When talking to consulting organisations, constructors and client executives and managers generally, I am always intrigued by people’s perception of what true commercial acumen is. What does it mean and how do you measure it? Does it make a difference and why?
I will start with what commercial acumen is and isn’t. Commercial acumen is the ability to understand the drivers, the financials, the variables and the underlying business models that your organisation utilises to make a profit and drive towards being a sustainable organisation. When someone says ‘Commercial Acumen’ your first instinct may be that it’s about understanding the financials of the business like being able to read and interpret a profit and loss statement or being able to effectively manage a budget. However while there is an element of financial nous involved, true commercial acumen involves so much more.
Put simply ‘Commercial Acumen’ is the ability to view situations from a commercial or business perspective. It is about being able to think commercially, understand risk allocation between you and clients, develop strategic relationships, apply commercial expertise to achieve business and project objectives and navigate the challenges that come with understanding the commercial, financial and business drivers of your organisation. It is also about understanding your service providers and sub-contractors business and commercial models to allow you to pull triggers and influence variables to allow you to ensure you are both sustainable long term.
Commercial acumen matters. It particularly mattes for any Executive, Manager, Project Manager or Team Leader that has any responsibility for a service line, business unit, budget or project. I would go as far to say that I would not put an individual in charge of any part of my business unless they had a good commercial acumen base or had the appetite to learn quickly this critical leadership competency.
So how do you know where the key staff in your organisation stands when it comes to their level of commercial acumen? To assist with this assessment, I have put forward below some key questions I ask clients and their key members in their organisations to understand the level of commercial acumen before we undertake training with them:
- What are the key drivers in your business models and your organisation?
- What are the key drivers and metrics that influence your industry and markets?
- What are the average margins you make on your projects or services?
- Who are you top 10 most profitable clients?
- What key industries that we work in are the most profitable and least profitable?
- What are you bid costs as a percentage of net fee revenue?
- What percentage of revenue do you top 20 clients comprise?
- What is your bid success rate in terms of count % and dollar %?
- What is the split between passive income generation and earned income generation in your services, geographies and business units?
- What are the top three costs for the project or organisation budget you are responsible for?
- What are the key lag and lead indicators that give you an indication of profitability in the short, medium and long term?
- What are the different business models you utilise the demonstrate flexibility with your clients?
- How do your suppliers and key sub-contractors make money?
- How well do you know your competitors business models and commercial practices?
- Do you know the key proposal qualifiers and assumptions to de-risk key projects?
- What is your profit target as opposed to revenue target?
- What three key things could drive improved profitability in your business or project?
- Do you have a balanced scorecard in place to measure your key measures?
- How do you hold your key staff to account commercially?
- How do you train new staff on your commercial practices and key metrics?
I am sure readers of this blog could come up with others. I would welcome any other key questions you feel are critical to high levels of commercial acumen.
Without commercial acumen being developed in your key people, you run the risk of projects, business units and service lines not delivering the expected returns you envisaged or worse putting the organisation at significant financial risk due to budget over-runs, delays or reputational risk. That’s why companies must do their part by making sure their employees are equipped with the proper knowledge to make good commercial decisions. Educate, teach and use case studies to explain why it matters to you and your business, how it needs to happen in your business and what we do to ensure we are sustainable in the long term.
BRS offers training on commercial acumen for consultants, constructors and owners of projects. Please visit our Commercial & Procurement page for more information.