Ray Reilly, professor of business administration at the Ross School of Business, University of Michigan, tells the story of an eleven year old girl working in her parents’ shoe store whom the customers flock to, as she implicitly understands their needs and helps them in making their choices – she displays great customer service skill. But she also has re-organised the shop store-room to make stock-control simpler and enable customers to be served more swiftly. The girl is displaying great business acumen, and being eleven years old she has not been formally taught these things or had much opportunity to learn by trial and error – so where does it come from?
Ray Reilly is Professor of Business Administration at the Ross School of Business, The University of Michigan, and Director of The Ross Executive Program. He acts as a consultant to businesses in areas including corporate strategy development, corporate valuation, corporate business and financial planning, improvement of operating and administrative business processes, and performance measurement. His current research interests are at the intersection of value-based business decisions and corporate performance measurement.
Reilly explains that some people, like the girl, just have it; but for the rest of us it is an ability that can be acquired through learning and practicing some straight-forward processes.
Business acumen seems like a concept that has been around since the Industrial Revolution if not before – and no doubt there have been plenty people with it since the dawn of time. But as a management buzzword it is under a decade old. Ray Reilly was asked by the some senior HR professionals to design a program to enhance business acumen in 2007 – and when he asked them to define more precisely what they meant, intriguingly they did not really know.
Reilly now defines ‘business acumen’ in the FT Lexicon as ‘keenness and speed in understanding and deciding on a business situation’ – but how do you acquire it? Prof Reilly sees business acumen operating at two levels. The higher acquired level is “when an individual over a business career has a series of experiences in work and formal learning and, if they are good, they relate what they are doing back to the formal principles they learnt, and then keep reinforcing the formal with practiced learning.”
The second level for acquiring acumen has two aspects – knowledge building and thought-process understanding and Reilly says these are a function of three skills:
• Mindfulness (having an openness and awareness to situations that allows you to understand what are the key things you need to know make a decision)
• Sense-making (the ability to synthesise complex and apparently unconnected data, so ‘you can do things today to improve outcomes tomorrow’)
• Resilience (the ability to react positively to events when they do not happen as you expected; this comes from being attentive and informed about evolving situations)
The important factor is that business acumen is not just the result of experience and learning from mistakes, though that is a necessary foundation for it. The three skills set out above are vital to take the experiential knowledge to a state where it can be usefully employed.
What is developed by this process is a form of business ‘intuition’; intuition is traditionally defined as “the power of understanding or realizing something without conscious rational thought or analysis” – and it is getting to that stage of not requiring conscious rational thought or analysis that is the power behind business acumen.
Reilly says that acquiring business acumen is a critical skill for high-potential executives, and one that can be only acquired and improved by constant practice, but firstly they have to learn the structure and process formally. Being able to weave together the data that is constantly being thrown at executives and using that to make sense of a situation so that a clear and appropriate route forward is chosen is in a sense like driving a non-automatic car. The road ahead is forever changing with sign-posts, traffic lights, other road-users, pedestrians and the odd roadwork complicating the route and altering all the time – but the good driver, without conscious thought or protracted analysis, accelerates and brakes and changes gear as appropriate to steer a successful course forward. The principles of driving, use of gears and clutch and brake and accelerator can all be taught – but the intuitive use of them only comes through practice. The same is required to have good business acumen.