Early in my career, I took a sales position with a small technology reseller that sold software and hardware systems primarily to manufacturing companies. In those days, it wasn’t uncommon for a workstation and a single-user license of software to run well into six figures. So, almost every sales opportunity required us to get involved with our customer’s finance department to develop a business case or cost justification. Unfortunately, I had no financial background whatsoever. I didn’t know a Balance Sheet from a Rap Sheet.
I read a book on selling that admonished the reader to ‘Sell higher. . . Learn to sell to decision makers . . . Understand what keeps executives up at night.’ Then the author offered a list of executive business issues like the one below:
- Mergers and Acquisitions
- Labor Costs
- Revenue Growth
- Inventory Management
- Working Capital
- Market Share
- Operating Expenses
- Return on Assets
- Leveraging Human
- Capital Customer
- Satisfaction Earnings per Share
- Accounts Receivable
- Time to Market
- Order Fill-Rates
- Product Quality
- Managing Risk
- Customer Loyalty
- Materials Costs
- Cash Flow
- Workforce Productivity
- Shareholder Equity
- Knowledge Management
- Profit Margin
- Disaster Recovery
Does this help you any? It didn’t help me very much. I was at a loss to understand the relative importance of all of these things. I could read English, but I had no context or frame of reference for understanding what these words really meant. I didn’t even know which ones were good (i.e., a company would want more of ) versus which ones were bad(i.e., a company would want less of ). So, I went out and bought one of those little books of business definitions, but I soon figured out this wasn’t all I needed to know either. Even if I had been able to memorize all of those terms and their definitions, was I going to just blurt them out at random in the general direction of an executive? I doubt that would have earned me much credibility.
Business acumen (an understanding of how business works) is more than just knowing words and their definitions; it’s understanding that poor inventory control has a negative impact on order fill-rates. When order fill-rates fall, customer loyalty suffers, as do accounts receivable. When accounts receivable get out of hand, cash flow is impacted. Then a company might have to dip into lines of credit to cover short-term obligations, and the interest that has to be paid on that borrowed money erodes profitability. I call this the ’cause and effect of business.’
In addition to the financial measures that make up the line items on financial statements, businesses track their operational and financial performance by a myriad of other measures and metrics. Some of these are not so much measures as they are initiatives or objectives, such as improving quality, fostering better customer service, or leveraging intellectual capital. Companies are constantly trying to apply metrics and standards to these somewhat ’soft’ measures, and any particular company might have their own unique way of managing to these objectives. We will call all of these metrics, measures, initiatives, or objectives ‘elements of value.’ We will assume that if something can be improved, increased, reduced, or decreased, and if doing so is either ‘good’ or ‘bad’ for the company, then it is an element of business value. And the first truth for us to acknowledge is this . . .
Every element of value has one or more causes and one or more effects.
When any one of these measures moves in either direction, it has an effect on others in either a positive or a negative way. That subsequent movement has yet other effects on certain other elements in the value structure. The chain reaction can be quite substantial, as in the example above about the effects of poor inventory control. As we develop our business acumen and our understanding of how business works, we are developing a knowledge of ‘what causes what’ in business. This knowledge of business cause and effect is what moves us from amateur to professional status in our customer’s eyes.