How Do You Develop Commercial Acumen?

Commercial acumen is often treated as a knowledge problem.

If people need to become more commercially astute, teach them more about finance, strategy, customers and markets. Some of that knowledge is essential. People need enough to understand how organisations create value, and to speak to colleagues credibly.

But knowing about business isn't the same as being good at business.

A successful small-business owner may never have studied Porter’s Five Forces or be able to explain an accounting provision. But you can be sure they know what creates value, what matters to customers, where they make money and which opportunities are worth pursuing.

Commercial acumen is ultimately about using what we know to make better commercial decisions. And we get better at that by doing it.

A process for developing commercial judgement

1. Understand: What are we really deciding?

2. Focus: What really matters?

3. Explore: What might we be missing?

4. Judge: What is the best decision we can make with what can reasonably be known?

5. Review: Was it a good decision (not just a good outcome)?

6. Learn: What can we take into the next decision?

Then we make another decision and go around the process again.

Why experience matters

Each time we go around that loop, we potentially add something to our understanding and, as we do, build and refine the patterns we can draw on to make future decisions. So when someone looks at a situation and thinks, Hang on, this doesn't look quite right, or instinctively knows which number to investigate or question to ask, they may not initially be able to explain why. But they've seen something familiar before.

But simply accumulating experience isn't enough.

Motivation matters too. Someone who continually asks “How could I have done that better?” is likely to extract more learning from an experience than someone who is satisfied because the result was acceptable. Toto Wolff has described the culture at Mercedes F1 in terms of “permanent scepticism” - continually questioning how performance could be improved, however successful the team has been. Most people don't work in Formula 1, and most won't have that intensity of motivation. But the principle helps:

The more interested we are in improving, the more likely we are to reflect on our experiences and learn from them.

It’s worth noting that over many years of running business simulations, we've regularly seen high potential graduate trainees outperform experienced middle managers. We've seen bright sixth-formers perform remarkably well. And unsurprisingly, we’ve seen those at board level and just below perform best.

That's an observation rather than scientific research, but the pattern suggests experience does not automatically produce commercial acumen. Not everyone will develop commercial acumen at the same rate or to the same level.

Commercial judgement also requires a degree of what a client described as “mental horsepower”.

Organisations therefore need to understand the problem they're trying to solve. A lack of commercial knowledge can be taught. Commercial judgement needs practice and experience. And sometimes the issue isn't development at all. The role simply requires stronger underlying capability and the better answer is selection.

How can organisations develop commercial acumen?

The starting point is simple: Give people opportunities to make commercial decisions. Make those decisions matter to them. Give people competing priorities, uncertainty and consequences. Let them see what happens. Then give them an opportunity to reflect. And then let them make another decision.

The workplace does this naturally, but slowly and inconsistently. Some useful experiences may take years to encounter. Some decisions are made by only a handful of senior people. And some mistakes are simply too expensive to make for real.

Where business simulations can help

A business simulation can create these experiences in a safe environment. Participants make commercial decisions under pressure and with imperfect information. They have to decide what matters, make assumptions, consider alternatives and eventually commit to a course of action.

Then they experience the consequences. Participants can reflect on what happened and why and then make another decision. So within a relatively short period of time, they can go around the commercial judgement loop several times:

Decide → experience → reflect → learn → decide again.

And because the decisions are theirs, and because they care about the outcome, those experiences can be highly memorable. The purpose isn't to teach someone how to run a fictional company. Rather, it’s to create commercial experiences that become part of the patterns they can draw on when making real decisions later.

Commercial acumen is never finished

Developing commercial acumen isn't principally about accumulating more business knowledge. It is about practising commercial judgement, experiencing consequences and learning from what happens. Each iteration can improve our understanding and refine the patterns available for the next decision. The commercially astute person is never quite finished building their understanding of themselves or their business world.