Arguably, the strongest predictor of business impact is the ability to understand the business, or business acumen. This skill is underdeveloped in HR. Indeed, 4 in 10 CHROs consider business acumen the most lacking skill in HR talent. So what is business acumen in HR, and how can you develop this competency?
What is business acumen in HR?
– Why is business acumen important for HR professionals and businesses?
– What does business acumen for HR professionals entail?
– Behaviors of HR professionals exhibiting strong business acumen
How to develop HR business acumen
What is business acumen in HR?
Business acumen refers to the ability to understand an organization’s goals, purpose, and vision and create processes, policies, and activities aligned with this that best serve the organization and drive it forward. It’s a vehicle for improving financial performance and leadership development.
Business acumen is also sometimes referred to as business sense or business savvy.
HR professionals who have business acumen understand the core business principles, internal and external operations, and the goals of the organization; they can strategically tailor and position their policies and day-to-day activities to best serve the organization and its end customers, leading to an increase in profits.
They know that business strategy is not separate from Human Resources but rather a fundamental part of fully understanding an organization and best serving both its employees and end customers.
Why is business acumen important for HR professionals and businesses?
The role of HR is evolving and business acumen is a core competency today for all HR professionals, not only HR business partners.
Did you know that business acumen is the most lacking competency when looking for top-level HR talent? 41 percent of CHROs cite business acumen as the most lacking skill when searching for HR talent.
When HR practitioners are able to fully grasp how the business works and speak the language of the leaders, they can substantially impact business results. This adds incredible value to the organization, which is then able to create business strategies that drive profit and increase competitiveness.
When you as an HR professional fully understand the organization’s goals, values, and mission, your understanding of what’s needed evolves, and you’ll be more confident in taking action and implementing change. You will also earn credibility and trust of the senior leadership.
“As a consultant, I have carried out HR audits where there was no strategic fit between business needs and the HR strategy document prepared by the HR function. Some CEOs have confided in me that their head of HR does not demonstrate business acumen. This reminds me of that quote from ‘The HR Scorecard’ ‘My Head of HR is very talented. But this is business, not HR.'” —Victor Banjo, Chartered FCIPD, MCIPM, mni
What does business acumen for HR professionals entail?
At AIHR, we have identified particular skills or competencies that we believe every HR professional needs to be effective in their role. Business acumen is one of these core competencies.
The four HR core competencies are:
- Business acumen
- Digital integration
- People’s advocate
Business acumen comprises three key components:
- Context interpretation
- Customer orientation
- Strategic co-creation
HR professionals need to have at least a fundamental understanding of all three components. Let’s explore each of them in more detail.
1. Context interpretation
Context interpretation refers to the understanding of the global context of work and the internal organizational dynamics.
This aspect requires a good grasp of market trends and forces that are currently affecting the business or might do so in the future, plus a more comprehensive awareness of macroeconomic and social factors affecting the organization.
2. Customer orientation
Customer orientation refers to the knowledge of the organization’s products or services, the end customer, and aligning HR policies to optimize delivered value.
It’s also vital to have a solid understanding of people, culture, and leadership, as well as change dynamics.
3. Strategy co-creation
Strategy co-creation refers to HR having a deep understanding of its organization’s value and what makes it a success (or not), and using this knowledge to co-create aligned business strategy together with the business leaders. To put it differently, it goes beyond the surface level of the finances and how the business works.
Although not every HR role requires in-depth knowledge of these three components, it’s hugely beneficial to have a general understanding of all three. This will enable you to align HR policies with wider business objectives and create real value.
Behaviors of HR professionals exhibiting strong business acumen
How does HR business acumen translate to your work? Here are a couple of examples to clarify that:
1. Ability to define and align with the organization’s purpose
HR professionals (and all employees) must be able to clearly articulate what the organization does and why it exists. In other words, what is its purpose?
HR professionals also need to know their individual purpose and how it connects to their role, their team’s collective efforts, and the wider organization. They should always include this in their decision-making.
2. Consistent and effective measuring
Without tracking or measuring things, you can’t understand what’s working and what’s not. Therefore, you will have no idea if the policies or processes you’re implementing have any real value.
This is why it’s crucial to measure ROI regularly. Some helpful questions for HR to ask themselves would be:
- Are we doing the right thing for our people, customers, and business?
- How are we contributing to the top and bottom line?
- How do we measure our organizational effectiveness and impact?
- Is the information from these measurements helping guide the success of our organization?
