Why Business Acumen Wins More Sales

Today, customers get most of their product and application information from the Internet-meaning that selling is tougher for sales professionals, who must now add value to each customer’s business and must work with the selling firm to achieve mutual goals. Throw into the mix the need to assess customer strategy, create customized solutions and build synergistic relationships and that takes a special kind of business acumen.
In addition, over the past two decades, wholesale changes in the technology underlying business transactions have fundamentally altered the way that businesses operate with one another. Business-to-business communications have gone from episodic (telephone calls, memos and faxes) to instantaneous (email and instant messaging). Information about products and services no longer arrives in hand-delivered brochures but through ever-present Web pages. Interaction among customers has grown from user groups that meet once a year to online communities where every day brings a new complaint or opportunity. Simple supply chains held together with paperwork and corporate lore have been replaced by just-in-time inventories that squeeze both waste and cost from the entire system.

Nowhere have these transformations made a bigger impact than on the role of the sales professional. Traditionally, sales reps were the sole point of contact and the all-knowing purveyors of product information. They carried that information back to the customer, sold some product and then returned to their employer with the order. Sometimes, the rep would make an effort to ensure that the order was fulfilled and serviced correctly. But the main thing was to make the sale…and move on.

With the introduction of each new wave of technology into the workplace, that traditional role has become less necessary. Today, the customer can get product information beyond the “brochure level” with just a few keystrokes, and without having to sit through a sales presentation. In fact, a buyer might even be able to order the sales rep’s product right from the Internet, without any personal interaction whatsoever. The Internet has, in a very real sense, “dis-intermediated” the traditional role of sales professional to the point that, until quite recently, many business punditsn assumed that the job category would simply vanish into history.

That hasn’t happened. Instead, as the result of the complexities of the rapidly changing technological environment, selling has become more important than ever. Information overload is one unintended consequence of this continual change. While it’s true that buyers now have access to a wealth of information about products and services, they often lack the expertise necessary for appraising the consequences of their purchases on the company’s bottom line. As a result, customers now look to their suppliers to provide a new level of assistance so they are not required to be technical experts, financial gurus or industry consultants. For example, the challenge of comparing technology solutions often exceeds the buyer’s ability to assess the financial consequences of each proposed solution but a sales rep with business acumen can fill that gap. In short, the Internet has not only shifted the salesperson’s role, it has made the sales professional more, rather than less, important.

The burden of creating solutions and reviewing the financial consequences-using such tools as value comparisons, investment allocation, ROI (return on investment) and ROE (return on equity)-now falls upon sales professionals. Consequently, the selling function gradually has been transformed from a people-oriented job into a business-oriented job requiring strong associated people skills (including the ability to maintain long-term business relationships). Sales professionals are now expected to become trusted advisors who can work alongside customers to improve their businesses. In this new collaborative environment, selling means cultivating and maintaining a business partnership-not simply filling a customer’s immediate need.

“The traditional ‘informational’ sales call has become obsolete,” explains Gerhard Gschwandtner, publisher of Selling Power magazine. “Customers now want sales reps to be trusted advisors who will help them sort out specific problems and determine specific solutions that can be implemented quickly and cost-effectively.” Gschwandtner points out that customers want sales reps to provide unique expertise and perspective in order to solve their problems or help them to achieve business goals. “This is only possible, however, when the sales rep has a strong understanding of the customer’s business and of the rep’s own company as well,” he explains.

The Importance of Business Acumen

It is impossible to become a trusted advisor without a deep understanding of the two elements of a business partnership: 1) the way that the customer’s business works, and 2) the way that the sales professional’s own business works. This understanding is only possible when a sales professional has what is called “business acumen.”

Business acumen goes beyond basic financial literacy, which is the ability to interpret the numbers on a financial statement. It incorporates an understanding of how corporate strategy impacts those key numbers. Business acumen provides sales professionals with deeper insight into customer needs, and makes it easier for reps to strategically position products and services. Armed with business acumen, a salesperson can find ways to make positive changes in the customer’s financial picture-and in the seller’s position too.

Here’s an example. Imagine three sales reps (A, B and C) from three different plastics suppliers, all vying to become the replacement vendor to a manufacturer of printed circuit boards (PCBs).

