If you are a functional business leader planning and executing your strategy for 2022, things are extremely
different than they were just a year ago. As we start this new year, businesses are faced with unprecedented continuous disruptions that are forcing the best companies to be more resilient, focused, and skilled than ever. The COVID pandemic which looks like it will last for years, supply chain issues, inflation, geopolitical issues, and continued globalization are some of the big issues forcing leaders to think differently.
By now, everyone had been working on and building their resilience. The new normal of working has given organizations the opportunity to focus on ways that previously were simply unimaginable. But interestingly enough, skill development, especially in the area of Business Acumen, hasn’t kept up at the same pace.
Based on our observations which includes conducting leadership development workshops for some of the world's largest companies we have identified 3 business acumen concepts that functional leaders should revisit and further develop to be able to face the challenges and opportunities of the coming year.
Forecasting Demand
Forecasting demand is defined as the ability to assess a business situation and through detailed analysis determine with a high confidence interval how much of a product or service will be purchased by customers. Forecasting demand is traditionally the responsibility of marketing (market research) and sales functions. The forecasts are then shared with other functions including manufacturing, supply chain, and finance.
In years past, when things weren’t as challenging as they are now, most organizations had the ability to absorb or adapt to missed demand forecasts fairly easily. That is not the case today. Wall Street demands specifics and rewards companies that hit their targets. The cost of doing business has changed as salaries, benefits, and other expenses have skyrocketed; missing a demand forecast by even a couple of percentage points could prove to be devastating.
Managing the Supply Chain
Even when organizations successfully forecast demand, they must also be just as good at managing the supply chain. It’s the management of the supply chain of raw materials, labor, packaging, distribution that allows a company to execute on its value proposition. Again the cost of doing business is so great that not managing the supply chain well could prove to be devastating.
Increasing Margins
Businesses are judged by just a few key metrics of success including revenue, revenue growth, profit, profit growth, and free cash flow. Profit and cash flow are critical outcomes that are driven by strong business decision-making. One of the best ways of increasing profit and cash flow is increasing gross and operating margins. The gross margin is the difference between revenues and the costs of goods sold, and the operating margin is the difference between the gross margin and all operating expenses.
As the pressure increases to do a better job forecasting demand and managing the supply chain, so too will be the pressure on increasing margins.
2022 is going to be another challenging year. One of the best ways of embracing the challenges is be developing the business acumen skills needed to be able to address them with resilience and confidence.
