Once, I was talking to my colleague, in the context of that conversation he told me, "Vidyanath, good engineers are dime a dozen, but engineers with a good business understanding are very rare. If you want to move up in leadership roles, if you want to have an edge over others then sharpen your Business Acumen". That was the first time I heard the term "Business Acumen" and I had no idea what it meant. That evening out of curiosity, I landed on the all-knowing Google. I typed "what is business acumen" and this is what I learnt, "Business acumen is keen, fundamental, street-smart insight into how your business operates and makes money".
I kept digging for some more and that is when I stumbled up on this book "What the CEO wants you to know" by Dr. Ram Charan. The beauty of this book is the simplicity. The author takes out all the complexity, the clutter and mystery out of the business and boils it down to five essential key drivers using which anybody can assess the overall condition of business, no matter how complex it is, or what type of business it is.
I would love to introduce you to those 5 key business drivers.
1. Cash: Harold Geneen said "The only unforgivable sin in business is to run out of cash". Cash is king, Cash is the oxygen supply of a company. Any business no matter what it is, needs cash to survive and drive. Cash flows in, when your customers pay for your goods and services. Cash flows out when you payout for all the expenses that you incur. You always want to make sure that the cash coming in is greater than that of cash going out.
Now, you might ask me "Well, that is just common sense". let me tell you, Common sense is very Uncommon.
2. Profit Margin: Most of you already know what profit is? But let me briefly reiterate. Profit is simply what you make by selling your goods and services and what you incur in terms of cost to produce and sell those goods and services. If you are trying to improve your profit margin on a certain product or a good, you either want to increase the price or you want to cut down on the cost. If you want to improve your profit margin on your company, then you have to improve your sales and decrease your expenses. The key phrase to remember regarding profit is "Buy low, Sell high".
3. Assets: Assets include the machines, the people, the cash, the building, materials, everything and anything that you use to produce goods and services. The question that you need to ask regarding assets is "How fast and how hard can you make your assets work to make more money"? some of the examples to better utilize your assets is improving employee productivity, decreasing cycle time, reducing material scrap, improving machine run rate, utilizing the space available more effectively, etc.
4. Growth: In a world that grows every single day, no growth means lying behind. Every person, every company, every national economy must grow. But growth for its own sake is no good. Growth needs to be accompanied by sustainability and profitability. You need to grow in such a way that you can sustain it and it needs to bring in more cash and improve your profit margin.
5. Customers: the last and perhaps the most important key driver is the Customers. Alex McDougall once said, "In business, to get what you want, you have to give your customers what they want". So the important question here is "What exactly is your customer buying from you"? When a family goes out for eating, are the paying for the food? or they really paying for the fun family outing? Customers buy automobiles not just for transportation but also to make a status and prestige statement. People buy clothes for personal statement. What exactly is customer buying from you? What exactly, what really is their want or need? You need to be able to put your finger on it and deliver that every time and to every one of your customers. If you'll take care of your customers, they'll take care of you.
In summary, I told about the five most important business drivers. Do you want to be a business savvy entrepreneur? Do you want to be a better leader? Do you want to move up the career ladder? If your answer is YES to any one of these questions, you need to master these basic building blocks of business and mind your own business.
