Category Archives: Return on Assets

Just What Is This Business Acumen Thing Anyway?

Business acumen.

It’s a term that is often used in many contexts – and almost always seems to take on a mystical sense of great importance. Yet when you ask people to define it, you often get different definitions.

So what is the big deal?

Well, you can have 2 sales people that seem to do the same things, seem to do the right things, yet one is a lot more successful than the other. Why?

The more successful sales person – let’s call her ‘Sara’, is more likely to have made an explicit connection for the customer, between the customer’s current situation and the actual ‘pain’ it’s causing now, and/or could cause in the future. The less successful sales person – let’s call her ‘Una’ – is less likely to make that connection explicit for the customer. Where Sara wins out further over Una is in describing those connections in terms of 1 or more key business issues.

And because Sara has a better understanding of these key business issues, which, by the way, are the same in any and every business, she is able to get a higher overall sales price. She can use her business acumen – a combination of this knowledge of these key business issues, and the experience to know where, when and how to apply this knowledge.

So what are these core business issues? Ram Charan, in his book “What The CEO Wants You To Know”, listed them simply as

  • Cash – more so than revenue in the form of sales not yet paid for – a business fails usually when it runs out of cash – which it can do even with a strong order book
  • Margin/profit
  • Return on Assets – how much cash can be generated per unit of asset… related to velocity or turns…
  • Growth
  • Customers

But in practice it’s often thought of more as

  • Reducing costs
    • Development
    • Manufacturing
    • Sales
    • Servicing
  • Managing risk
    • Including reliability, quality and product lifetime
    • Agreement amongst key staff/managers
    • Other risks
  • Producing differentiated/innovative products
  • Efficiencies (time to market/lead time)
    • Development time
    • Manufacturing time
    • Logistics

By helping the customer understand the true nature of their situation, Sara shows clearly how she adds value for her customers. For Una’s customers they don’t see things so clearly, and so selecting Una can often feel too risky… and reducing the price can sometimes feel to the customer that they’re now taking on a less risky proposition… after all, risk is usually perceived as a product of how bad the situation can be (e.g. cost), and the likelihood this bad situation will actually arise.

So my call to action for you today is to help your clients at every opportunity to clarify their understanding of their situation, and have them tell you (i.e. make explicit) in terms of some combination of the list above, and in their own words, just what their situation is and how they’d like things to be in future. Help them by asking about the items in the list above – just translate the terms in the list in to the equivalent phrases/terms used in your client’s industry.