The Logic of Business

The accepted definition of business is the “Activity of providing Goods and Services”

The generally accepted definition of business in on-line dictionaries is “the activity of providing goods and services”. If we start from this definition, we see that the business actually has two components:

1. “The activity of providing”, which is the action of business performance in the utilization of human and other capital
2. “The goods and services provided”, which are the outputs or business results produced from performance that can be counted and measured

So in order to manage the business, “the activity of providing” and “the goods and services provided” must be managed.

“Activity of providing” is the action of business performance in the utilization of capital invested in the business

“The activity of providing” is the business performance that utilizes capital. People perform using such business solutions as business processes, systems, knowledge, equipment, supplies, plans, tactics, and information. The people are human capital that are developed and paid by the business. People use business performance solutions provided by capital investments in the business. So, business performance utilizes human and other capital invested in the business.

The capital must be organized and managed as business performance solutions that can be utilized by people. The utilization of specific solutions to produce specific results can be explained through human knowledge solutions. The most important capital is human capital, but other capital must be managed properly to utilize capital available, to capture performance costs incurred in utilizing the capital, and to determine the returns on capital investments.

Capital utilized in the business includes all tangible and intangible assets. We need to break down the capital into specific business performance solutions that can be used to produce specific business results. Then we can know what capital we are developing and utilizing and the costs incurred. Intellectual, business, and management capital can be identified as specific business solutions, instead of being labeled as “intangible assets”.

“The Goods and Services provided” are examples of the economic output results produced that contain the value created by the business

“The goods and services provided” are examples of the economic outputs provided by the utilization of capital in business performance. Every time a person utilizes performance solutions and performs, the objective should be to produce an economic output of value to the business. These economic outputs are business results. A business result can be anything that management wants people to produce through business performance. All human capital in the business must produce results from their performance, so results can be defined across the complete business.

Results are specific identifiable outcomes that can be counted and measured in some way. Results include components, products, services, sales, revenues, etc in the main business line. Results include new or improved performance solutions developed that are implemented into the solution such as a new process, developed human capital, an approved strategy, a repaired machine, or a management report.

Every result in the business must have an internal or external customer that finds the result to be valuable and wants it produced. The value of the result should be greater than the performance cost to produce the result. If not, why is the result produced? Results must be organized and managed as a set of results to know the value created by the business. Results also embody the quality produced by the business. Results must be managed to manage quality in the business.

The business can be defined as “the utilization of capital in performance to produce value in results”

The objective of any business must be to produce results. Normally, there are strategic results that must be produced to make the business viable. In order to produce results the business must invest in humans, facilities, business processes and systems, management intelligence, and other capital. Specific items of capital, defined as business performance solutions are utilized to produce specific business results. Therefore, we can logically define the business as “the utilization of capital in performance to produce value in results”.

This entry was posted on Friday, May 11th, 2007 at 02:41 and is filed under:
Forums: Administration and Capital Management, Corporate Investment and Governance, Logic of Business Management
Topics: Investing in a Changing Enterprise, Organization Methods, Business Transformation, Best Practice Management, Corporate Governance, Measuremant and Standards
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