Traits reveal how individuals create value
Conventional leadership programs typically aim to develop everything in executives except business and financial acumen. Assessment tools based on personality or competency may focus on many vital areas of leadership, but few formally and specifically address financial traits and impacts. As HR becomes increasingly attuned to the issue of creating business value and its role in that process, leadership programs will increasingly have to focus on the development of business acumen.
According to research by the Perth Leadership Institute, based in Gainesville, Fla., individuals possess distinctive financial styles that have differing impacts on the financial performance of their work units and even of the overall enterprise.
Basically, these financial styles will be market-outperforming (value-centric), market performing (balanced) or market-underperforming (resource-centric). Within each of these areas are more precise financial behaviours, called “financial signatures.”
Apple founder Steve Jobs’ financial signature would be that of the venture capitalist. It is marked by a tendency to break from the past to create value, coupled with high resource utilization. The impact of this style is high gross margins offset by equally high expenses and, as such, making no money on average, though a few will have huge financial successes.
Financial signatures reveal the way someone would typically behave in trying to create financial value. They reflect the innate calculus that drives how they deal with situations involving risk and reward, cost and benefit. Individuals with a breakthrough value-adding style as described above will create high gross margins whereas those with value-adding styles that focus on the preservation of current value will sustain relatively low gross margins in comparison to their industry peers. Those with intensive resource utilization styles will tend to have high investments and expenses relative to their industry.
People are rarely aware of their financial signature and its impacts. Thus, most of the time, managers and executives make decisions that are driven by unconscious behavioural preferences as much as by external factors. Take a senior manager with a breakthrough value-adding style who’s unaware that he also has an intensive resource utilization style. His performance as a leader may be outstanding but his financial performance is not as good as either he or the company wanted. The reason is his systematic but unconscious tendency to make large investment decisions. Others around him may have provided feedback on this but he does not absorb it until he sees a formal report on his financial signature.
Business acumen: some findings
Conventional leadership programs are based largely on aspects such as personality and competencies. Programs that take into account financial behaviour yield very different conclusions. Research at the Perth Leadership Institute, conducted with 200 CEOs and senior executives in the United States, examining the linkage between their financial traits and the financial outcomes of their enterprises as well as their individual financial performance, suggests the following:
•business acumen is often inversely related to conventional academic prowess and achievements, including advanced degrees such as MBAs and PhDs;
•executive competencies, such as vision or interpersonal skills that score high in competency assessments, do not necessarily or even usually translate into high business acumen scores; and
•some professional skills such as engineering tend to counter higher levels of business acumen. Some occupational skills such as sales also counter higher levels of business acumen.
These findings may be surprising for some. But they’re not counter-intuitive. Individuals with conventional academic intelligence by and large have low business acumen because they tend to over-invest in quality and product improvements that do not have an immediate or even medium-term commercial payoff. Their academic training and orientation tend to drive them to the achievement of a full understanding of the situation, to perfection and detail rather than to an approach that is just good enough to meet commercial needs. Likewise, people with high vision very often tend to be those who use an intense level of resources. The linkages may be quite subtle, but they reflect the tendency of highly talented individuals to focus on vision to the detriment of commercialization.
While individuals cannot change their financial signature, since it is innate, they can change the way they express their financial signature in practice.
Training: Managers are often not even aware of what business acumen is and what expectations are of them in this regard. At the outset, training in business acumen can provide a context and reasonable expectations and goals for managers and executives.
Self-awareness: This is the single most important way to develop business acumen because the motivation comes from within. Individuals need to identify the extent to which their financial traits are value-adding and resource-using. For many, this will lead to behavioural adjustments without any or much need for additional intervention.
Coaching: For many individuals, a short coaching program that reveals to them their financial behaviour and shows them how to compensate for it, will lead to increased business acumen.
Team programs: Feedback on team results can have an impact on improving individuals’ business acumen as they compare their own results against those of the team. It also allows financial behavioural issues to be discussed at the team level, leading to adjustments and improvements.
Alignment and business acumen
Financial signatures reveal how the financial behaviour of individuals drives different strategies for creating financial value. Some financial signatures may not be appropriate in particular situations, depending on the business context and market environment. For example, a venture capitalist financial signature may be well suited to an innovative startup but totally inappropriate to a mid-stage company selling commodities in a mature market.
Thus it is not enough for an individual just to have higher levels of business acumen to achieve higher levels of financial performance. The type of business acumen they possess must be aligned with the financial mission of the organization and with the stage of maturity of the market they work in.
In working with individuals and teams to develop their business acumen, alignment must be a key concern of the trainer and coach. They need to understand the financial mission of the organization in order to ensure alignment is appropriate to the organization as well as simply improving the business acumen of the individual.
HR can contribute significantly to the enhancement of business value by introducing business acumen programs. These aren’t merely the programs that aim to increase knowledge of financial issues (what is an income statement and a balance sheet) but also ones that aim to show how financial traits and behaviours affect financial decisions and outcomes. These will help ensure that otherwise competent leaders do not fail due to insufficient levels of business acumen, as can often occur.
