The Logic of Business Management
Business management manages the business. A previous post on the Logic of Business said the generally accepted definition of business is “the activity of providing goods and services”. The article logically defined the business as “the utilization of capital in performance to produce value in results”. Business management, therefore, manages “the utilization of capital in performance to produce value in results”.
20th century management manages structures laid over the business
20th century management does not manage the business. The 20th century business has never been organized, so it can never be managed. Management must manage the enterprise by managing structures laid over the business.
An organization structure is contrived and laid over the business. The organization may be reflected in responsibility centers in the contrived chart of accounts that is also laid over the business. The strategic or corporate plan does not plan the actual business, and is another contrived structure laid over the business. Business processes are contrived to mix business results and performance together in a monolithic business process that is laid over the business. Information systems do not capture actual business data and do not provide actual business management information. Information systems are laid over the business to manage the information entities produced by the various other organization and management structures laid over the business.
20th century management structures hide the actual business, prevent business management, and create the wide range of unsolvable business problems discussed at the Business Change Forum.
Business management must manage the actual business
Business management must manage “the utilization of capital in performance to produce value in results”. This means that business management must manage two main entities:
- Results: Specific economic outputs that must be produced by business performance
- Performance Solutions: Specific capital that must be utilized in performance to produce specific results
Results are the inputs to and the outputs from performance. A result is a specific accomplishment, like customer order recorded, that can be counted and measured. Capital is utilized through performance solutions to produce results. A performance solution is an item of capital, like a human salesmanship capability solution, utilized to produce the result. Business management manages the utilization of capital in performance to produce value in results.
Business management must manage business results
The most important entity to manage in business management is business results. Results contain the quality and value created by business activity. Result management manages the utilization of performance solutions to produce the volume, value, and quality of specific results. Results have common attributes like responsible manager, organization name, quality determinates, volume measures, total cost, result value, and other metrics. Therefore, results must be managed together as one set, rather than just separately as individual entities like product, order, sale, etc.
Business management must manage result relationships
Results are not always produced in isolation. Many results relate to other results, if another result has an impact, must be produced first, is a result within the higher level set, contributes costs and value, or contributes to capital worth. The relationships between results must be managed to define and manage result sets, result value-quality chains, etc.
Business management must manage business performance
Results are produced by utilizing business capital defined as performance solutions. In order to produce results, business capital must be managed to operate, support, and develop the performance solutions needed. Business performance must be managed to provide the specific qualified performance solutions needed to produce specific results, and to support result management.
Business management manages the enterprise business structure
A previous article in this series discussed the Logic of the Business Structure. The business structure is created by combining the result structure with the performance solution structure. The business structure can be viewed as a spreadsheet. The result structure is normally depicted across the columns and the business solution structure is depicted down the rows. Combining the structures shows all the results that the enterprise must produce across the columns and all of the business performance solutions available to produce results down the rows.
Business management must manage the performance solutions utilized and the result produced to optimize performance and to ensure value-quality results. Results are managed against result goals and performance solutions are managed against performance expectations.
Business management manages the strategic enterprise business structure
The strategic business structure shows the business planned for some future point at the strategic horizon. Business results are shown with the value expected from strategic results. Performance solutions are shown with expected solution costs, including new solutions needed with development costs.
The strategic business structure provides a framework for the disciplined analysis and planning of the future business. Business management manages the transition from the current business structure, planned time period by period, to the strategic business structure. Estimates of progress against the strategic business structure can be maintained as a tool for good corporate governance
Business management is fundamental to 21st Century Management
21st century management manages the enterprise business as one integrated business structure. Business management is essential to manage each component of the current and strategic business structure. The enterprise manages the business and leaves unsolvable 20th century problems behind.
