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In this series I’m using the Financial Times’ definition of business acumen as “keenness and speed in understanding and deciding on a business situation.” The word “acumen” means keenness, but in “business acumen” speed is also crucial, and is included in the definition.

medieval_budgeting,_fugger_officeTo make decisions, we need information. As technology evolves, companies that access the most accurate and most relevant information, and do so the most rapidly, develop a competitive advantage over others in the industry.

An extreme example is stock market high frequency traders, who relocate their servers into offices or hotels right next to the exchanges’ data centers, in order to gain a few milliseconds over ordinary investors.

But even in ordinary corporate environment, planning future budgets and cash flows means that the planners need up-to-date information. They can’t rely any longer on hand-written ledgers and calculations, with information provided by carrier pigeon. And they need it from everyone:

  • what does market demand look like for the next year?
  • what new products and services are we and our competitors developing?
  • what are the frontline sales people saying about prices and volumes?
  • what are production and related costs, and what are our capacity constraints?
  • how much money can we raise if we need to, and how easily, and at what cost?
  • what else do we need to allow for in our planning?
Much of this may look the same from one year to the next in a slow-moving industry. But when the world changes on you suddenly and unexpectedly – which it will, a couple of times every decade! – then those who have obtained and processed all the information are able to make immediate and appropriate changes, and may even find new opportunities in the changing environment – because they know how much flexibility they have in every area of the business.
But those who don’t have current information face a choice. They can respond immediately with a random shot in the dark, hoping they don’t cause too much damage. Or else they can spend the next six months getting hold of relevant information (which will be changing on them even as they get it), and then making an appropriate but belated response… only to find that the world has already moved on, and their competitors have already snatched up whatever opportunities there were.
We saw exactly this situation play out when Israel deregulated the international phone services in 2000. Prior to deregulation the smallest of three companies, 013 Barak Telecom, engaged our colleagues Yissum to run a wargame version of Income/Outcome for them, to see what would happen under deregulation of a high fixed cost industry. They were shocked that prices in the game fell by 80% within a couple of rounds of activity, but they prepared contingency plans.
When deregulation occurred, guess what? Prices fell by 80% within a matter of months… and, as the only ones prepared for that eventuality, 013 Barak Telecom ended up as the largest instead of the smallest player in the industry.
So planning is crucial, not just because it’s nice to know what your results are going to be if things go as planned, but even more importantly so that you can survive – and thrive – in an unexpected crisis through your full awareness of your flexibility.
And that needs information: accurate, and up to date, and from all areas of the business.