Ted Prince is author of The Three Financial Styles of Very Successful Leaders. He is founder and CEO of the Perth Leadership Institute in Gainesville, Fla., and a visiting lecturer in the Warrington College of Business Administration at the University of Florida. He may be reached at [email protected].
According to research by the Perth Leadership Institute, based in Gainesville, Fla., individuals possess distinctive financial styles that have differing impacts on the financial performance of their work units and even of the overall enterprise.
Basically, these financial styles will be market-outperforming (value-centric), market performing (balanced) or market-underperforming (resource-centric). Within each of these areas are more precise financial behaviours, called “financial signatures.”
Apple founder Steve Jobs’ financial signature would be that of the venture capitalist. It is marked by a tendency to break from the past to create value, coupled with high resource utilization. The impact of this style is high gross margins offset by equally high expenses and, as such, making no money on average, though a few will have huge financial successes.
Financial signatures reveal the way someone would typically behave in trying to create financial value. They reflect the innate calculus that drives how they deal with situations involving risk and reward, cost and benefit. Individuals with a breakthrough value-adding style as described above will create high gross margins whereas those with value-adding styles that focus on the preservation of current value will sustain relatively low gross margins in comparison to their industry peers. Those with intensive resource utilization styles will tend to have high investments and expenses relative to their industry.
People are rarely aware of their financial signature and its impacts. Thus, most of the time, managers and executives make decisions that are driven by unconscious behavioural preferences as much as by external factors. Take a senior manager with a breakthrough value-adding style who’s unaware that he also has an intensive resource utilization style. His performance as a leader may be outstanding but his financial performance is not as good as either he or the company wanted. The reason is his systematic but unconscious tendency to make large investment decisions. Others around him may have provided feedback on this but he does not absorb it until he sees a formal report on his financial signature.
Business acumen: some findings
Conventional leadership programs are based largely on aspects such as personality and competencies. Programs that take into account financial behaviour yield very different conclusions. Research at the Perth Leadership Institute, conducted with 200 CEOs and senior executives in the United States, examining the linkage between their financial traits and the financial outcomes of their enterprises as well as their individual financial performance, suggests the following:
•business acumen is often inversely related to conventional academic prowess and achievements, including advanced degrees such as MBAs and PhDs;
•executive competencies, such as vision or interpersonal skills that score high in competency assessments, do not necessarily or even usually translate into high business acumen scores; and
•some professional skills such as engineering tend to counter higher levels of business acumen. Some occupational skills such as sales also counter higher levels of business acumen.
These findings may be surprising for some. But they’re not counter-intuitive. Individuals with conventional academic intelligence by and large have low business acumen because they tend to over-invest in quality and product improvements that do not have an immediate or even medium-term commercial payoff. Their academic training and orientation tend to drive them to the achievement of a full understanding of the situation, to perfection and detail rather than to an approach that is just good enough to meet commercial needs. Likewise, people with high vision very often tend to be those who use an intense level of resources. The linkages may be quite subtle, but they reflect the tendency of highly talented individuals to focus on vision to the detriment of commercialization.
While individuals cannot change their financial signature, since it is innate, they can change the way they express their financial signature in practice.
Training: Managers are often not even aware of what business acumen is and what expectations are of them in this regard. At the outset, training in business acumen can provide a context and reasonable expectations and goals for managers and executives.
Self-awareness: This is the single most important way to develop business acumen because the motivation comes from within. Individuals need to identify the extent to which their financial traits are value-adding and resource-using. For many, this will lead to behavioural adjustments without any or much need for additional intervention.
Coaching: For many individuals, a short coaching program that reveals to them their financial behaviour and shows them how to compensate for it, will lead to increased business acumen.
Team programs: Feedback on team results can have an impact on improving individuals’ business acumen as they compare their own results against those of the team. It also allows financial behavioural issues to be discussed at the team level, leading to adjustments and improvements.
Alignment and business acumen
Financial signatures reveal how the financial behaviour of individuals drives different strategies for creating financial value. Some financial signatures may not be appropriate in particular situations, depending on the business context and market environment. For example, a venture capitalist financial signature may be well suited to an innovative startup but totally inappropriate to a mid-stage company selling commodities in a mature market.
Thus it is not enough for an individual just to have higher levels of business acumen to achieve higher levels of financial performance. The type of business acumen they possess must be aligned with the financial mission of the organization and with the stage of maturity of the market they work in.
In working with individuals and teams to develop their business acumen, alignment must be a key concern of the trainer and coach. They need to understand the financial mission of the organization in order to ensure alignment is appropriate to the organization as well as simply improving the business acumen of the individual.
HR can contribute significantly to the enhancement of business value by introducing business acumen programs. These aren’t merely the programs that aim to increase knowledge of financial issues (what is an income statement and a balance sheet) but also ones that aim to show how financial traits and behaviours affect financial decisions and outcomes. These will help ensure that otherwise competent leaders do not fail due to insufficient levels of business acumen, as can often occur.
Ted Prince is author of The Three Financial Styles of Very Successful Leaders. He is founder and CEO of the Perth Leadership Institute in Gainesville, Fla., and a visiting lecturer in the Warrington College of Business Administration at the University of Florida. He may be reached at [email protected].
