Business Acumen Competency Flashcards
(22 cards)
Organizational and Product Life Cycles
Introduction. Revenue (the vertical axis) is low because there is little market awareness (of the new industry, organization, products, services, or processes) and because of the market’s resistance to change. Entrants (new industries, organizations, or products) must create an identity with customers and develop a value proposition. This takes imagination, business acumen, and leadership.
Growth. As time proceeds (the horizontal axis), revenue begins to increase. The rate of growth (or the steepness of the curve) will vary by industry, enterprise, or product. The focus shifts to creating processes that will increase efficiency without stifling innovation.
Maturity. The market is saturated with competitors, and growth occurs only through introduction of new products or customer groups (which starts new cycles for those entrants) or through acquisitions. Profit margins become narrower, and efficiency becomes more important. This means greater formalization and perhaps bureaucracy.
Renewal/no growth/decline. Eventually demand will decrease, either because the need no longer exists or it is satisfied more effectively by something or someone new. Organizations can:
Renew themselves by completely changing their offerings, where they compete, or how they compete. If they succeed, revenues rise. Organizations must return to their innovative roots.
Take no action and accept continued low revenue. As time goes on, organizations and products have few resources to take advantage of opportunities that might deliver growth.
Take no action and experience a decline in revenue that will make it impossible to compete or operate.
An organization’s business intelligence system has three basic components:
Data gathering. Data is routinely gathered through different computer systems in all parts of the organization (for example, point-of-sale performance, purchasing and sales transactions, employee and customer records, security terminals).
Data warehousing. Data gathered from different systems is translated into a standard format, cleaned (or “scrubbed”) of errors and duplications, and then stored in databases related to specific uses (for example, operations, finance, sales, HR). Organizations that have invested in an enterprise resource planning (ERP) system are able to integrate these distinct databases. This allows everyone in the organization access to the same current data and improves communication and coordination. ERP products are “suites” of integrated applications for special purposes, such as those shown in Exhibit 1-32. The data warehouse is integrated but divided into separate sections or data marts that share reporting and analytical needs or interests. For example, the human resources information system (HRIS) captures data related to managing tasks such as payroll, workforce planning, performance appraisal, training and development, and succession planning. Some ERPs actually extend outside the organization by supporting electronic data interchange (EDI). Among other purposes, EDI is often used to automate outsourcing and vendor payments.
Query and reporting capabilities. Users can access the data they need and use stand-alone or integrated (ERP) business application software to sort, describe, and analyze data in myriad ways and to create report graphics, such as bar or pie charts.
balanced scorecard
A balanced scorecard can provide a concise impression of an organization’s overall performance. It can be used to focus the organization and its functions on key strategic activities, to craft responses to goals, and to create metrics to assess the effectiveness of these responses. Balanced scorecards help support a clear line of sight from strategic goals to strategic performance. An organization can have multiple balanced scorecards, as the organization-level scorecard can be deconstructed to a departmental level, incorporating departmental-level metrics.
A business case
is a presentation to management that establishes that a specific problem exists and argues that the proposed solution is the best way to solve the problem in terms of time, cost efficiency, and probability of success. The form and level of formality of the business case will vary by organization. Some are written proposals with supporting financial analyses, while others may be slide-supported oral presentations.
business case components
Executive summary. This summarizes and establishes the purpose of the project. It supplies the condition or change impelling the function’s action.
Example: HR is aware that the organization’s strategy includes growing its South American businesses. Until now, these businesses have operated independently from headquarters and from each other. The lack of common policies and processes for compensation and rewards and talent management and the lack of a shared organizational culture would inhibit the strategy.
Recommended solution. The objectives for an ideal solution are defined (the desirable outcomes of such an initiative), and the proposed action is described in sufficient detail to show how it meets these objectives. In some cases, alternatives may be described as well, and the reasons why they are not being recommended may be discussed.
Example: HR proposes conducting a customized salary and benefits survey for the targeted growth areas and the current countries in the portfolio and building a policy and practice “culture” for the existing individually run countries that would make acquiring a partner or growing organically more feasible.
Risks and opportunities. Risks should include outcomes that could decrease the project’s chance for success, outcomes that could present new opportunities that would require action, and the risks of doing nothing at all.
Example: HR foresees the difficulty of obtaining this information in some businesses with poor data records but has included extra time and resources in its reserves for this. There is a currently unresolved legal issue about obtaining access to data in one country. The opportunity is that this information can come at an opportune time for the company’s acquisition strategy and make integration much smoother.
Estimated costs and time frame. The project budget should include all foreseeable elements (labor, equipment, fees, travel, and so on) plus a reserve for the unforeseeable based on the project’s risk. The time frame should keep in mind not only the project requirements but also the organization’s needs. Longer or more complex projects may be structured in phases, with gates or review milestones at which management can decide whether to proceed or not.
Example: HR provides a cost estimate but also estimates this amount in terms of the benefits this information could provide in the event of an acquisition or merger.
balance sheet
is one indicator of the organization’s financial health. It is a statement of the organization’s financial position—its assets, liabilities, and equity—at a particular time.
