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Finance and accounting are an art as well as a science. The two disciplines must try to quantify what can't always be quantified, and so must rely on rules, estimates, and assumptions. Financial intelligence ensures people are able to identify where the artful aspects of finance have been applied to
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The concept of financial intelligence in organizations comes from the research of several well-known organizational development academics, including Dennis
Denison, Edward Lawler and Jeffrey Pfeffer. For example, the research of Lawler, Mohrman and Ledford found that the indices that have the most
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in many organizations leading to improved financial results, increased employee morale, and reduced employee turnover. Many organizations include financial intelligence programs in their leadership development curriculum. Financial intelligence is not an innate skill, rather it is a learned set of
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Karen Berman's research, asked specifically if information (operationalized by teaching business basics to improve financial intelligence and sharing information on a regular basis) improves the results of employee participation, as seen through organizational performance improvement and employee
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Proponents of financial intelligence in organizations believe that if employees, managers and leaders understand financial information and how financial success is measured, they will make decisions and take action based on an understanding of the financial impact of those decisions. If everyone
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Financial intelligence includes the ability to analyze the numbers in greater depth. This includes being able to calculate profitability, leverage, liquidity and efficiency ratios and understanding the meaning of the results. Conducting ROI analysis and interpreting the results are also part of
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have programs targeted at the corporate world, mostly at the leadership level, to increase the financial intelligence in organizations. There are a variety of methods to increase financial intelligence in organizations, including classroom training, webinar training, and business simulations.
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world, managers can display financial intelligence by speaking the language, that is, asking questions about the numbers when something doesn't make sense, reviewing financial reports and using the information to understand the company's strengths and weaknesses, using ROI analysis,
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Employee owned companies are one group of organizations that are focused on ensuring everyone in the company is financially intelligent, as employees are owners and therefore must understand the financial side of the business.
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impact on both direct performance outcomes in organizations (productivity, customer satisfaction, quality and speed) and on profitability and competitiveness were sharing information and developing knowledge.
137:" should know how his work relates to the work of the whole. He should know what he contributes to the enterprise...if he lacks information, he will lack both incentive and means to improve his performance."
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knows the financial goals of the company, for example, and knows how to make decisions that support those financial goals, then the company is going to be more financially successful.
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Financial intelligence also means being able to understand a business's financial results in context - that is, within the framework of the big picture. Factors such as the
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Many companies, (Southwest
Airlines being a prime example) consider financial intelligence a core competency or best practice. Several universities, including
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attitude improvement. The results of the study found that certain financial performance measures improved and that employee turnover decreased.
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principles in the business world and understanding how money is being used. Although a fairly new term, financial intelligence has its roots in
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Financial intelligence is not just theoretical book learning. It also requires practice and real world application. In the
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Karen R. Berman, "Information and the
Effectiveness of Employee Participation in Organizations" (PhD dissertation,
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is business literacy, that is, ensuring everyone understands how the business measures financial success.
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Financial intelligence requires an understanding of the basics of financial measurement including the
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research, mostly in the field of employee participation. Financial intelligence has emerged as a
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Lawler, E.E. III (1985). "Education, Management Style, and
Organizational Effectiveness".
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the numbers, and know how applying them differently might lead to different conclusions.
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Financial
Intelligence: A Managers Guide to Knowing What the Numbers Really Mean
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Financial literacy also has its roots in open book management. A core tenet of
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to make decisions, and identifying where the art of finance has been applied.
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The four areas of understanding that make up financial intelligence are:
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constituted of the knowledge and skills gained from understanding
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Dolezalek, H, "Working Smart", Training
Magazine, April 2006.
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Lawler, E. E. III, Mohrman, S.A., Ledford, G.E. Jr. (1995).,
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In 1954, Peter F. Drucker, in his groundbreaking book,
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Open Book
Management: The Coming Business Revolution
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73:. It also requires knowing the difference between
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249:. Massachusetts: Harvard Business School Press.
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131:The Practice of Management
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95:financial intelligence.
167:Harvard Business School
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92:Understanding analysis.
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85:Understanding the art.
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205:Personnel Psychology
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342:Categories
69:, and the
32:accounting
110:corporate
314:Archived
175:Stanford
275:, 1997)
171:Wharton
103:economy
28:finance
117:, and
79:profit
65:, the
190:Notes
173:and
77:and
75:cash
42:and
30:and
213:doi
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