As an \u2018old-hand\u2019 at consulting, I\u2019ve been fortunate to work with a large number of L&D managers and team members, both in Australia and overseas. Along the way, I\u2019ve personally experienced the significant benefits of financial know-how and I\u2019ve seen many L&D clients and colleagues disadvantaged by their lack of it.<\/p>\n
Stephen Covey put it succinctly when he said, \u201cJust because a person is \u2018in\u2019 business doesn\u2019t mean that person \u2018gets\u2019 business. (Cope 2018) This is especially true of many L&D professionals, who have a deep passion for and extensive skills in all things learning, but lack essential financial insight.<\/p>\n
Not \u2018getting\u2019 the business isn\u2019t limited to L&D professionals. Anyone who works in a non-financial support role runs the risk of being isolated from commercial aspects of business, especially if their speciality and interest subconsciously deflect them from learning about \u2018boring finance\u2019. I\u2019ve lost count of how many people have said \u201cI\u2019m not a numbers person,\u201d or \u201cI\u2019ve never been good at figures.\u201d<\/p>\n
According to Dictionary.com, \u2018acumen\u2019 is \u201ckeen insight; shrewdness.\u201d Similarly, in the commercial world financial acumen is having a good understanding of business finance and being astute in applying it<\/em>.<\/p>\n Here\u2019s a very short assessment that you can use to start reviewing your financial knowledge: Can you explain the following?<\/p>\n Over the years I\u2019ve spoken to many CEO\u2019s and executive managers in commercial organisations about what they expect from L&D. Two related themes that stand out are:<\/p>\n Keep in mind that financial acumen is fundamental to the broader concept of business acumen<\/strong>. In fact, according to Hendrik Ekelund of BTS (which has trained many leaders in business acumen), it consists of strategic thinking, financial acumen<\/em>, and market orientation. (Ekelund, 2015)<\/p>\n From my experience, there are six reasons why L&D needs financial acumen, especially in these challenging times:<\/p>\n Someone once said to me that \u201cthe language of business is the language of money\u201d<\/em>. It may be an exaggeration, but time and again I\u2019ve experienced the benefits of understanding and being able to use financial jargon in business.<\/p>\n If you can talk the language of money it helps in at least three ways. (a) You can make sense of financial information and reports, (b) you can confidently communicate with financial people and executives, and (c) you can avoid misusing financial terminology (such as margins and retained profit), which loudly signals a deficiency in financial knowledge.<\/p>\n When talking to anyone with financial expertise, \u201cyou need to use words that indicate an understanding of the rationale for the financial side of life. So you need to use such terms and phrases as \u2018cost effectiveness,\u2019 \u2018ROI,\u2019 \u2018added value,\u2019 \u2018measurable benefits,\u2019 and \u2018this contributes to the bottom-line\u2019.\u201d (Little, 2014)<\/p>\n One of the payoffs of financial acumen is that it enables you to understand the \u2018big picture\u2019 of business performance. By this I mean understanding (a) how the different moving parts of the business work together to create financial outcomes, and (b) the overall financial goals, priorities and metrics of the organisation.<\/p>\n In his book, Seeing the Big Picture, Kevin Cope makes the point that \u201cif you want to be seen as a major contributor, show that you understand the relationships among the key drivers of your overall business\u2014not just how your department works.\u201d (Cope, 2018) Financial acumen enables one to look at the business from an \u2018executive perspective\u2019 and better appreciate their demands and decisions. A positive side-effect is feeling more \u2018engaged\u2019 and connected to the organisation as a whole.<\/p>\n When asked about desired results from financial acumen training, possibly the most common response I\u2019ve received from line managers is that they want their people to understand the financial consequences of their actions.<\/p>\n As a L&D professional, if you don\u2019t understand all the effects of your actions, you can easily make decisions that have detrimental commercial outcomes<\/em>. In fact, research shows that the \u2018failure costs\u2019 associated with ineffective learning initiatives can significantly outweigh any benefits that are produced. And this doesn\u2019t take into account damage to the credibility and reputation of those involved.<\/p>\n This question puts it bluntly: \u201cHow can you make the best decisions for your company if you don\u2019t speak the financial language and understand how your actions influence the company\u2019s bottom line?\u201d (Karen Berman & Joe Knight, 2007)<\/p>\n Charlie Munger (right-hand man of Warren Buffet) talks about the importance of having a \u2018latticework of mental models\u2019 in order to think smarter<\/em> and make better decisions<\/em>. Having a set of practical financial models in your head will give you a framework on which to hang experience and new learning. This, in turn, makes the knowledge easier to recall and apply. (Singh, 2016)<\/p>\n Never forget that \u201cmanagers assess a proposed initiative based on how well it can resolve business concerns and improve financial results<\/em>.\u201d [italics added] (Ajay Pangarkar & Teresa Kirkwood, 2014)<\/p>\n A lack of financial acumen makes it very difficult (if not impossible) to explain and justify learning initiatives from a financial perspective. It is necessary to \u2018connect the dots\u2019 between learning and the various financial outputs and metrics that are affected. Not an easy task if you don\u2019t understand the interrelationship of financial variables and what exactly is being measured.<\/p>\n Financial acumen is also important to effective management of L&D as a responsibility centre. Think budgets, expense management and financial reporting!<\/p>\n Simply put, lack of financial acumen is more than a weakness, it\u2019s a liability! Learning about finance is a career-enhancing move<\/em> and will enable you to more fully and visibly contribute to the financial success of your organisation. It will raise your profile and strengthen your personal brand.<\/p>\n If you\u2019re keen to move into a managerial role, learning about the financial workings of the business will inevitably help you to move up. If you\u2019re already in a team leader or manager position, developing your \u2018financial smarts\u2019 is essential. It will help to increase your confidence and effectiveness in your role.<\/p>\n Furthermore, financial acumen is an easily transferable skill<\/em>. Your financial knowledge and skills will be valuable for the rest of your career. They will carry over as you progress and will be relevant no matter what you do in business.<\/p>\n In Conclusion <\/strong><\/p>\n The above six points make a strong argument for developing your financial acumen as a L&D professional, whether or not you are in a managerial role. I strongly encourage all L&D people to be proactive in learning the financial language and dynamics of business.<\/p>\n In order to be seen as key contributors who truly add value, L&D professionals need to have a good understanding of how business works from a financial perspective, their organisations\u2019 financial priorities and KPIs, the financial consequences of their actions, and how to effectively enhance financial performance through learning-based initiatives.<\/p>\n\n
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