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The Society for Human Resource Management (SHRM) finds that business acumen trails only leadership and ethics as an essential executive quality. Unfortunately, it is a gauzy and subjective buzzword.

I propose a simple evaluation for business acumen. Imagine that an interview is taking place for an executive-level or Board of Directors position and that business acumen is an important criterion. Here are three revealing questions:

Your organization has just granted you a significant amount of money. How (and why) would you invest that money to best benefit your organization?

Name a thought leader in your industry or in your discipline. How has that person’s ideas shaped your perspective as a manager and a leader?

The theme of organizational agility is a hot topic in management magazines. What does that phrase mean to you and what are the tradeoffs involved in fostering organizational agility?

A person who has adequate business acumen could provide cogent answers.

A person with acumen is sharp minded.

A brief side trip into semantics is necessary to identify the gist of acumen. The word’s direct Latin ancestor is the verb acuere, which means “to sharpen,” and a related Latin noun is acus for “needle.” Sharp needles are very useful tools for tailors and physicians, and the analogy extends to strategic thinking. A person with acumen is sharp and able to penetrate a complicated system. Associate the word acumen with the word acupuncture and you’ll have a helpful analogy.

Acumen is a blending of fluid intelligence and crystallized intelligence. Fluid intelligence is the ability to work with novel information in real time whereas crystallized intelligence reflects the ability to retrieve and use information acquired through a lifetime. If you have lots of experience with many different business models, then you have crystallized intelligence about them, and you would find it easier to demonstrate acumen. However, if like many successful entrepreneurs, you can identify and exploit an emerging trend, you are also demonstrating business acumen.

The LAID framework for evaluating acumen

The LAID framework unpacks business acumen into four elements.

Literacy – Just as a literate person can distinguish fiction from non-fiction, a business-literate person knows the principles of accounting, finance, operations, human resources, and the like. Business literacy resembles book-learned knowledge. Business literacy is a baseline of understanding and it is not the same thing as acumen.

Analysis – A necessary step in showing acumen is to probe the situation. (The “acu-“ part of the word acumen relates to penetrating.) A skilled analyst can probe quickly and intuitively. A less-skilled person may require more time to identify the crux of the business issue. Regardless, the concept of acumen is basically one of achieving a better understanding of the situation and not accepting mediocre and conventional explanations.

Insight – Everyone has had an insight: a sudden realization of a better explanation of a situation or a resolution to a challenging issue. The activities of analysis and reframing naturally tend to generate insights.

Design – Design thinking is a practice of understanding the context and the needs of stakeholders. The insight sparks some initial design ideas. Those ideas are further refined into an improved solution to the identified business problem.

As you listen to answers, unpack each of the four LAID elements and score separately. If the answer shows little understanding of the situation, assign a 0 or 1 for literacy and analysis. If the understanding appears to be good, give a higher score, say a 3 or 4.

As you listen to the answers, be on guard for a string of buzzwords: strategic, digital, disruption, execution, and the like. I’ve met many executives who are good at constructing elaborate riffs that really say very little. You must apply acumen to discover acumen. Some good follow-up questions are, “Why did you select this answer?” “What else is useful for me to understand about your answer?”

Example answers that show business acumen

Here is one way to answer the first question. As an icebreaker exercise in strategic thinking, I once tasked the Board of Directors of a Not-for-Profit association with this question:

An anonymous donor has provided a grant to the organization. What is the dollar size of the grant and what would you use it for?

An important element of this example is that this organization was floundering. If the Board couldn’t provide leadership, the organization would cease operations. Except for one person, the answers were narrow-framed, and uninspired. Their ideas would only result in incremental improvement of the status quo. The scoring was 0 or 1 for each of the LAID elements. The one good answer was this: ask for a grant of $100,000 and use it to hire a full-time President for the organization. It was a good answer because it addressed a large specific challenge for the organization: it was floundering under part-time, volunteer help. It was based on a good insight, and all the other LAID elements were strong.

Here is my answer to the second question about thought leadership. I point to Jerry Harvey as an influencer. His book, The Abilene Paradox, provides the insight that a fundamental challenge in organizations is managing agreement, rather than disagreement. Here are some common real-life situation where the paradox is in play. Managers agree that they should plan for the long term, but they don’t. They agree that they should avoid over-committing their organizations with projects, but they continue to say “yes” to every opportunity. They agree that they should be more creative and curious about their customers, but they instead rely on their own assumptions.

When organizations blunder into the Abilene paradox, they take actions in contradiction to what they really want to do and therefore defeat the very purposes they are trying to achieve. Harvey’s insights have helped me develop some essential ideas: individuals are often out of touch with their situation, individuals often do not make rational decisions in their own best interests, and group social dynamics often lead to mediocrity. My business acumen improves because I use empathy: and I ask more direct and meaningful questions to individuals. The importance of speaking truth to power is enhanced.

For the third question about organizational agility, I would expect the answer to understand that agility is not a methodology. Agility is a cluster of values about speed, flexibility, and attention to delivering value to the customer. Those values are long-standing qualities of excellent organizations. Anti-agility is often built up in a culture that emphasizes process and perfection. The tradeoffs of increasing organizational agility mean that strategic thinking needs to coexist with the more-comfortable and common practice of operational thinking.

A person with business acumen understands that each situation has relevant nuance. Regardless, they attempt to penetrate to gain deeper understanding and craft responses that are appropriate to the situation.

Has this article enhanced your understanding of business acumen?

Note: I originally published this article on LinkedIn.