As we face a period of unprecedented change for all organisations there is a real need for both commercial acumen and business acumen throughout the organisation.
Even before the pandemic, we had been witnessing the closure of hundreds of stores and restaurants across the high street. They’ve felt the force of financial crashes and dips in consumer confidence, and prolonged periods of lockdown – nationally and regionally. For some brands the perfect storm of mounting debt, rising rents, rates and the minimum wage, combined with a decline in an immigrant workforce and consumer spending power has dealt a heavy blow.
But while the Covid 19 pandemic has had a large part to play in recent closures, the roots of their failure were already planted. So many of the businesses that have failed relied on business models that were not sustainable or sufficiently robust.
I suspect very few businesses planned for an enforced and prolonged closure brought about by the pandemic when doing business continuity planning. However, a well-run business should have considered the ‘what if’ of dramatic scenarios and been able to see how the business model would fail if too much pressure was exerted on it.
Stable businesses can withstand a shock – a testament to this is the number of businesses that made the ethical decision to return furlough money because they were able to cope.
This underlines something I have long believed – in my experience, there is rarely one specific thing that leads to closure. It is an amalgamation of factors and that anticipating change, or rather an inability to, is very often the overwhelming reason why businesses fail.
Fundamentally I see this as a problem related to business acumen and commercial acumen, and specifically that businesses find it hard to distinguish between the two and therefore harness them for net gain.
What do I mean? Elgood does a lot of work with clients that have recognised they need to build their organisation’s competencies. Much of this is related to how an organisation works and how its success is affected by internal and external factors.
15 years ago, this would have been referred to as ‘business awareness’ – in fact we developed a course of this very name with the Institute and Faculty of Actuaries.
However, this definition has evolved and 10 years ago CEOs called us for help with business acumen, commercial awareness, commercial acumen and every variation thereafter.
In short, their problem was how did they get their people to a place where they understood what makes a business a business – how does profit and loss work? What are the metrics and how do you use resources to maximise your offering in the market? These questions alone highlighted why acumen was becoming more important to leaders. For example, some people read ‘resources’ listed above as funds however you don’t have a sustainable organisation if it only looks at financial investments and outputs. You also need a credible, trusted brand and brilliant people to run a business. Having people in the organisation who understood this was become a necessity to grow and be competitive.
As this change in language from awareness to acumen emerged, we were prompted to research the term business acumen further and create our own definition to help leaders better articulate what they were looking for. We arrived at the following definition:
“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 organisation.”
We’ve continually updated it and have since recognised the importance of having a separate definition related to commercial acumen as well:
“An interest in your business and an understanding of the wider environment within which it operates. It includes awareness of the efficiency, cost-effectiveness, customer care and knowledge of the market-place in which your company operates. It enables individuals to take action fully understanding its impact on customers, competitors and suppliers.”
It’s essentially about knowing what’s going on in the world and applying it to your business so you craft a strategy that responds to the changing dynamics.
Why do you need to know the difference between commercial acumen and business acumen?
These definitions have always provoked a lot of debate and it seems to be heightened at the moment. Interestingly, the debates usually come around to a discussion on what the difference is. Why do you need to be specific about whether your people have business or commercial acumen? Are they not one and the same?
The truth is that they are not. There are very real differences between the two and it’s the companies that have a clear delineation between the two that do better than their peers and competitors. It comes down to focus both in terms of scope and time.
When it comes to scope, commercial acumen focusses on selling the existing products and services. The main focus is on ‘how do we do what we currently do better?’. Right now, this amounts to pivoting to sell online or moving from selling a product to commercial restaurants directly to consumers at home.
Business acumen incorporates this but also asks the question ‘what additional products and services could we offer that our customers might want/need?’. For instance, I might not just sell you the artisan bread I make, I might also sell you the flour and the sourdough starter and recipes, and possibly partner with a great cheese maker and independent brewer so you can reproduce a high class ploughmans at home.
On timeframe, commercial acumen looks at the current competitive landscape and customer needs. It might include the next 1-3 years but usually the focus is on the next year or the next quarter. Business acumen looks further ahead, ‘what are the products and services our customers will need/demand in the future? What should our business model be?’ The timescale is 1-5 years.
I think this is where the high street has a problem. It’s littered with organisations that have tried to focus on the immediate term using commercial acumen and have failed to see seismic shifts in what customers want, and then, because they lack business acumen, gone to fail to adapt to the consequences of the pandemic.
I agree that an organisation can compete at a commercial level by offering cheaper products, but if they haven’t anticipated key changes, like new channels or demand for more eco products, then they won’t be successful. You need both forms of acumen in the business to survive. It’s evidenced by the companies failing to adapt now. You can’t avoid having a slick online sales channel any longer or get away with token sustainability values for example.
Acumen needs a culture to thrive
It’s important to know that these forms of acumen aren’t abundant if the culture doesn’t encourage them to flourish. And right now, a culture that develops and nurtures both types of acumen is vital for survival.
When consumer spending is in flux, and attitudes towards sustainability and brand values are changing it’s my recommendation that organisations step back and consider whether the pressure of short-term trading is harming their long-term prospects.
I think 80% would find they are doing more harm than good and that a broader strategic approach that anticipates change, and reacts accordingly, is necessary and needed urgently.
That figure may surprise you, yet in my mind the recent casualties only confirm this truth and underlines why having a team managing the ‘now’ and team managing the ‘future’ has to be in place.
You can read our definition and discussion paper on acumen here. It’s a useful training tool for leaders who want to embed both business and commercial acumen into the organisation.
We’ve worked with numerous organisations across a mix of sectors to get commercial and business acumen embedded in their organisaiton. It’s generated growth and profitability as a result. If you would like to talk to us about how we could do the same for you then please get in touch.