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Leaders Need Business Acumen

By Jim Naughton, ILG Contributor

Beyond the Human Side of Leadership

As an avid business-minded professional, it never ceases to amaze me when I hear a client say, “Our leaders don’t know how to read a P&L.”

For those of you in that same boat, I’m referring to a Profit and Loss statement, a very common business summary. In my world, business and leadership go hand in hand, so I wonder how one can even aspire to be a leader without such fundamental knowledge.

But I get it. We tend to promote those who’ve excelled in a specific area of expertise, whether that’s marketing, sales, operations, or something else. Moreover, the last time I checked, business acumen isn’t a prerequisite for many careers that people pursue, and, unfortunately, it’s frequently absent from a company’s leadership training as well. For leaders to succeed, however, they must master three essential elements of business acumen: People, Process, and Profit.

You need to know how the money is made if you expect to lead your team to the land of milk and honey.

What do Your Leadership Trainers Know?

Why is there often a gap with the profit slice of the holy trinity, People, Process, and Profit? Don’t take this the wrong way, but  most corporate leadership departments already stock their own trainer talent pool on the “People” side because organizations need them. However, they’re  often chronically out-of-stock on the “Profit” team and  not exactly flush on the “Process” team either.

So, what’s a training department to do? In some organizations, they try to pull the Finance team off task to teach the leaders. If your organization has a finance person who is patient and clear with enough time to devote to teaching others, you’re truly fortunate.

Another Path

Instead of dipping leaders too deeply into the pool of financial terms and drowning them with the difference between EBIT and EBITDA, maybe it’s time to think about a custom learning solution. What’s truly important to one organization isn’t necessarily important to another. For example, retail sales per square foot is a great thing to know in a mall but somewhat pointless in other types of businesses. Finding out what the key metrics are and helping leaders understand your business can be the best alternative for some. I encourage people to listen to investor conference calls for publicly traded companies in their industry, especially the question-and-answer segment, to hear what the most important issues are.

Off-the-Shelf Financial Literacy

I also have seen some good basic material online that can be leveraged for the novice learner. Those who love podcasts might try NPR’s program called Planet Money. A good resource hub is also provided by the U.S. government’s Office of the Comptroller of the Currency. The caveat is that off-the-shelf options may go much too deeply into the weeds and overwhelm leaders who are trying to acquire basic knowledge. Or they can be too topical on personal money matters without targeting the knowledge needed in a business context. Motley Fool is a good source of no-frills, plain language information that offers practical guidance. You can also find dozens of related courses on Coursera, LinkedIn Learning, and many other MOOC providers. It’s best if L&D staff curate these materials to make sure leaders are keying in on the right topics.

The Key to Stewardship

It’s important to teach leaders how business acumen can help them eventually become better stewards of the organization’s resources. Making that connection also requires some understanding of the company’s business strategy, which is another topic you won’t find in a MOOC.

For example, at one point in my own history, a company was strategically using its cash flow to finance the building of a new plant in another location. Leaders were asked to consider whether the budget they planned to use for some other purpose was needed and if it supported the company’s strategic goals. By understanding the company’s financial position and also the investment required to fulfill the strategic direction, leaders made good decisions about resource use. They were also able to lead the people-side of the equation because they were able to articulate their thought process around spending approvals.

Business-savvy Leaders Win

The main point is that leaders need a three-legged stool to have a solid foundation for paving the path to success. We can’t simply teach DiSC and Crucial Conversations and call it a day. It may seem counterintuitive, but learning about finance will help leaders raise people skills because they’ll be able to draw from their new profit repertoire.

I urge you to take the time to look at the leadership curriculum in your organization and see if you’re really hitting on all three areas that leaders need: People, Process, and Profit.

A woman and some of her coworkers smiling while working in a computer lab.

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