February 2024
One of the professional skills that students struggle most with is commercial acumen. David Laws looks at why, and suggests what you can do to improve your score.
Part of the ACCA’s definition of commercial acumen states that students need to demonstrate awareness of organisational and wider external factors. In other words, you need to link knowledge to the situation in the exam. What many students do instead is to simply repeat the knowledge.
I like to give my students the example of going to the doctor (I’m old, I am very interested in health issues). Imagine I go to the doctor and ask what I can do to improve my general health. The doctor replies: “Eat more oily fish, exercise more and stop smoking. Close the door on your way out.”
I didn’t ask about what people in generalshould do and I didn’t ask what the medicaltextbooks say I should do, I asked about whatI should do. So the advice is unhelpful to me(I’m allergic to fish, I exercise almost every dayand I have never smoked). In other words, thedoctor didn’t adapt their advice to demonstratethey understood my situation (zero medicalacumen!).
So how does this work in the exams? A question in SBL could be something like: ‘Advise this company on how a risk committee could be of benefit’. A typical student’s answer will be a list of benefits of having a risk committee they learned at the AA paper, which will probably score zero acumen marks.
Notice two things:
- The requirement asks about the benefits for the specific company in the question.
- The requirement asks HOW these will be beneficial, so you need to justify how they would help.
So a good starting place would be to consider the benefits you have learned of having a risk committee, but then think:
- Are there any particular problems this company is facing and how would having a risk committee help to solve them?
- If a risk committee was not important in the past, is the company changing something (e.g. strategy) and why does this mean a risk committee would now be a good idea?
Similarly, a regular question in AFM is about the best way to pay for an acquisition: should the purchase be paid for by cash or shares? A typical student answer will list things from the FM papers, such as issuing shares will lead to dilution of control. Again, this probably gets zero acumen marks because the student is not saying why these matter in this situation.
Imagine the examiner had said that the target company had 100,000 shares owned by 100,000 different shareholders (i.e. one share each).
- What if the examiner said the same 100,000 shares were owned equally by four shareholders?
- Would dilution of control be important in both situations?
The above illustrates one way to demonstrate acumen, to identify when something is NOT an issue (and explaining why).
Similarly, imagine you are a shareholder in a bank that is an acquisition target and that you are being offered shares in the parent company’s business. What if the parent company is:
- An established financial institution based in the same country?
- A new bio-technology company operating abroad?
How would the two situations affect whether you would accept shares or would prefer cash for your shareholding?
So how do you improve your acumen marks? Imagine that you are the client. Someone has written a report which they want you to pay for. Would you be happy with a list of issues that look like they have been copied and pasted from Wikipedia that seem to have no relevance to your organisation?
Presumably not, so why would the marker give you any acumen marks for doing the same thing? To improve your score, think about the details you are given about the company. For example:
- Is the company large or small? A tip: the smaller the company, the less relevant the lists you learned at the skills paper will probably be.
- What industry does the company operate in?
- How successful has the company been?
- What is the company trying to achieve (through expanding, improving its corporate governance, etc.)?
- What key decisions do the Board need to make and how will your advice help them?
This means reading and then thinking about each sentence – why were you told this? Demonstrate your acumen by referring to these points in your answer and showing how they affect your advice.
- David Laws is a former PQ Lecturer of the Year and is part of the SBL marking team. He lectures on AFM, SBL and BT at LSBF