Rep A is an old-school “order taker.” To get the account, he offers the customer a 10 percent discount below what its current supplier is charging. Unfortunately, this rep doesn’t realize that the cost of the plastic represents only a tiny fraction of the manufacturing cost. In fact, it’s probably going to cost the PCB manufacturer more money (not to mention paperwork and hassle) to change suppliers than will be saved through the discount.

Rep B has some business acumen. He consults the PCB manufacturer’s SEC filings and discovers that one of its strategic goals is to reduce inventory cost by 20 percent. He learns that the manufacturer is currently renting a warehouse full of plastic so it will be ready when the big orders come in. To get into the account, he proposes to eliminate that level of inventory through a just-in-time delivery scheme that will reduce the customer’s inventory cost by 3 percent-helping it to work toward an important corporate goal.

Rep C has even more business acumen. She performs the same research as does Rep B and leads with the same type of just-in-time delivery scheme. However, she knows that her own company has one of the best inventory control systems in the plastics industry, and that the system has significantly affected her firm’s profitability. So she offers not just to be a plastics supplier, but also to help the PCB manufacturer incorporate her own company’s successful inventory methods. Her sales proposal quantifies the value of that knowledge by showing how it will likely achieve at least a 20 percent reduction in inventory cost. As a result, she gets the order.

More important, Rep C has now forged a long-term partnership between her firm and the PCB manufacturer, a relationship that will be mutually profitable for years to come. That collaborative relationship protects her firm from being easily replaced. In short, this sales rep has created a partnership situation out of what could have been a profit-killing price war.

Approaching a sales situation with business acumen changes the dynamic relationship between seller and buyer. It creates situations in which the seller’s specialized knowledge and perspective become a strategic part of the buyer’s long-term success.

Consider this real-life example. The author’s company, Paradigm Learning, recently was involved in a competitive sales presentation directed at 40 executives from a major player in the aerospace industry. While the competition focused its presentation on its own products and services, Paradigm’s executives highlighted initiatives taking place within the prospective customer’s business, to show how Paradigm’s programs could add strategic value. At one point, the customer’s head of training interrupted the Paradigm presentation on the grounds that the presenter was covering proprietary information. However, it turned out that the so-called “proprietary” content had come from a thorough analysis of the customer’s own annual report. Paradigm’s greater business acumen provided a clearer focus on the customer’s needs, while the competition was merely touting the features and benefits of its own product offerings. It comes as no surprise that Paradigm won the company’s business.

As this anecdote illustrates, business acumen gives salespeople a major competitive edge in business-to-business sales environments. Unfortunately, business acumen remains relatively rare. In fact, studies show that only 10 percent of salespeople understand financial statements and can articulate their customers’ key financial drivers. While there have always been sales professionals who have managed to acquire and use business acumen, companies have lacked a practical and simple way to develop such knowledge among large numbers of sales personnel.

Not anymore. A new training methodology is making it easier and quicker to address business acumen and to propel salespeople to the next level of effectiveness.

Developing Business Acumen Efficiently and Effectively

Business games and simulations have been used in a variety of situations to educate corporate learners, especially over the past decade. They present a fun, fast and effective way to impart new knowledge and enhance existing skills. Research strongly suggests that hands-on learning provides a shortcut for learners, engaging their senses and allowing them to be active participants in their own learning. “Discovery learning,” as such simulations are known, accelerates learning and makes it stick.

Only recently has this approach been used with sales professionals to develop the business acumen skills they need to truly achieve “trusted advisor” status.

Classroom-based simulations and business games provide a fast track toward the learning and retaining of complex subject matter, according to Ken Jones, author of Games and Simulations Made Easy. He writes:

Games and simulations are powerful tools. They are based on learning from experience… Games and simulations confer power. The participants “own” the event. They have the power to make decisions, including the power to make their own mistakes. Sometimes the participants are so involved to the point that their experiences are so memorable that they even can be recalled in detail, days, weeks and even years afterward…Games and simulations are about people. They are real, not theoretical.

Research also suggests that people retain information longer and better when the instruction takes the form of a classroom-based simulation or game, according to Simon Egenfeldt-Nielsen of the University of Copenhagen. “The increased retention over time of learning appears to be one of the most consistent findings within the research into the potential of games for learning,” he says. This is particularly true when the subject matter is complex, according to Brent G. Wilson, professor at the School of Education and Human Development at the University of Colorado. He writes:

When designed well, both simulations and gaming environments can facilitate students’ learning [both of] specific domain knowledge and concepts, and of several cognitive skills like pattern recognition, decision making and problem solving… Other educational strengths of using games and simulations include developing a variety of cognitive objectives, transferable process skills, student-centered learning, initiative, creative thinking, effective objectives, sense of completion and knowledge integration.