This also requires at least some level of financial acumen, which is an ability to understand the financial metrics, as well as the relationship between financial management principles and business outcomes.
3. Putting the organization first
If one person or team consistently exceeds targets while the rest of the organization struggles or fails, this suggests something is wrong. Everyone should be thriving, and this requires a team effort focused on putting the organization ahead of individual success.
This means implementing incentive, reward, and recognition systems that celebrate employees’ accomplishments that align with the organizational goals and mission.
4. Focusing on everyone’s strengths
Everyone has unique strengths and weaknesses. Weaknesses can only be improved so much; whereas allowing a person to focus and develop their strengths can lead to incredible performance and results.
HR leaders demonstrating strong business acumen encourage managers to understand and focus on the strength and talents of their candidates and employees
How to develop HR business acumen?
Now that you know what business acumen is and why it’s essential to thriving in your role and organization, how do you begin developing it?
The knowledge and competencies you need will depend on your specific role and career level.
Here are some of the most valuable strategies for developing business acumen.
1. Build a deep understanding of your business
Develop a thorough working knowledge of what your organization does and why. How does it make and spend money? Have you seen a profit and loss sheet?
Get to know your organization’s product or service intimately and understand what’s involved in delivering it.
Some helpful questions to have answers for would be:
- What are the biggest priorities and concerns of your organization’s leaders?
- Who is your biggest client or customer, and why do they use your service or product?
- Which product or service is the most profitable, and why?
- What is the company’s operating margin?
- What was the revenue and profit for the previous financial year?
Understand how the metrics you collect (employee engagement, retention, benefits, etc.) lead to improved performance and a healthier bottom line. Essentially, you need to know your HR value chain to truly contribute to the business planning process.
This is crucial knowledge for HR professionals just starting their career through to those at the highest level.
2. Get a grasp on your (desired) customer base
Knowing who your end-customers are is going to help you empower your organization’s workforce to serve your customers in the best possible way. Learn:
- Who your target customer is
- What they are looking for
- What their biggest challenge or pain point is
- Who your main competitors are
- What your point of difference is
- How HR can help position the organization to better serve its customers, increase the value provided, and drive profits
3. Develop knowledge of common management theories and how to apply them
This will help you understand the biggest challenges and begin looking for solutions.
Additionally, increase your awareness of how a manager’s strategic decisions impact others and the wider company and consider the broader needs of the organization. This is about recognizing how each decision is connected and combines to work toward a greater purpose and improve financial results. For instance, you can participate in management training to improve your knowledge of management.
This strategy is most applicable to those in a managerial HR position.
4. Continuously educate yourself
Learning shouldn’t stop. Put this into practice by continually reading books, listening to podcasts, reading HR magazines and articles, taking courses, and participating in relevant industry events. This is a must for anyone at the start of their HR career, and it’s a great habit to continue with as you advance.
Remember to seek out the right education. For example, many books are outdated and don’t reflect what HR looks like today and how it’s rapidly evolving.
Up-to-date online courses are a great way of developing HR skills including business acumen, and preparing yourself to take on a more strategic role within your organization.
Remember that business acumen training is a process that never ends.
5. Consider job shadowing
Observing how people work across different departments is a brilliant way to gain new knowledge, build new relationships, and get insight into the organization and how it functions.
Develop your understanding of how operations in other departments impact the organization’s overall success and where the limitations and challenges are.
6. Get a mentor
As you advance in your HR career, what you say, how you say it, and when you say it becomes increasingly important. It’s not easy to pick up these skills on your own without some outside help. This is why finding a mentor or coach with significant experience (either in your organization or elsewhere) can be highly beneficial.
7. Don’t be afraid to ask questions
Get into the habit of asking questions often, regardless of where you are in your career. Don’t be afraid to say if you don’t understand something or need it explained again or differently. This is how we learn and grow.
Asking questions will deepen your knowledge and understanding and will provide different perspectives on issues and potential solutions.
8. Teach others
As you grow and develop your business acumen, be sure to share your knowledge with other members of your team. Ensure they know the basics of how your organization functions, and encourage them to develop their business acumen by engaging in all of these strategies and more.
Business acumen is a vital competency for all HR professionals
As you can see, business acumen training is key for all HR professionals today. Not only will it strengthen the HR department, but it will also help you connect HR strategy with the wider business strategy and enable you to provide real value to the organization that leaders notice.
If you want to learn more about business acumen in HR and future-proof your HR skill set, check out our HR Business Partner 2.0 Certification Program!
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