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Talent Management Perspectives

Published March 2008

New Study Finds Lack of Business Acumen Among Organizational Leaders

 

  Agatha Gilmore

Can you imagine an organization — in any industry — where the leadership and management teams don't know the business through and through? It sounds unlikely, but according to a new survey by the Institute for Corporate Productivity (i4cp), it's more common than you think.

In a poll of nearly 400 nationwide respondents, i4cp found four out of five people think there is a moderate to very high level of deficiency in business acumen within their organizations.

"People learn about their own business processes within their departments or functions, and their main goal is to master those processes and all the details that go with [them]," said Mark Vickers, vice president of research for i4cp. "They aren't really thinking about the company as a whole. I think there's some silo mentality going on."

The study, conducted in January, did not define the term "business acumen" but rather left it up to respondents to explain what they meant via write-ins. Several common threads emerged, Vickers said.

"One [definition] was understanding the company's business model, in essence, How does the company make money?" he said. "Other respondents focused on some of the more technical aspects of business acumen, like knowledge of accounting and finance, marketing, sales and interpreting financials. Another type was [understanding] company-specific processes and product offerings."

The study also found the consequences of a lack of business acumen are significant. Sixty-seven percent of respondents thought the knowledge deficiency among organizational leaders had a high to very high negative impact on their organizations, while an additional 25 percent found the impact to be moderate. This is a precarious situation, Vickers said.

"[At the management level], decision-making ability is much greater, they have much more power, and therefore their ability to make mistakes is much greater," he said. "It's like a lifeguard going in and trying to save someone, but being pulled under because they really don't know how to swim very well themselves. They're not just hurting themselves, they're hurting the people that they're trying to save."

It's curious that so many executives and upper-level leaders may get into their positions without requisite industry knowledge in the first place, but Vickers said, in some cases, people have been promoted based on their technical skills and for doing their jobs well, not for their business savvy.

"So they're making decisions based on their technical expertise, which is good, but sometimes they're doing it without the context of the business," he said. "Maybe they're buying an application that works really well for what they want to do, but perhaps it doesn't integrate well or it's going to be very expensive to integrate or it doesn't hook up very well with customer data or market data. Therefore, it ends up being the wrong decision from a bigger point of view."

In other cases, people have been promoted quickly to fill vacancies, and they are so busy learning the ins and outs of their new jobs, acquiring business acumen isn't at the top of their to-do lists, Vickers said.

Whatever the reason for the knowledge deficiency, the solution appears to be proper training, Vickers said.

"The survey came out suggesting that training is a big part of this," he said. "I think the organization as a whole has an obligation to make sure that [leaders are] trained well."

After all, he said, "the more business context you have around what you're doing, the better decisions you're going to make."