In sales training environments, games and simulations are particularly effective because sales professionals are naturally competitive. They also tend to appreciate that discovery learning transfers knowledge more quickly than do other forms of instruction, because time spent training is time not spent selling.

Paradigm Learning has had enormous success in teaching business acumen with Zodiak®: The Game of Business Finance and Strategy for Sales Professionals. This one-day sales training program consists of a fast-paced, high-energy business simulation followed by a customizable session that zeros in on a company’s own selling issues.

The experience of Paradigm’s customers is that Zodiak creates, in a single day of fun learning, the kind of business acumen that can transform a sales professional from a mere order taker into a trusted advisor. To illustrate the power of this technique, let’s examine how Zodiak performed at International Paper, the world’s largest forest products company.

Building Acumen in a Real-Life Sales Situation

International Paper, like every other growing business, has gone through massive changes as a result of the Internet revolution. In this case, the transformation has involved repositioning paper from its role as a commodity product to one as a cost-effective alternative to electronic media. The company’s sales professionals, therefore, have been driven to move away from order taking and toward becoming solutions experts for the company’s customers. In other words, they’ve been driven by market forces to become trusted advisors.

One of the pioneers of this effort is Steve Sullivan, a customer value service manager at International Paper. As part of his sales efforts, Sullivan created what he calls Customer

Value Management (CVM), a methodology that helps sales professionals identify customer needs, create solutions that address those needs, deliver those solutions and manage the results. That methodology proved so successful that Sullivan was asked to train other salespeople throughout the company.

As he rolled out these concepts to a wider audience, Sullivan quickly realized that many sales professionals lacked the business acumen to be effective with this highly collaborative sales methodology. “When the customer started talking about finance and strategy, there was a tendency among our folks to go glassy-eyed,” he explains. “It wasn’t that they didn’t want to help the customer, only that they lacked the vocabulary and basic understanding to put the customer’s needs into the proper business context.”

So Sullivan worked with Paradigm Learning to adapt the Zodiak program to the unique attributes of International Paper’s customer base, incorporating the game as a key element of the larger CVM training curriculum. He added exercises that created a bridge from the classroom simulation to the International Paper organization, its customers and its specific sales challenges. The new training program focused on the impact that sales forecasting and price discounting had on the company’s financial measures; on how to create customer business and financial profiles to better position products and services; and on how to use business knowledge to interact more effectively with higher-level buyers.

The resulting program has had an enormous positive impact on International Paper’s sales effectiveness. For example, the company was awarded a 2007 Stevie® Award by Selling Power magazine for having the best sales training program of the 400 nominated companies. “The education of our sales professionals on the basics of financial literacy and business acumen was a big part of our winning that award,” says Sullivan. He also believes that International Paper has secured new business and renewed contracts as a result of the improved training.

Sullivan has used his own business acumen to estimate the value of this training initiative to his firm. International Paper benchmarks its success against 11 other companies in the industry, using a variety of competitive measurements, including ROI. Since the company began its CVM program, its ROI ranking has risen from ninth to second. “There’s no question that increasing the level of business acumen throughout the sales teams has contributed positively to our bottom line,” says Sullivan. “More important, it’s helped us contribute to the bottom lines of our customers and to their long-term success.”

Achieving the Next Level of Sales Success

There’s little question that the Internet will continue to drive the evolution of business-to-business relationships. Customers and prospects alike will increasingly insist that their vendors add value at every stage of the sales process. That kind of selling is possible only when salespeople have business acumen-the knowledge to understand the intersection of their customers’ strategies with their own company’s strategy and competencies.

The Importance of Business Acumen Training For Managers and Employees

The message to CLOs is becoming clearer and clearer. Company leaders want them to align educational offerings with the organization’s strategic objectives.

That’s not an easy challenge. They must ensure that education and communication initiatives reinforce the company’s goals. They must help employees understand these goals and develop the skills and motivation to contribute to them.

And at the most basic level of alignment, they must make sure that every employee understands how the company makes money. That includes understanding how profitability is driven, how assets are used, how cash is generated and how day-to-day actions and decisions, including their own, impact success.

