We are delighted to have a guest post this week from Jonathan Kettleborough. Jonathan has written extensively on his blog about the need for L&D to align to business objectives. In this post he shares his thoughts on why L&D needs business acumen.
Business acumen – who needs it? There was a time when the average L&D manager needed to understand a bit about training delivery and be able to spout on about one subject or another in front of a bored audience – but no more. Now – more than ever before – L&D managers need to be skilled in a range of subjects and top amongst them is business acumen.
What the data tells us
For those of you who follow my blog, you’ll know that I’m a big fan of data. One organisation that’s helping to collate some real data about whether L&D professionals have business skills is the Learning and Performance Institute (LPI). The LPI have developed the LPI Capability Map which measures the perceived capability level against a number of key measures. One of the capabilities measured is Business Skills and Intelligence. In 2103 – against four key elements – the average capability was 2.58. This was one of the lowest scores. One year on – in 2014 – the score had risen to 2.59, a rise of just 0.45%. Clearly business acumen is not as strong as it could be.
According to Wikipedia, “business acumen” is keenness and quickness in understanding and dealing with a business situation in a manner that is likely to lead to a good outcome. The term “business acumen” can be broken down literally as a composite of its two component words: Business literacy is defined in SHRM’s Business Literacy Glossary as “the knowledge and understanding of the financial, accounting, marketing and operational functions of an organization. The Oxford English Dictionary defines acumen as “the ability to make good judgments and quick decisions”. Given these textbook definitions, a strictly literal definition would be “keenness and quickness in understanding and dealing with a business situation.”
So, knowing L&D could be better at business acumen is one thing but just how do we begin?
Three steps to business acumen heaven
I’d suggest that there are three key steps that every L&D professional needs to take in order to reach proficiency with business acumen. These are:
- Understanding your business
- Understanding your department
- Understanding your supply chain
Let’s look at each of these in turn.
Understanding your business
Sounds obvious doesn’t it? I’m sure we all understand the business we operate within, we all know the key business drivers and pinch points and operational models. But do we – do we really?
A number of years ago Starbucks nearly went bust when the price of coffee on the commodity markets went through the roof. Airlines constantly battle with securing aviation fuel at the most advantageous price for long-term operation as do steel works with their energy supplies. These things matter so much they can mean the difference between being in business and being out of business. But not many people necessarily understand that.
So you think you know your business – you think you REALLY know your business? OK then, answer these few simple questions:
For your organisation:
- What’s the core strategy for the next five years
- What’s the vision, aims, strategies and tactics?
- What’s the core products/services?
- What’s the turnover for the last three years?
- What’s the profit for the last three years?
- What’s the EBIT/EBITDA for the last three years?
- What’s the planned headcount/FTE base for the next three years?
- Who’s your biggest competitor and why?
- What one thing could really derail your business?
- What’s the total spend on people related services (HR, L&D etc.) over the next three years
- What’s the biggest skill gap in your organisation?
There are literally hundreds more questions that I could have asked but most people will struggle with the above. If you don’t struggle then please let me know and I’ll send you some more questions to explore. Put simply, if you don’t understand your business then you can’t begin to understand or apply business acumen. Let’s now look at your department.
Understanding your department
OK, we’re on home ground now. You’ll surely know lots about your department and the way it operates, so the following questions should all be very straightforward:
For your department:
- What are the top three strategic issues your department should be working on?
- What’s the capital budget for the next three years?
- What’s the revenue budget for the next three years?
- What’s the ratio of revenue to capital budget? Does this change? Do you know why?
- What’s your charging/chargeback model for services?
- Do you know the cost-stack of your top three services?
- What’s the cost of all your internal L&D people resources
- How much are you charged for your training rooms/offices etc.?
- If your services are funded by your organisation, do you know the real cost of providing ‘free’ training?
- What’s the resource level of your department over the next three years?
- What – if any models are you utilising e.g. 80/20, 10:20:70 Do you know why?
- What has Big Data told you about the services you offer
- If you purchase services externally, are they good value for money? How do you know
- If you were asked about the ROI or value added of your department, what would you say?
As before, there are so many more questions that could have been asked but these will do for now. Still comfortable, still happy with your answers and knowledge? If so, then let’s look at the final of our three steps.
Understanding your supply chain
These questions apply to any externally provided goods and services. You’ll probably know most of these so it should be fairly easy.
For your supply chain:
- Who are your top three suppliers by value?
- Who are your top three suppliers by volume?
- How often do you evaluate your suppliers? What measures do you use?
- Do you have a supplier selection process? Do you adhere to this?
- Are you suppliers VAT registered? Do you know the difference?
- How many of your supplier are sole traders?
- Do you undertake a financial check on all of your suppliers? If yes, do you understand the results?
- What percentage of your suppliers’ total business do you contribute to?
- How many suppliers do you use/manage? Is this is right amount? How would you know?
- What discounts can you get for bulk buying? Do you use these? Are they value for money?
If you’re able to answer most of the above – or at least know where to find the information – then you’re well on the way to demonstrating business acumen. If you can only answer a few of the above then perhaps it’s time for you to brush up on your business techniques and do some research – or perhaps even attend a course!
Remember, L&D isn’t just about classrooms or e-learning. It’s also about a deep understanding of the business drivers that you need to understand and respond to.
Join us this week for #chat2lrn to discuss your thoughts on Thursday 24 July at 08.00PDT/11.00EDT/16.00BST and let’s chat about it!