Assets
what an organization owns. They can be tangible (for example, cash or cash equivalents, inventory of finished product or materials, property, and equipment) or intangible (for example, copyrights and patents, proprietary knowledge). (Although human capital is an important asset for organizations, finance and accounting do not list it as an asset because it cannot be monetized with absolute agreement.)
Liabilities
what an organization owes. Liabilities can include items such as rent, loans or notes, wages and benefits that have been earned but not paid, reserves set aside to cover potential liabilities, unpaid fines or legal judgments, tax debts, and accounts payable.
Accounts payable
the money an organization owes its vendors and suppliers.
Equity
is combined with liabilities in the balance sheet because it represents what a company owes to either its owner(s) or its shareholders. Equity is what is left of a company’s assets after its liabilities have been discharged. Stockholder equity is the value of all stock held by investors. In this case, it also includes profits that have not been distributed to investors as dividends but have been retained by the company, probably for reinvestment to grow the company, for example, the purchase of robotic equipment to increase productivity.
income statement
compares revenues, expenses, and profits over a specified period of time—usually a year or a quarter. The income statement is also known as the profit and loss statement or P&L.
The income statement indicates an organization’s net income, which is often referred to as the “bottom line” and provides key information about the organization’s performance. The equation for net income is:
Net income equals revenues minus expenses.
gross profit margin
Gross profit margin equals gross profit divided by net sales.
net profit margin
Net Income:Net Sales
cash flow statement
illustrates the effect of all organizational activities—activities that both consume value (for example, production, administration) and produce value (for example, sales, investments)—on how much cash or cash equivalents the organization has on hand.
Sales Pipeline
- Identify leads. Through campaigns, public relations, and other promotional activities, customers are exposed to the organization and the products or services it offers. This stage is sometimes referred to as prospecting.
- Gather information. Investigate prospective customers to ensure that they are viable leads. In other words, can you meet their needs, can they afford it, are they a legitimate organization?
- Create proposal. After it is determined that a lead is legitimate, a proposal is drawn up detailing why and how the product or service meets their needs or requirements (for example, costs, benefits, process, pricing).
- Negotiate. After receipt of the proposal, a prospective buyer might come back with a counterproposal. Sometimes, they may ask for a demonstration to ensure that the product or service does indeed meet their needs. Any counteroffer should be examined closely to ensure that it makes financial sense.
- Close sale. After the terms have been agreed upon, final details are ironed out, and questions are answered. A contract is sent out and signed by both parties, and payment is received.
- Monitor. After a sale is completed, the customer should be monitored regularly in order to provide high levels of service. Depending on how the account is performing, opportunities to cross- or up-sell other products and services might arise.
Business plan.
A business plan is the founding document for an organization and an organizational-level equivalent of a business case. It establishes the organization’s purpose for existing—what it was created to do or achieve. The business plan includes details of the organization’s structure, its marketing plan, and financial projections.
Strategic plan.
This document outlines how an organization intends to fulfill its purpose. It includes details of the mission and vision; strategic objectives, goals, and initiatives; and relevant budgetary information. It is a more detailed version of a business plan, offering a greater level of detail and specifics. Strategic plans can also include details of key performance indicators (KPIs).
Organizational chart.
This is a diagram that illustrates the hierarchy within an organization. It includes information regarding reporting and other relationships between individuals, functions, and departments. These charts are useful to HR because they can be used to assess whether the organization has the right number of appropriately skilled employees in the correct roles. For dispersed organizations, the chart is an excellent tool for keeping track of where employees are located and how they fit into the structure and hierarchy.
Standard operating procedures (SOPs).
These are formal guides, typically presented step by step, that outline how a work process or activity should be completed. SOPs are common for activities and processes that are repetitive or low in variance, and they can enhance efficiency. Many of HR’s functions might have SOPs: hiring, employee onboarding, training, exit interviews, annual reviews, and so on. Familiarity with other organizational SOPs can help HR professionals navigate interdepartmental activities more effectively.
Grants.
A grant is a form of financial assistance provided by a government to help fund an idea or project that is understood to provide a public service or stimulate the economy. Examples of the intended outcome of grant-funded projects may include environmental or educational benefits, promotion of culture and the arts, job creation, or disaster recovery efforts.
Contracts.
A contract is a legally binding agreement between two or more parties, typically related to the exchange of goods, services, or cash. It defines and governs the rights and responsibilities of each participant.
Business continuity plans.
A business continuity plan is a document that outlines how an organization will maintain operations during an unplanned disruption. HR will have its own plans for disruptions (as part of risk management), but a business continuity plan takes into consideration every aspect of an organization that might be affected. These plans will contain information about supplies, equipment, employee disposition, data backups, and backup locations; they are sometimes presented as a simple checklist. HR can play a pivotal role in developing these plans, as well as during any crises, and leaders should ensure that they are familiar with these documents