Developing business acumen is fundamental to business alignment. Consider Southwest Airlines, which was founded in 1971. With 33 straight years of profitability, the airline has become widely recognized for the motivational culture it creates for employees and its extraordinary dedication to customer service.

Much of the industry has suffered during the years of Southwest’s growth, including many airlines that have merged or declared bankruptcy. Southwest buys the same planes and the same jet fuel as other airlines, and pays its employees competitive wages and benefits. What’s the difference?

Unlike some of its competitors, Southwest’s management team involves employees in the company’s financial results, explaining what the numbers mean and, more important, helping to link everyone’s decisions and actions to the bottom line. The airline has an open culture, one of inclusion at all levels, and employees understand their roles in providing great service and keeping costs in line.

Certainly there are other factors that contribute to the success at Southwest, but it’s difficult to ignore the positive impact of an approach that develops the business acumen of all employees and managers so that they can contribute to the airline’s success.

An Educational Challenge

Unlike those at Southwest, individual contributors and managers in many organizations today have not been educated about the big picture of their businesses. They have a narrow focus on their own departments and job functions and aren’t able to make the link between their actions and the company’s success. Multiplied by hundreds or even thousands of employees, this lack of understanding – the lack of true business acumen – means that too many decisions are being made and too many actions are being taken that don’t align with business objectives.

How can training help bridge this knowledge gap? For many companies like Southwest, implementing learning programs designed to develop a strong foundation of financial literacy and business acumen has made the communication of financial results to employees easier and more effective.

Business Acumen: A Definition

Very simply, business acumen is the understanding of what it takes for a business to make money. It involves financial literacy, which is an understanding of the numbers on financial statements, as well as an understanding of the strategies, decisions and actions that impact these numbers.

Someone with financial literacy, for example, would be able to “read” the company’s income statement. This employee or manager would understand the terminology (revenue, cost of goods sold, gross margin, profit, etc.) and what the numbers represent (i.e., gross margin equals total sales/revenue less the cost of goods sold).

With business acumen, the individual would be able to “interpret” this same income statement, taking into consideration how company strategies and initiatives have impacted the numbers during specific periods of time.

Consider a simple comparison: In football, it’s necessary for players to know how the game is scored as well as how to play the game to change the score. In business, financial literacy is understanding the “score” (financial statements) and business acumen is understanding how to impact it (strategic actions and decisions).

Asking the Right Questions

When business acumen spreads through an organization, employees and managers begin to ask questions. These questions are directed not only at the organization, but also at themselves and their departments – questions about processes, products, systems, staffing and more that can lead to necessary and innovative decisions and actions.

Business acumen helps everyone understand that it’s not enough to ask, “How do we cut costs?” or to say, “We need to increase sales.” Digging deeper, employees with higher levels of business acumen will ask questions that take into consideration the far-reaching impact of potential decisions and demonstrate a greater ability to make the connections between performance and results.

Questions that could get to the root of disappointing operating ratios:
• Have production costs gone up? If so, why?
• Have we changed prices? If so, how has that affected our margins?
• Are there any competitive issues impacting our performance?
• Have there been any customer requirement changes?
• If our costs per unit produced have gone up, can we better control the efficiency of our production or service delivery?
• Is there a way to produce a greater product volume at the same cost?
• Can we raise prices, still provide value to the customer and remain competitive?

When questions become more specific, the right decisions can be made.

Business Acumen for Managers

Managers at all levels need a high level of business acumen to do their jobs. Every day, they make decisions about employees, projects, processes, expenditures, customers and much more – decisions that ultimately roll up into larger organizational results. Managers who make these decisions while looking through a departmental lens only, with a limited understanding of how these decisions affect financial results or how they are tied to the organization’s goals and objectives, are working in silos that can ultimately damage the company.

Managers are often promoted to their positions of responsibility because of their “technical” expertise. They’ve been successful customer service representatives, great salespeople, innovative researchers or well-respected IT professionals. They are now entrusted with decision making, budgets, projects and people. They often do not have financial literacy, nor have they developed a higher-level perspective about the business. Over time, especially if they move up the managerial ladder, they may develop these. Or they may not.

Organizations need managers who operate as part of the management team, taking accountability for their own results as well as the results of the entire company. Therefore, more and more organizations have built financial literacy and business acumen into managerial competency requirements and have integrated business acumen training into management curriculums.

