The Logic of Business Organization
20th century management does not organize the business
20th century management contrives an organization structure that is laid over the business. The organization structure defines organization units, positions, functions, jobs, reporting relationships, hierarchies, etc. in a rigid structure. The structure does not organize the business; the structure organizes the enterprise. The rigid organization restricts business flexibility and conflicts with business change. Eventually the unsolvable reorganization problem arises to contrive a new organization structure more closely aligned with the actual changed business. If the business is organized, the organization changes with each business change and never needs reorganizing.
The organization structure is the fatal error of 20th century management. The contrived organization does not provide an enterprise or business management structure. Once the organization structure is laid over the business, the business can never be managed! Separate management structures must be laid over the business to manage the enterprise.
Every enterprise needs to reconsider the logic of business organization, to organize the business for 21st century management.
The business organization must organize the business
Most people think that their organization structure organizes their business. They do not stop to think what is their actual business. 20th century management has never precisely defined the business. The generally accepted definition of business in on-line dictionaries is “the activity of providing goods and services”. So, in order to organize the business, “the activity of providing” and “the goods and services provided” must be organized.
An earlier article in this series “The Logic of Business” logically defined the 21st century business as “the utilization of capital in performance to produce value in results”. The business must be properly defined and organized in order to manage the business and to capture actual business data arising from the business and to provide the management information needed to manage the business directly.
The business organization must organize the capital utilized by the business and the results produced by the business
The business must be organized by the entities that define the actual business!
Both definitions above mean that the business must be organized through only two 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. Performance solutions are the items of capital, like a human salesmanship capability, order entry process, and order entry program, utilized to produce the result. The business is organized when a solution is deployed to produce a result. The business organization is updated with every result and performance solution change.
Previous articles in this series described “The Logic of the Business Structure” and “The logic of the Organization Structure“. These articles described the logic of structuring the business organization.
The business must be organized in order to manage the business
Previous articles pointed out that the business organization structure is not a management prerogative. The business organization must be a professionally-managed performance solution utilized to produce business results. The business organization must be managed to reflect the actual business. Management decides on strategic results to produce and the capital development investments needed to provide the performance solutions needed.
Once the business is organized, the actual business data required for 21st Century Management can be captured: such as performance costs, total result costs, result value, result value added, and capital worth. By capturing data on performance solutions utilized and results produced, the enterprise can manage performance capacity used for result volume, performance costs against result value, performance effectiveness to produce result quality, result symptoms caused by performance problems, result risk generated by performance uncertainty, result value added by performance improvement, and performance expectations to reach result goals to optimize the business.
You must organize your business for 21st Century Management
The only way forward to compete in the future is to organize the actual business. This allows the enterprise to manage the actual business, to abolish structures that create business and information complexity, and to eliminate the unsolvable 20th century problems discussed at the Business Change Forum.
Other enterprises will be moving to 21st Century Business Organization and Management in 2008. Will you be prepared to compete or will you still be burdened with the high cost overhead structures, the inflexible unorganized and unmanaged business, and the unsolvable problems of 20th century management?
