What are some recommendations for HR Pros to learn the key metrics driving our business and further develop our business acumen?
Having advised and trained some of the biggest companies in the world, I've learned that the best leaders are able to take the complexity out of business. They have what we call business acumen – an understanding of how a business makes money and the ability to make really good decisions within that money-making process. By focusing on the basics of cash, profit, assets, growth, and people you can develop your own business acumen. These five business drivers can help you understand and visualize how even the most complicated business can be analyzed and improved.
Like the 26 characters in the English alphabet, these drivers combine in a multitude of ways to form the foundation of organization, products, market position, financing, human resources, and every other strategy or decision in a company. So my first recommendation to HR Pros is to focus on these five business drivers and the metrics that drive them. If you need help find someone from finance to be your mentor or get training so that you can answer these ten questions for your company:
- How much cash was on hand at year-end?
- How much cash was generated from operations?
- What was our net income?
- What was our net profit margin?
- What was our total revenue?
- What is our equity ratio?
- What is our return on assets?
- By what percentage did our total revenue grow or decline over the previous year?
- By what percentage did our net income grow or decline over the previous year?
- How do our results compare to our competition?
My second recommendation is to be a student of your business, and there's no better classroom than an earnings call. If you work for a public company listen to your earnings calls as a team and mentor one another. Even if you work for a private company, listening to earnings calls of public company's that are partners, competitors, suppliers, etc. can help you develop your business acumen. If it's going over your head, invite your mentor from finance to join your team on the call or get training – business acumen can be taught.
What do you mean by strategic bets? Can you elaborate?
There's no such thing as a business crystal ball, therefore think of every business decision as a bet. If you have this "betting" mindset you'll naturally want to make the best bet possible – I would call this a strategic bet. Leaders must set and achieve goals (make strategic bets) and obtain results around these five business drivers in order to achieve the most important objective for any company: long-term, sustainable profitability to support its mission. It's entirely appropriate for different functions to focus on the five business drivers in different ways at different times. But with this focus, they need to make sure that their bets are not sub-optimizing the whole. They must continually see the big picture and understand how their actions (bets) not only affect their department, but also the entire company. In the end, your CEO needs you, needs every employee, to make smarter and faster business decisions (a.k.a. good strategic bets).
How would you describe an executive "mentality?" And why is this important?
The world's best executives instinctively:
Understand the five business drivers and use them to operate and achieve profitable growth.
Decide what to do, despite the challenges and complexities of business in an ever-changing world.
The best CEOs have the ability to focus on the basics of making money for the company. They can see the big picture without losing sight of the details. They sense where opportunities are and how to take advantage of them. And their companies make money consistently, year after year. And companies experiencing this type of profitable growth provide greater opportunities for people to have meaningful careers – and that's important to every employee.
You mention that in your #SHRM19 session, you will teach us to speak the language of your CEO and CFO - where do we start?
Your application of business acumen requires a focus on the chief concerns and goals of your boss or CEO. To get started you'll need to communicate effectively using the five business drivers within the context of your company's strategic goals if you want to contribute to your company's growth, and to your own. In the end, the language of business is finance and numbers, and numbers intimidate people. But if you can learn to breakdown your business, or any business, into these five elements you'll be able to communicate your ideas and influence the thinking and decisions of your supervisor or manager and address the topics that are important to senior leaders.
What are the drivers of employee engagement?
A USC and Corporate Leadership Board survey of more than 50,000 employees listed the top 50 drivers of employee engagement and number one on the list was for an employee to have a strong connection between their work and the organization’s strategy. The second top driver was for an employee to recognize that their job is an important part of the organization’s success. In other words, engaged employees know how to move the company forward and they’re motivated to do it. Unfortunately, there’s just not that many type of employees out there.
And as you pull the thread on this idea a little further it makes a lot of sense. At my firm, Acumen Learning, we’ve quizzed over 100,000 business people (and counting); we’ve found that nine out of ten of them don’t understand important business metrics. Further, Robert S. Kaplan and David P. Norton shared their findings in Harvard Business Review that “…on average, 95 percent of a company’s employees are unaware of, or do not understand, its strategy.”
So it’s no small coincidence that most employees are disengaged and that most employees don’t understand the vital aspects of business. My own research has shown that companies who are able to focus on the profit and people drivers create a virtuous cycle that engages employees and in turn, create profitability. As a leader, you have an opportunity to change this, to first help individuals on your team, then others in your organization to see how they make a difference to your company’s financial performance. This is not only good for your company, but is also good for employee engagement!
ABOUT THE SPEAKER
Kevin Cope is the founder of Acumen Learning, the leading authority on business acumen training. Kevin's ideas and business models have been taught in over 30 countries and to more than one hundred thousand people, including 17 of the Fortune 50.
For over twenty-five years, Kevin has promoted the idea that the brightest minds in business understand the essence of how a company makes money and they use this knowledge to impact the bottom line.
Kevin is not only a successful executive and trainer, he is also a sought-after keynote speaker and author of the no. 1 Wall Street Journal and New York Times bestseller, Seeing the Big Picture: Business Acumen to Build Your Credibility, Career, and Company.
Follow Kevin on Twitter @acumenlearning