Business Acumen for Employees

Although there is little debate about the need for managers to develop business acumen, organizations sometimes question the need for this understanding at employee levels. But frontline contributors, those who are most directly involved with production or customer service, for example, take actions every day that impact business results.

Consider the salesperson who discounts products, or the service representative who deals with an unhappy customer, or the maintenance person who notices a problem. The actions each of them takes might erode profit margin, lose a good customer or allow safety issues to escalate. Without an understanding of how their actions impact the company’s results, they might not have the context to consider alternatives.

Many organizations have determined that financial literacy and business acumen aren’t just for managers anymore. They have decided to develop a company of people who understand the business; who know what return on assets and return on investment mean; who know how inventory turnover rates affect results and the importance of positive cash flow; who see the connection between the company’s financial success and their own health benefits, 401(k) plans and more. In other words, they need people who understand the “business” of the business.

In his book Good to Great, Jim Collins says, “We found no evidence that the ‘good-to-great’ companies had more or better information than the comparison companies. None. Both sets of companies had virtually identical access to good information. The key, then, lies not in better information, but in turning information into information that cannot be ignored.”

With an increased level of business acumen, managers and employees can better interpret information, making the connection between their actions and the company’s results.

Another Reality of Today’s Business World

A public company’s operating results are well known at the end of each quarter. Analysts, investors, the media, employees-everyone has access to a company’s financial results. With a significantly increased focus on accounting improprieties over the past few years, senior management has become highly conscious of the need to provide accurate and timely financial information. And employees have become much more likely to wonder about these numbers. “Is my company being honest? Are the numbers telling the whole story?”

Without a fundamental understanding of financial results and an ability to interpret them, employees may become suspicious and, ultimately, disengaged. Disengaged workers, in turn, negatively impact productivity and profits.

CEOs of public companies, then, must ensure that managers and employees are able to understand the numbers and have confidence in them. That means effective business acumen education as well as ongoing and open communication from the top.

Former GE chairman Jack Welch said in his book Straight from the Gut, “Getting every employee’s mind into the game is a huge part of what the CEO job is all about…There’s nothing more important.”

The Big Picture

As we have become a nation of specialists, armed with new information technology and enterprise-wide operating systems, it has become easier for managers and employees to become myopically immersed in their own jobs. This immersion can have the effect of obscuring their view of the big picture. They may not consider the cumulative effect of wasted assets. They may have little regard for the objectives and responsibilities of other team members, departments or divisions. They may lack the motivation to invest personal energy in critical project work.

Organizations that engage in developing business acumen provide a clearer vision and an overall context within which employees can work, while creating an environment that is more likely to break down internal barriers. There is less waste and less ambivalence. There is increased innovation. Employees are more engaged, they understand their role and its impact on business results, and they are more likely to believe that their efforts really matter. They are more likely to think like a business owner.

Think Like an Owner

To be successful, business owners must be able to helicopter above day-to-day issues and see the big picture. They must understand how the pieces of the business fit together to impact profitability and cash flow, and they must be able to assess the risks and rewards of potential decisions. The best business owners study the numbers, ask themselves tough questions, analyze their mistakes and take decisive action.

To truly understand the business, owners have to understand how that business makes money – in other words, how it produces sales, profit and cash. Organizationally, they know that it’s about people, processes and productivity. On the customer front, it’s about satisfaction, loyalty and market share. Ultimately, every action taken and every decision made in any of these areas will impact sales, profit or cash.

When managers and employees begin thinking like owners, they, too, look at the big picture, understand how all the pieces fit together, and assess risks and rewards. They understand, like an owner, how the company makes money, how it stays in business and how they contribute to its success.

The benefits to an organization of engaging managers and employees in this kind of ownership thinking are obvious. So how can a company develop the business acumen of its people?

Developing Business Acumen: Two Stories

Entrepreneurs are generally forced to develop business acumen on their own. They are hands-on with their businesses and have to make all the decisions as they go along, whether good or bad. They either learn from their mistakes or fail.

It’s very different for managers and employees in an organization.

They aren’t involved in all aspects of the business, and they make decisions primarily within their own areas of responsibility. Since seeing the connections isn’t easy, they need to learn in some other way.

Books and lectures can help. But business acumen is best developed experientially. Learners must be able to analyze situations, ask questions, discuss issues with other learners, consider options, make mistakes and see results.

