Business Acumen

HR Management Competencies

1. Assess current and future staffing needs based on goals and budget. 2. Ensure staff are selected, developed, appraised and rewarded 3. Take corrective action 4. Understand basic org design principles

Financial Management Competencies

1. funding 2. ROI of programs 3. budget for programs 4. cost benefit thinking 5. expendetures 6. Cost effective approaches 7. procurement & contracting 8. performance plans

Elements of comp plan directly influenced by org bsns strategy

Investment in resources, fixed and variable comp, market competitive posture

Accrual accounting

Most common accounting practice of companies, revenues and expenses are recorded when they occur regardless of cash flow

Operating departments

Narrow view of comp. Want to spend to attract, retain and motivate. May think comp is the problem or change to comp plan is solution

Special consideration to partnerships with finance

Need data from finance to support numbers. Collaboration should be continuous channel for cultivating data sources

EPS

Net income/common shares outstanding, earnings per-share

Start up lifecycle

New, little to no policies, focus on obtaining capital, marketing products, initial sales, cash conservation

Resource Management Competencies

1. Determine sources and collect data to facilitate decisions 2. Partner with internal staff and external consult/vendors 3. Use efficient and cost effective approaches to integrate technology

Business acumen skills and behaviors

1. Mission, vision, values. Understanding the purpose of your organization, how it creates value, how it makes money 2. Business strategy. Understandings your customers competition and competitive advantage 3. Organizational culture. Understanding the culture and subcultures of the organization 4. HR strategy. Ability to speak about your area of expertise and collaborate with others

Why organizations are in business

Purpose is reflected in mission, vision, values, strategy, profit model

What sets apart top performers

The ability to tie the key competencies together, distill key messages and make impactful decisions

Market competitive posture

The bottom line determines position in the market. Market median or market upper quartile, lead, lag, lead lag

Mission

The intention or purpose of the business, answers why are we in business?

Fixed and variable comp

The mix may be impacted by bottom line

Quantitative data

The numbers

Qualitative data

The people, talk to key stakeholders and employees to get concerns of workforce

Employee connections

Understand needs of emplotees in diff units and ar diff levels, know who you can turn to for help

Contributions to organizational success

Understand the financial and strategic context of your organization, influence the organizations bottom line and financial results

Multiple perspectives

Understanding of other functional areas, looking at business problems. Healthy tension creating a check and balance feel identify areas of conflict, leverage ability to communicate

Investment forecasting questions

Where do we have to invest to generate profit, what is our maintenance capital expenditure, what is our investment capital expenditure.

Identify key influencers and decision-makers

Where does the power lie, who do employees listen to, who will be the opponents, how do you address concerns

EBIT

Gross profit minus expenses, earnings before interest and taxes, also called operating profit, how much the Org earns before financing the business

Growth and margin

Growth rates look at how fast org is growing. Margins at how much organization earns per dollar of revenue, how efficiently operating leverage is.

Values

Guiding principles and or beliefs, how we work and who we are. What kind of organization we want to create in pursuit of our vision

Return on capital

How effectively org is investing capital. Return on equity = net earnings/shareholder equity, return on assets = net earnings/total assets, return on capital/invested capital = net operating profit after taxes/invested capital, economic value added = net operating profit after taxes minus (capital times cost of capital)

Growth forecasting questions

How fast are we growing by measuring revenue, fixed and variable cost, profits, division or productline.

Determining possible future changes

How is industry expected to change, what are we doing to improve our competitive position

Forecasting profit questions

How much profit are we earning for each dollar of revenue, how much profit are we earning compared to peers

Working capital efficiency

How quickly org converts short-term capital to cash Accounts receivable turnover/days receivable, inventory turnover/days inventory, payable turnover/days outstanding

Data analysis gaps

Identify missing data plan to address gaps, recognize when not using data effectively

Data analysis trends

Identify trends and key messages emerging overtime, review budget requests over 2 to 3 years, key issues and messages

Cost leverage

If org grows revenue faster than costs profit growth will accelerate. Find a balance in order to maximize profit

Marginal cost

If revenue accelerate faster than costs then cost per unit sold will decrease as you produce and sell more

Product/service leadership

Innovation based strategy, product development, market exploitation, best products, better ideas, commercialize faster

Types of financial reports

Annual report - shows 12 mos result, called the school year, sometimes matches calendar year sometimes not. Quarterly report - shows basic financial results for three months. Compares to previous year same quarter and cumulative comparables, not as detailed

HR

All business problems are ultimately HR problems. Need to spend a certain amount to attract retain and motivate, need comp programs to complement strategies

Budgeting

Amount of revenue to be generated, cost to generate, other expenses including debt

Investment in resources

Bottom line directly related to investing in HR resources including comp resources. Bottom line increases = more comp and HR resources. Willing to invest more If high return predicted

Competitive strategy

Broad framework of principles that guide day to day decisions affecting business.

How to help achieve objectives of decision-makers

Build alliances

Types of financial statements

Balance sheet, income statement, cash flow statement

Self-improvement and career development

Better understand connections between you and wider org opportunities for cooperative value creation, understand business disciplines and what is critical to their success, Display confidence and decisiveness, be a better leader, inspire and excite others

Effective communication

Comp uses many technical terms. Understand your audience. Prepare to Taylor communication

Evaluating the organizations financial state

Businesses evaluate to make decisions on expected return, occurs in annual budgeting and long-range planning

Collaborate

Contribute to Org goals, identify key influencers, decision-makers; consider how to help them achieve objectives, give consideration to partnerships with finance

The importance of business acumen

Contributions to organizational success, engaging with executive leadership, self improvement and career development

Key performance indicators

Cost analysis, cost leverage, operating profit, marginal cost

Income statement

Covers a period of time, shows revenues earned, expenses incurred. Shows profitability

