Coaching on Business Acumen Is Critical

With record numbers of layoffs, leaders’ interpersonal skills are being put to the test. But coaching on business acumen may be where the real need lies.

With record numbers of layoffs, leaders’ interpersonal skills are being put to the test as they guide the workforce through the economic downturn. In many cases, coaching programs focused on navigating personal conflicts and building team morale have prepared them for the challenge.

But a recent white paper from the Perth Leadership Institute argues that the downturn demands that the development of business acumen, not interpersonal skills, should be the top priority for coaching programs. E. Ted Prince, founder and CEO of Perth Leadership Institute, said coaching programs should be customized to the business cycle and, in the current downturn, focus on developing leaders’ ability to help companies survive financially and create capital.

“When times are good and money is plentiful, coaching needs to focus on interpersonal skills because the priority is not profitability,” Prince said. “When times are bad, the focus needs to move to business acumen because company survival is often at stake, and so is the career of an individual, where profitability concerns now become more important than just interpersonal skills. Lack of business acumen may be a career derailer in a down cycle.”

Prince defined business acumen as an individual’s ability to create capital and deliver positive financial and business outcomes to the organization. To be more effective, learning professionals should shift coaching resources to develop leaders’ abilities in these areas.

“Traditional coaching focuses on interpersonal skills and vocational capabilities,” Prince said. “It has rarely focused on business acumen and financial outcomes directly.”

Adding further complexity to the issue, the financial crisis on Wall Street illustrated that financial literacy often has no correlation to business outcomes or making money. In fact, Prince said, there may be an inverse correlation between IQ and academic skills and wealth creation and business acumen.

“This means that CLOs need to re-examine their beliefs about what they need to focus on in recruitment, talent management and talent development,” Prince said. “It is quite possible that they aren’t focusing on the right things, particularly at a time of financial crisis.”

Prince said the economic downturn and financial market collapse should cause companies to rethink their executive development programs.

“CLOs and HR managers need to start looking at the latest advances in behavioral finance, the area of research which is starting to strongly impact business analysis, but which as of yet has largely not percolated through to most companies,” Prince said.

Examples of business-acumen-focused coaching include showing individuals and teams how their ability to create new products and services increases gross margins, how the use of resources impacts margins and company valuation, and demonstrating the links between behavioral and financial outcomes at all levels.

“We are not saying that there should be no emphasis on interpersonal skills,” Prince said. “We are simply saying that there should be much more emphasis on business acumen than there is now. Clearly, keeping up morale is important. But if a company continues to bleed capital, all the coaching for interpersonal skills in the world will not help the company create capital.”