Although there are a variety of ways to accomplish this kind of experiential learning, many companies have found that simulations, which mirror reality and allow learners to experiment in a safe environment, are one of the best ways. Here are the stories of two companies who chose to educate their learners with business simulations.

Comcast Cable Communications

The NorthCentral Division of Comcast – one of the country’s largest entertainment, information and communications companies, specializing in cable television, high-speed Internet and telephone service – set out to ensure that managers and employees throughout the organization had the financial acumen required to make good decisions. A companywide survey had clearly demonstrated this need – especially for managers of employees who had direct contact with customers.

For example, if a customer calls with a service problem, frontline employees and their supervisors can issue credits to the customer’s account in an effort to resolve the issue. Although this may be exactly what is needed for the situation, Comcast realized that employees making these decisions didn’t necessarily understand that a $10 credit could ultimately require more than $100 in revenue for the company to break even. Similarly, a service technician’s visit to a customer’s home might cost $50 directly, but the company might have to sell an additional $500 in services to cover the cost.

“The lack of financial acumen among supervisors and employees was largely understandable,” says Mark Fortin, senior vice president of finance for Comcast’s NorthCentral Division. “Almost 75 percent of the company’s employees are on the front lines in roles such as call center personnel or field technicians. They are trained to be good at what they do, but their backgrounds typically don’t include emphasis on financial literacy.”

Comcast human resource executives determined that a fundamental approach to the development of business acumen was needed. However, this approach also would need to be fast, engaging and job-relevant. Expanding upon its already robust Comcast University management curriculum, the executives chose to integrate a high-energy, tailored learning experience that would provide the “basics” and, at the same time, deal specifically with Comcast terminology, concepts and strategic imperatives.

As they participated, learners made decisions about products, processes, pricing and more, and they saw how those decisions impacted financial success. In the end, it became easier for them to make sharper day-to-day choices.

“The thing that sticks out for the frontline leaders, the field technicians, and the call center supervisors and managers who attend, is the high cost of sales in our business,” says Sophia Alexander, senior manager of curriculum and metrics for the division. “It’s like a bell goes off in their heads when they realize what it costs for us to earn what we need to earn to run the organization.”

Attending the learning session is not mandatory for supervisors and managers. However, there is an unwritten expectation that they will participate in business acumen training as well as other Comcast University core programs, according to Jan Underhill, senior manager of leadership development for the NorthCentral Division. That expectation, coupled with the fact that manager compensation has recently become tied to meeting specific financial goals, has kept attendance high.

Senior executive support also has been an important factor in creating interest and awareness around financial literacy. “Getting people to sign up is much easier when senior executives like Mark Fortin are strong advocates for the program,” says Underhill.

Feedback has been resoundingly positive. On average, for example, Level 1 feedback about the discovery learning based business acumen sessions has been 4.5 on a 5-point scale. That means that the program has exceeded expectations. Better than that, says Sophia Alexander, senior manager of curriculum and metrics for the NorthCentral Division, is the empirical evidence that the new insights and knowledge have made a difference. For example:

• Participant self-evaluations indicate that financial literacy has increased by at least 25 percent as a result of the business acumen training.
• After the training, there was a 20 percent increase in the participants’ ability to use basic financial terms and concepts on the job.
• Almost 45 percent of supervisory participants report that they are using their business acumen knowledge in daily communications with staff and peers.

“Some people, particularly in big companies, feel like there is an open checkbook. They think… I don’t own the company. It’s not my problem. Somebody will pay the bills. But in today’s environment, with some very large companies in trouble, everyone needs to be part of the solution. Business acumen education for managers and employees helps the company as a whole, but it also helps employees. It’s about self-preservation to some extent.” comments Fortin.

Southwest Airlines

Southwest Airlines is one of the consistently profitable companies that makes “business literacy” a core component of its employee training programs. Every employee has a solid understanding of what a new customer, and new revenue, means to the company. Employees also know how the loss of a customer can impact the business.

According to Elizabeth Bryant, director of leadership training at Southwest Airlines, “Our training covers how the financial ratios such as return on assets and various margins are determined. Knowing that team managers, supervisors and all employees have this knowledge enables the company’s leadership to present detailed financial reports and explain to the teams where the margins need to be. Management can speak more in depth to all the employees, and the employees understand what the objectives are.”