Cash flow statement

Explains change during period in cash and cash equivalents, comprehensive view of the company's financial situation

Strategy

Goals directions to achieve goals and policies to support. How we are going to compete and achieve our mission and what makes us different

Business acumen for the comp professional

Demonstrate influencing and negotiation skills, be an expert with data, navigate regulatory challenges

Forecasting

Determining what the future holds based on historical data and External factors

Legal

Direct tie to comp. Follow local regional and national laws and regulations

EBITDA

EBIT+depreciation+amortization, same as EBIT but adds annual charge from previous captl investments, often largest non-cash expense, indicative of real cash generated by business

Net income

EBIT-interest-taxes, Earnings available to equity owners after paying debt and taxes

Contribute to organizational goals

Easy to get caught in comp silo, business acumen helps with big picture and how comp should contribute to larger goals

Strategic analysis

Evaluating the industry and market economics, understanding business and competitive strength and weaknesses, determining possible future changes

Key Competencies for Comp Professionals

Financial Management, HR Management, Resource Management

Other performance metrics

Financials - revenues, earnings. Needed to measure financial success, too much focus can overshadow other critical factors. Customers - includes market share, customer satisfaction and loyalty poor performance can equal decline even if financial state strong Internal processes - productivity, quality, deadlines. Tell how business is running a line process, reduce duplication, improve productivity Innovation and learning - employee satisfaction/engagement, turnover, employee value proposition. Employee training and development industries where employees are primary resource

Cost analysis

Fixed cost - do not vary; staff, audit fees, maintenance, rent Variable costs - vary for each dollar of revenue, sales low equals costs low, sales high equals production cost high, wages of production staff, sales comp, Raw materials, shipping

Growth life cycle

Focus on growing sales, increasing the distribution and Efficiently produce products to meet demand, begin standardizing procedures policies

Mature business lifecycles

Focus on maintaining marketshare, improving productivity, reduce costs, improvements to products are evolutionary, greater amounts of cash on hand

Connecting with other business units

Keep up to date on org challenges, work on key initiatives, discover challenges of line managers, identify and develop proactive measures

Future value

Looks at current holdings and determines how much investment will grow overtime

Present value

Looks at desired value in future and determines how much needs to be invested today to realize that amount

Market metrics

Measure potential gap between shareholder and management expectations for feature, include market ratios and multiples

TSR(total shareholder return)

Measures the total return shareholders have earned on their investment

Money in the past/money today/money in the future

Money in hand today is worth more than money promised at sometime in the future because it can be invested with interest and grow overtime

Primary focus of competitive strategy

Operational excellence, product/service leadership, customer intimacy

Accrued expenses

Payday Jan 8 is for prior two weeks, accrued cost for two weeks are recorded in prior years income statement including base salary and related benefits

Profit model

Plan for how organization generates revenue, why customers are willing to pay

Time value of money

Present value will increase to a future value with the inclusion of time and interest rate

Operational excellence

Price/cost-based strategy, combo of price, quality, dependability, ease of purchase, minimizing Waze, rewarding efficiency

Sources of capital

Profit - money that comes from sales. Equity - money that investors pay to own a share of business. Debt - money that is borrowed usually in loans or notes

Operating profit

Profits accelerate as sell more for same fixed cost, better when costs do not increase at the same rate as sales

Business analytics

Refers to skills, technologies, applications, practices of exploration an investigation of business performance to drive planning

Engaging with executive leadership

Represent the perspective of your area of expertise and articulate its role in business outcomes, align with the company's mission and financial priorities

Profit measures

Revenue, gross profit, EBIT, EBITDA, net income, EPS, growth and margin

Gross profit

Revenue-cost of goods sold, how much the Org earns from each unit

Decline business lifecycle

Revenues are declining, decide to reinvest, create new, or maximize profits with current products

Linking business strategy and comp strategy

Should be aligned with rewards strategy, HR strategy business strategy and comp strategy, comp is often large percentage of operating cost

Customer intimacy

Solution-based strategy, creating results for customers by building bonds to build loyalty

Why do orgs use financial reports

Standardize data across companies and industries, promote consistency of financial communication, provide information to Key constituents(leaders, managers, shareholders, lenders, govt)

Market position

Star: high market share high growth potential, use cash, sustained growth, high profit Question mark: low market share hi market growth, use cash ability to generate profit is unknown because low market share Dog: Low market share low market growth, uses cash from other segments Cash cow: hi market share low market growth, cash used to develop businesses and other segments, such as question mark's

Business life cycle

Start up, growth, mature, decline

Balance sheet

Statement of financial position as specific date, list whats owned, what's owed, equity of entity. Shows book value of company, represents financial health

Price to EBIT/EBITDA Ratio

Stock price/EBIT or EBITDA per share

Market to book

Stock price/book value per share

Price to earnings ratio

Stock price/net earnings per-share

Price to revenue ratio

Stock price/net sales per share

Revenue

Volume x price, The top line on a starting point of an orgs income

Investor

Wants to see long-term success and viability and growth. Want to see money spent wisely

Finance

Wants to see spending allocated wisely to increase margins and Max probability with focus on variable costs over fixed costs

Understanding business and it's competitive strengths and weaknesses

What is competitive position relative to other industry participants, what are your competitive advantages, disadvantages

Evaluating the industry and market economics

What is state of industry now, is it expected to change

Vision

What organization wants for the future, who we are and where we are heading

Questions to ask when making forecast

What will our workforce needs be, how will pension liability change, how fast will markets grow or shrink, can we gain market share, can we increase pricing, how much money do we need, are prices stable

Accrued revenue

When company ships order it is recorded as sale even though payment is not received until future

Uses of financial data and metrics

Working capital efficiency, return on capital.