin oriented since it is the purpose of the business itself. Third similarity is velocity and the fourth is to maintain business growth because it might be beneficial for the business in the long run. Lastly, any kind of business have to own and take care of its customers. Ram concludes that Business Acumen consists of five fundamental elements, which are cash, margin, growth, velocity and customer.
Mastering these five elements is an ideal preparation before running a business. Not only it can help business leaders to understand the effect of behavioral finance upon every decision making, it can also explain how a business operates and generates healthy profit. The former CEO of British Petroleum from 1995-2007 Lord Browne and the ex-CEO of Thomson Reuters Corporation from 1997-2009 Richard Harrington are the example of business leaders who fully understood these five elements.
Lord Browne and Richard Harrington are known for their capabilities in leading the transformation of their companies, BP and Thomson Reuters. During his tenure, Lord Browne started to reposition the company to increase its environmental awareness. Even though his effort was surrounded by public scepticism, but the results were very satisfying. In 2004, BP managed to achieve higher gross income than ExxonMobil and Royal Dutch/Shell Group. BP also made it to the top 2 on Fortune Global 500 list (after Walmart), making them the biggest energy company.
On the other hand, Richard Harrington is known widely as the man who successfully transformed Thomson Reuter Group from its holding company. He lead the company to invest further in specialised information services and providing them in digital format, software and other forms of business information services. During his 11 years leadership as CEO, the company gained cash flow four times higher than before, increased the company markets value up to three times higher, and became the leading media and information company in the world. In addition, he also made strategic business transaction for more than US$ 30 billion, most notably was the acquisition of Westlaw and Reuters.
The art of business acumen is the ability to connect the comprehension of external environment with business acumen in managing money. The next step is formulating strategies to acclaim the desired result. Acumen is defined as “the ability to make good judgments and quick decisions on practical things”. Leaders such as Lord Browne and Richard Harrington are examples how business acumen can be applied in business operation. They have all the capabilities to be successful business executive along with great determination to deliver the best result. Their advantage from other business leaders is their ability to put their company in a position where it can be financially beneficial when competing in similar business landscape with their rivals. This is the their main strength to minimize value at risk.
Therefore, it is crucial for a corporate leader to sharpen his business acumen in order to build and understand the whole scope of his business, re-evaluate the qualitative hipotesis, and formulate their view and the expected result of his business. These perpetual and unseen process will be the core of business acumen development. A leader has to realize that the longevity of his company depends upon their ability to view things effectively.
The ability to understand business acumen elements and the importance of sharpening the business ability of corporate leaders by seeing business on bigger scale and effectively will be studied during the first semester of MM Executive BINUS Business School program.
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