Bryant added, “Because we don’t waste the little things, because we track every penny and every activity, we’ve all come to know the importance of each cent. With the pennies in hand, we spotlight the idea of compound interest- for example, how the small savings help us by year’s end and how small amounts of waste can conversely add up to hurt us.”

Consider the importance of a key operating metric for the airline industry – operating cost-per-seat mile. This is how much it costs an airline to fly one seat one mile. All the operating costs are divided by the total number of seat miles (the total number of miles of all the seats that were flown for a given period, whether a passenger was in the seat or not). Much of the industry has had cost-per-seat mile results at or over 10 cents. Southwest Airlines’ cost-per-seat mile is about 6.5 cents. The lowest cost-per-seat mile in the industry almost 25 years ago was just over 5 cents.

How do they do it? Certainly there are a number of factors that lead to success. However, one of the key influences is Southwest’s ongoing training in business acumen. This training ensures that employees know:

• How challenging it is to ensure ongoing profitability; making a profit can never be taken for granted
• The importance of utilizing the benefits of the good years to prepare for the tough years
• The impact of individual actions and decisions to the bottom line

In other words, Southwest invests in training to help employees think like business owners. This, in turn, produces real results, like its consistently low cost-per-seat mile. When Southwest’s learning team decided to implement a business acumen simulation several years ago, there was some initial concern about how well it would be received.

Bryant explained, “Some people, especially those without financial training, were nervous about the topic. We are such a people-oriented company that we didn’t want people to think that now we’re just a financially oriented company and everyone will be judged purely on financial performance. But we positioned the need for the business literacy training as another way to prove that we actually care tremendously for each employee. We explained that if you understand what the numbers mean then you can better understand how your work provides an integral contribution to the business.”

Southwest Airlines, according to Bryant, has never had a layoff – a rarity in the airline business. The more their employees understand the challenges of the business, the better they appreciate the importance of making smart decisions every day.

Bryant concluded that the discovery learning techniques in a robust business simulation work well in the Southwest culture because of the team orientation. “All the participants learn that they can’t individually make it all happen,” said Bryant. “They learn that they have to look beyond themselves, act and think like an owner, and realize that our efforts and financial results here are not just for a career, but for a cause. It’s this cause-oriented philosophy toward delivering a low-cost, high-quality service that allows people the opportunity to travel. Our success at achieving positive results translates to individual opportunities to work, to grow and to continually think of innovative ways to improve our business and serve our customers.”

The Classroom Advantage

These two companies chose to develop the business acumen of managers and employees by using a classroom-based simulation, facilitated by instructors at company sites. Although online options were available and were used in some cases to supplement the instructor-led training sessions, they decided that there were significant advantages to tackling this subject in a “live” session where they could leverage the power of:

• SHARED KNOWLEDGE AND EXPERIENCE: Learners bring their own perspectives and issues to the session.
• TEAMWORK: Learners work together, make decisions together and rely on each other as they learn.
• COMPETITIVE FUN: Small teams “play” against each other and enjoy a competitive environment.
• COMPANY-SPECIFIC DISCUSSIONS: The learners’ common interest in their own company’s financial and strategic issues allows for greater analysis and depth of discussions and a true “connection” between the learning simulation and the organization’s reality.
• LEARNING MOTIVATION AND COMFORT: Learners who may not be comfortable with the subject of finance find themselves playing a game in the comfort of a team environment.

Although there are a number of educational approaches available to organizations in the area of business acumen, classroom-based training that brings together teams of learners can help ensure that learning occurs and that connections to the business are made in ways that prompt action back on the job.

The Bottom Line

More than ever, successful companies will need to focus on developing the business acumen of managers and employees. These companies will realize that when their people understand the numbers, when they understand how their departments contribute to the company’s objectives and when they see how their own decisions and actions make a difference, they will begin to operate as part of a team rather than in a departmental or personal silo. And a critical piece of the alignment puzzle will be solved.

A Sample Catering Business Plan Template

Before you start a catering business it is wise to put together a comprehensive business plan. It is important to set out clearly what you hope to achieve in business and to set measurable goals. Having a business plan will give you direction and keep you on a course for success.

A plan may be essential in order to prove that your concept is viable when it comes to talking to investors or seeking funding from other sources. However, even if you are independently funded and have nothing to prove to anyone a plan will still be useful. It will help you to confirm that your plans are indeed possible and it will give you a place to compile all the data that you collect from your research.

