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Why is business acumen important for leaders?

It’s a fact: Effective leadership requires both interpersonal skills and business acumen. Even the most dynamic and well-liked leaders are likely to flounder if they lack overall business sense. That’s because without a clear understanding of how business works, their goals are likely to ring hollow, especially when employees recognize that these goals aren’t based on a strong understanding of the marketplace or technical/functional skills and knowledge.

But, what exactly is business acumen? The reality is that it isn’t a single skill but a much broader set of competencies that requires understanding across multiple aspects of a business, including:

  • Market Perspective. Today’s leaders must have deep insight into the marketplace in which a business participates. This means knowing who customers are and what they want, who the competitors are and what they have to offer, and the trends shaping and redefining the marketplace. It also requires an intimate understanding of the company’s competitive positioning, its value proposition to the customer, and how leadership will support it.

  • Financial Acumen. Knowing how decisions impact bottom-line financial results is essential. Leaders must have a good grasp of basic financial reports and metrics in order to monitor performance and make corrections to plans. They must also understand how decisions impact profitability, the utilization of assets, and cash flow.

  • Business System Thinking. As leaders gain additional responsibility, they must be increasingly aware of how their decisions impact others, taking into account not only their functional requirements, but the broader needs of the business. It’s about seeing the big picture and the interdependency of decisions and how they combine to achieve competitive advantage and financial results.

At Insight Experience, as we work with aspiring leaders in our business simulation learning experiences, we witness firsthand how important it is to have a foundation of business acumen to be an effective leader. The most successful simulation teams actively use all three competencies of business acumen, not just one. Teams that do well understand the marketplace and their position within it; use financial reports and metrics to monitor their performance and make adjustments; and comprehend how their decisions impact the overall business system.

When building business acumen for yourself or your team, focus on developing each of these related competencies in order to deepen your skill base.

To test your financial acumen, take our quiz! 

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