Logic of Business Organization and Management
Previous articles The Logic of Business Organization and The Logic of Business Management discussed logically organizing the business and managing the business. This article discusses the logical need for one integrated structure for business organization and management. Business management is discussed for the classical management duties for planning, direction, reporting, and control. There is also the need to organize and manage capital development as an integral part of the business.
20th century management lays organization and management structures over the business
20th century management separates organization and the management duties to use different structures laid over the business. 20th century management does not organize or manage the business. The enterprise is organized by an organization structure. Strategic planning lays a corporate plan over the business. Other plans and budgets from various parts of the enterprise are laid over the business. Management direction can use a variety of structures such as business processes or administrative structures. Other structures, such as performance management, are used for management reporting. A separate chart of accounts is laid over the business for management control. Capital development is separated from enterprise operations and uses its own investment analysis and project management structures.
Each of these structures usually is supported by an information system using its own set of definitions and entities to describe the enterprise. But no information system captures actual business data and reports actual business management information. Management is overloaded with information. Much of the information is inaccurate and conflicting. The enterprise ends up with gigantic information system overheads, and only incidental information on the actual business.
The business structure is the foundation for business organization and management
The organization structure is the fatal error of 20th century management. Once an organization structure is laid over the business, the business can never be managed. The business organization is not a management prerogative; it is capital in a professionally-managed business organization solution. Management decides on results to be produced and result responsibilities and goals.
Business organization and management builds on an organized business structure. The business organization must organize the output results to be produced by the business and the performance solutions that are to be utilized to produce results. The business structure must be maintained to record all results produced, all performance solutions utilized, and to relate results in the same set or value-quality chain. Once the business is organized, the same business structure is used for business management.
Management planning plans the future business structure
Management planning must plan the actual future business in the results to be produced to create future value and the performance solutions that must be utilized, improved, or developed to produce future results.
Strategic planning must define the strategic business results to be produced at a future strategic horizon date to create strategic value. The performance solutions needed to produce strategic results must be planned. This produces the strategic business structure. Once the strategic business structure is approved, good corporate governance manages the progress in operations and development of the current business structure by time period to converge on the strategic business structure.
Other plans for business change, capital development, result unit operations etc show the new or improved results at a future point and the performance solutions to add, improve, and utilize to produce the results.
Management direction manages performance utilized to produce results in the current business structure
Business results are substantiated by time period by period result goals that must be achieved. Performance solutions are substantiated by performance expectation that must be met by solutions each period. The business is managed by managing the results produced and business solutions utilized.
Management decides on new results needed by the business, and assigns a responsible manager. New results and goals are added and performance solutions are deployed to produce results. Achieved results are closed and deactivated and performance solutions are deployed to other results. Once the business structure is in place and professionally managed this becomes second nature. The focus of the business result managers is on producing the results they are responsible for and exceeding result goals. Result managers are supported by performance managers for the performance solutions they need. Management ensures that results are produced and goals are reached period by period.
Management reporting is against the current and strategic business structures
Actual financial and non-financial business data must be collected on result value, performance costs, and other result metrics and performance indicators to manage the actual business. All business data collection is against the business structure. Periodic strategic estimates are entered for the strategic business structure. Management reporting covers only the business structures and other consistently-defined entities needed to manage the actual business.
Management reporting is against the result structure and result value-quality chains. Results that are late, unachieved, or cost more than their value are identified and managed. Underutilized or ineffective performance solutions are identified and managed. Leading measures are used to anticipate unsatisfactory results or performance.
Management control manages against the business structure
Every result and performance solution has a responsible manager. The business is reported and managed in three dimensions; the result dimension to utilize solutions to produce results, the performance dimension to provide and support qualified solutions, and the management dimension to manage results and performance by time period.
Management control is supported by professional facility records management to keep complete and accurate financial and non-financial records on the actual business. 20th century accounting may continue as needed to meet professional and regulatory requirements. The account structure should use the business structure or be aligned with the business structure. Accounting should be incorporated into professional facility records management, which records the full business cycle of costs and value, including income and expenditures, and establishes actual capital worth, including tangible and intangible assets and liabilities.
Capital development is organized and managed based on the business structure
The need for capital development arises from the need to improve results or to produce new results. The value added or new value created must justify the capital expenditures needed to acquire or develop new performance solutions. The result value-added without development is projected to provide a baseline for measurement of the added result value-added return.
A post-development business structure organizes the business after planned development. Capital development is an investment result in the enterprise business structure. The investment result is produced by a project business structure that develops the specific new results and performance solutions required as project results to capture specific development costs and document new results and solutions. Internal and external capital assigned to the project and capital expenditures authorized are deployed as project performance solutions to produce project results. The project is managed as its own business.
The project implements new performance solutions in the enterprise business structure to produce new or improved results. Solution development and operation costs are charged against the value of new results in ongoing operations to determine the added result value-added return on investment.
Logical business organization and management eliminates the problems of 20th century management
When the business is logically organized for 21st Century Management, there is a framework for all business management. Structures and information irrelevant to the business are replaced by one integrated business structure. Business management is simplified to utilizing qualified solutions properly to produce business results. Strategic value creation, business operations, and capital development are logically managed.
Logical business organization and management requires Result-performance Management (R-pM) to organize the business for 21st Century Management. It is all explained in The R-pM Toolkit, your 21st Century Management Manual.
