Leadership Acumen
or
What Else the CHRO Wants You to Know
Are you familiar with business acumen? And, do you think this is enough?
Aren’t you also running into those words which somehow sound familiar, yet even after thinking twice you are wondering “But what does that really mean?” One of these buzzwords to me, often quoted yet rarely clear, is business acumen. A term, mainly to describe what Human Resources managers don’t know about the business, mainly quoted by non-HR managers. While some think it is just the technicality to read a balance sheet, there seems to be more in it, a bit like painting is not only the process of moving a colorful pencil.
The roots go back to management guru Ram Charan, who described in his best selling book “What the CEO Wants You to Know“, what he had learned to be a universal business principle — from his Indian childhood, where he had helped out in his fathers shoe shop, via his time at Harvard Business School, and into his business consulting time reaching out to CEOs of global firms.
These are the 5 things in business which Charan likes us to focus on:
- Cash & Cash Flow
- Margin
- Velocity (e.g. turnover)
- Growth
- Customers
Charan coined ‘business acumen‘ for this set of core aspects, and gained praise for it until these days. Now, fifteen years after its introduction, the topic has become a standard in top business schools, and it should be highly available among senior executives. No wonder that it ranks first on a list of needed competencies when developing HR staff into HR Business Partners.
The business world has changed since, margins are shrinking, new markets evolve rarely, the workforce has become way more efficient, more specific, more global and often more small. When the focus is more on keeping the right people on board, business acumen alone is not enough any more. Leaders have a growing need to understand people the same way they understand the business.
“Investing in our people is going to be costly and scarce — we need to start doing that!”
— Clayton Christensen, 2014
Steve Denning stated in his Forbes review of the Global Peter Drucker Forum 2014, “the discussion was not about a type of firm, young or old, big or small, in or outside software, but rather a set of leadership and managerial practices that are taking over all kinds of organizations.” So, let us have a look into this new direction, where leadership is not only focussing on the financial results but is enhancing the focus by a people lens. This article might help to develop this new kind of leadership into the realm of modern HR.
When it is about the essence on people leadership, let us reframe Charam’s question into: What does the CHRO want you to know, especially on the leader’s role within an organization? To make it simple, let us make use of Charan’s structure of business acumen also in the people domain.
1. What is it all about?
Charan is quite in line with today’s economists, when he assumes, that it’s all about finance. This is definitely true in times of steep economic growth which we have seen in the past. Yet, when prosperity comes more into focus than financial growth, we should rethink it. Gallup had started 30 years ago with employee engagement surveys, which were only the start of a more people oriented perspective on economy. The war of talent has shown, that cash alone is even not enough to attract the best talent. Even more, Generation Y today has a higher demand than ever before to match their personal values with the corporate values.
“Highest value in today’s economy goes to people who trade value, and not to people who create value.”
— Roger L. Martin, 2014
More and more, it is not only about financial assets, but about the people who are behind it (call it human resources, human capital, human capacity if you like). Yet, the value to maximize is not simply the amount of people, but the value(s) they generate.
General Electric has build this into their people management. After GE had invented “the 9-grid” to map performance vs. potential, their new grid is focussing on the ‘what’ (performance) and the ‘how’, which is a match with the company values. To be meaningful for the organization, those values must of course be more than lip service.
While business acumen is based on cash, leadership acumen adds social values.
2. What makes the difference?
In cash terms, more seems to be better, which is not equally true for people. Less than the quantity, we think of the quality of people, even more the qualities. It is about the kind of values that the organization is striving for.
Whether we take Maslow’s hierarchy of needs (cf. Huitt’s recent review) or en vogue developmental stages (cf. Kegan) or any other, we seem to have a natural understanding of which values we see higher than others. Even more, organizational psychology has shown, that groups whose values collectively are beyond the lower-level needs, perform better than those who have a more socialized mindset.
In his recent book You Must Change Your Life, German philosopher Peter Sloterdijk calls the human beings’ innate search for the better a ‘vertical tension’, which constantly is reduced by learning. As human beings, we are collectively striving to a level higher than today’s.
Where business acumen focusses on the margin as a financial difference, leadership acumen adds to it the aspiration as a difference of the current and future corporate values.
3. What can we do to grow the business?
Business acumen looks for the velocity to achieve a higher margin over a fixed period of time. Effective processes, better equipment, more resources (also more human resources) can help to accelerate the business. When we look instead at people’s values, higher intensity again does not com from quantity but quality.
Quantity would lead us to the corporate culture as a group view on espoused values. Quality instead leads us to the question, what kind of culture lets an organization best approach its aspiration. To integrate findings under various changing conditions, the organizational culture best includes loops of learning, which reflect the actions, their related frames, and the context which led to the expected outcomes. The main difference in this process called organizational learning is the agility of the organization, which demonstrably also leads to better financial performance.
Where business acumen sees bigger margins coming from higher velocity, leadership acumen adds higher aspirations coming from its agility.
4. What can others do to grow the business?
To run an efficient business is already challenging, but on most markets there is competition. Market growth has not only become a shareholder demand, it also is a very practical indicator for business success. Unsurprisingly, this is the same for business value as for people values: the more the corporate values match with the operating environments, the more customers associate their personal values with the aspiration of the company, the more they support the organisation.
Charan sets his focus on ecomomic growth, which is only one facet of this stakeholder dialogue, talking about financial success with shareholders. It turns out that intense and open communication between all involved stakeholders helps to understand societal needs and expectations, which is key for mutual understanding. Only with this understanding, a set of corporate values can become the substance of the stakeholder engagement.
Business acumen strives to disseminate products or services via growth. Leadership acumen adds to it the propagation of values and convictions via stakeholder engagement.
5. Who is buying in?
In a final aspect, Charan focusses on the customer, who generates the cash of the business. If he is not convinced, if he does not buy, the business is over. It is this the flipside of dissemination, which needs satisfied customers and low complaint rates to allow high margins.
In terms of people values, more roles are involved: customers, employees, candidates, but also Main Street. To generate buy-in , customers have valued the product or service; employees witness the organizational attractiveness, potential employees are fascinated and attracted by the reputation of the organization. And even more: the reputation is shared by far more people than the products are. Not to forget the downside of reputational damage.
Where business acumen focusses on customers in the first place, leadership acumen goes further in its focus on reputation vis-à-vis all stakeholders.
What else the Chief HR Officer wants you to know
What Leadership Acumen is more than Business Acumen
- What is it all about? Values more than Cash & Cash Flow
- What makes the difference? Aspiration more than Margin
- What can we do? Agility more than Velocity
- What can others do? Stakeholder Engagement more than Growth
- Who is buying in? Reputation more than Customers
“Unless companies create social as well as economic value, they will not survive in the long run.” — Ikujiro Nonaka & Hirotaka Takeuchi, HBR May 2011
Leadership Acumen, understood as the integration of business acumen and people acumen, will help to form the leaders of the future, who then will shape the future of the organization. And it will give enough opportunities to the CHRO to prove as an advocate and mentor for people acumen than a lagger in business acumen.
This post is based on an earlier thought on blog.amucon.de