Once you start your catering business it is important to continue to refer to your business plan to make sure that you remain on track to meet your goals. You can also make changes to it if necessary as your business develops.

There are many ways to set out a business plan. Below we offer a sample catering business plan template that is divided into twelve sections.

Cover and Table of Contents

Wrap the plan in a binder. On the cover you should give it a title and state clearly who the main contributors are and when it was prepared.

Then you can include a contents page that clearly divides the report into sections with page numbers so that interested parties can easily find the information that they are looking for.

Executive Summary

This is basically an introduction where you can summarise the other sections of the report and give a very basic outline of what the proposed business is about.

Mission Statement

Try to sum up what the business will be about in a few short sentences. A mission statement is similar to a slogan. It is a quick way of letting readers know about the ideals and standards that a company represents. Putting profits aside for a minute, try to think about the purpose of the business. How is your catering business making people’s lives better?

Background

Include some information on the catering industry at both the national and local levels. Take note of industry trends and try to forecast future developments

Include a personal background. There are many good reasons to start a catering business and you should let readers know why you are drawn to this industry above all others. Outline your working history and attach any relevant reference letters as an appendix to the plan.

Outline any competitive advantages that you may have. Do you have any catering business qualifications or skills? Have you have experience in the hospitality industry? Do you have existing relationships with suppliers or prospective clients?

Goals

Set out some growth targets and other goals over the short and medium terms. Goals for a catering service could be the number clients, the number of events, total revenue or average profit margins on events. Refer to your business plan regularly and push yourself to keep up with the goals that you set.

Startup Costs and Considerations

List out startup costs and initial operating costs and then calculate the total amount of startup capital that is required before you can open your doors to clients.

Make a note of the sources of funding that are available to you and the advantages and disadvantages of each option.

Outline all of the other hurdles that must be overcome before you can start operating as a catering service. Depending on the requirements in your state or country you will have a number of licenses and permits to obtain. You may even have to do a short course to get certified in food management or hygiene. It is important to set out the costs involved as well as a time frame for compliance with these local regulations.

Ownership and Management

This section of your catering business plan should suggest whether you intend to structure your business as a sole proprietorship, a partnership or a limited liability company.

If the business will have multiple owners then you should set out clearly what their respective interests will be and the role that they will play in the management of the business.

Set out a basic management structure outlining who has responsibility for various aspects of the business. This will be easy in the beginning but eventually you may have marketing staff, administration staff, kitchen staff and servers. Make it clear how you plan on delegating tasks, leadership and responsibility for decision making down to your employees.

Operations

This section is important for including details on how the business will operate on a daily basis. Information that should be mentioned here includes location, administration, employees and equipment.

Set out a plan of attack for catering an event. Outline some of the problems that you will be facing and offer some solutions.

Market Analysis

Undertake some market research to get a better idea of the opportunities that currently exist in your market.

Do a competitive analysis to get a better understanding of your competitors. Once you understand more about them, set out a plan for competing against them by offering something different in the way of menus and services.

Marketing Plan

There are many different catering niche markets. Before you start your marketing efforts it is important to have a good idea of your menus and the niches that you are targeting. Try to identify a gap in the market that is not being met by other caterers and go after it.

Once you have a better idea of what you are selling you can then look at how you can sell it effectively. Start by packaging your offerings nicely into menus, brochures and a website. Then work out a system for pricing catering jobs profitably.

Outline how you plan on getting leads and enquiries. You can run advertising, buy leads or try many other marketing strategies.

Lastly, you need to have a sales strategy. Tell readers how you plan on selling your catering products and services in a way that you make the most of the limited number of enquiries that you receive.

Financial Planning

Perhaps one of the most important parts of any business plan is the financial plan. You need to make some forecasts of revenue and expenditure over a period of several years. You can then estimate when you will reach a break even point and how much profit will be possible in the future.

Set out anticipated monthly cash flows in a spreadsheet program on your computer. As businesses often don’t grow as fast as their owners expect them to you should outline several scenarios. One scenario can show your expected outcome, one can show a more optimistic forecast and the third one can show a worst case scenario.

Appendix

Attach an appendix to your report with your resume and photos of menu items. Also include anything else that is relevant or that you have referred to in your catering business plan.