Sustainable Competitive Advantage

checkers

Those are the magic words and holy grail of strategy development and implementation.

A sustainable competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors. These attributes can include access to natural resources or access to highly trained and skilled personnel human resources.

HR: Developing Talent

Knowledgeable and engaged Employees who can effectively participate in achieving the organization’s goals and mission are a significant means of creating sustained competitive advantage. Many major organizations employ some form of promoting employee participation. Much of it focuses on the importance of information in employee participation.

Information, operationalized as developing knowledge and sharing information makes employee participation more successful.

Training helps improve employee attitudes and financial and operational results:

  • Employee turnover decreases, as they feel more engaged
  • Gross profit as a percent of sales and profit as a percent of sales increases when employees understand the numbers side of business.

It impacts the bottom line and creates sustainable competitive advantage.

baseball-talent

Business by the Numbers

Financial Literacy Matters

Senior executives routinely share and discuss financial data with marketing directors, operations chiefs, and other direct reports. But how much do those managers really understand about finance and the numbers? A recent investigation into this question concluded most managers understand not enough to be useful.

Asked to take a basic financial-literacy exam—a test that any CEO or junior finance person should easily ace—a representative sample of U.S. managers from C-level executives to supervisors scored an average of only 38%. A majority were unable to distinguish profit from cash. Many didn’t know the difference between an income statement and a balance sheet. About 70% couldn’t pick the correct definition of “free cash flow,” a significant metric for investors and analysts.

Lack of financial literacy matters and impacts an organizations ability to optimally perform. Those who can’t speak the language of business can’t contribute much to a discussion of performance and are unlikely to advance in the hierarchy or reach their full potential. They may be caught off guard by financial shenanigans, as many employees at Enron were.

The CFO of a small manufacturing company often asks candidates for engineering positions whether they would like to review the past two years of the company’s financials. None yet have taken him up on the offer—knowing, perhaps, that they could make neither head nor tail of the statements.

Financial illiteracy in the managerial ranks can be a crippling weakness for the organization, as well. Imagine a business that is attempting to increase operating cash flow. Even experienced executives, accustomed to managing a P&L, may be unaware of the many balance-sheet levers they can pull to affect cash—decreasing inventory, for example, or reducing days sales outstanding.

If you don’t understand what goes into a number, you can hardly know how to improve it.

People don’t tell their bosses that they don’t speak finance. It’s the usual human reluctance to admit ignorance. In a survey managers were asked what happens in meetings when people don’t understand financial data. The majority chose answers reflecting that reluctance, such as “Most people don’t ask because they don’t want to appear uninformed in front of their boss or peers.”

business-finance