The Logic of Business Capital
You may be asking; what is business capital? You hear of business organization, business processes, and business data; but do think of it as business capital? You likely do not, because 20th century management does not organize and manage business capital as the capital that is directly utilized to produce an economic output result. 20th century management administers known tangible capital, rather than managing capital. Capital is lumped together as an asset, much never been documented and managed as capital, and much is labeled as “intangible assets”.
Logically all capital must be defined as performance solutions to be deployed and utilized to produce a specific result. The post on August 6, 2007, The Logic of Capital Management, provides the background.
Capital utilized by the business is organized into four categories
Capital utilized by the business requires different professional capabilities to be professionally managed, which organizes four categories of capital:
- Business organization, process, and data capital to manage capital that directly produces a result and cannot, generally, produce another result. Business capital requires business knowledge and analytical capability
- Human personnel, capability, and knowledge capital to support and develop the worth of human capital. Human capital requires human handling, development, and coaching capabilities
- Facility equipment, supply, and record capital to manage reusable and consumable tangible assets and records. Facility capital requires expertise with the specific capital and administrative ability
- Management strategy, tactics, and intelligence capital to plan results and performance investments, to keep on course, and to know opportunities and ward off threats. Management capital requires management analysis and research capabilities
All capital must be professionally managed as capital utilized to produce results.
Business capital is organized into three classes to be integrate other capital and produce a specific result
Business capital is managed by a business capital unit that is responsible for developing, supporting and maintaining business capital, for providing business performance solutions, and integrating other solutions to produce results.
Business capital is specifically set up to produce a set of results or a specific result. Most human and facility capital can be redeployed to produce other results. Management capital relates results to the overall business strategy and environment. Since business capital is not redeployed, it is the integrating capital. That means that business capital integrates human, facility and management capital in the same class as needed to produce the set of results or a specific result.
All performance solutions are integrated with the business solution in their capital class. There are three classes of solutions:
- Readiness capital includes business organization capital and integrates human personnel, facility equipment, and management strategy with the business organization to be ready to produce a set of results
- Production capital includes business process capital and integrates human capabilities, facility supply, and management tactics with the business process to produce a specific result
- Information capital includes business data and integrates human knowledge, facility records, and management intelligence with business data to produce results and document results produced
When the capital is integrated with business capital in the same class, the business can be managed and operated efficiently.
So, altogether there are twelve solution types, when capital is properly categorized into four categories for professional management and support, and when each category is classified into three classes to be integrated with the business capital and utilized in the business to produce results.
Business organization capital is professionally managed to keep the business ready to produce results
20th century management contrives an organization structure and lays the structure over the business. This fatal error prevents the business and the capital utilized by the business from being managed.
The business is organized through business organization solutions. Business organization is not a management prerogative, but is professionally-managed business capital. Top management decides on the results to be produced by the business and sometimes performance solutions to be utilized, such as the responsible manager or result unit. But the actual organization of the business to produce the result is a business organization solution.
The business capital unit has a set of results to produce to manage and maintain the business organization. The business organization is updated each time a new result is to be produced, a completed result is closed, and performance solutions are added, redeployed, or removed from service. The business organization maintains the result structure and result relationships. There are three levels of results. Key-results are the highest level results to be produced across the complete business. End-results are results produced directly from performance at one lowest level. Set results may be produced at several levels to organize end-results and other set-results within each key-result. A set-result may be the final result produced by a chain of end-results. This is managed as business organization capital.
Business organization capital also defines the human roles needed to produce specific set-results and end-results. This enables human personnel capital deployed to a set of results to be organized and utilized. Business organization capital defines the facility equipment needed to produce sets of results so that the proper office, infrastructure, network connections, local computers, and other equipment is available specific to set-result needs. Business organization capital integrates management strategies and plans, so that the proper capacity of solutions is provided to produce results planned for the set.
Business organization capital is the fundamental capital that organizes the business, so that the business is ready to produce planned results.
Business process capital organizes the solutions needed to produce a specific result
Most enterprises have things called “business processes”. 20th century management utilizes monolithic business processes that incorporate various categories of capital. Business process management considers both the solutions utilized and the output results produced as performance. The objective is to manage performance across a work flow to produce a final result from the process. Business processes strive to manage performance quality, but quality is not an attribute of the performance. Quality is logically an attribute of each result produced. These “business processes” are not specifically business capital, but are contrived structures laid over the business that do not manage the results being produced and performance solutions being utilized.
Business processes utilize deployed performance solutions to produce specific results or a sequence of continuing results. Business process capital is defined starting from the result structure to define the processing needed to produce each result, result by result. The business process includes all processing; both processing performed by a computer or information system and processing performed outside the computer to produce the result. Processing is defined specific to a result. Some processing may continue seamlessly across a chain of result produced in sequence. The business process by result enables the value and quality of each result produced to be known and managed. Low quality or delayed results are anticipated or known immediately, and the problem with the effectiveness of the specific solution utilized can be identified and rectified quickly.
Business process capital defines the human capability capital needed to produce the result. Most results are produced by the human personnel deployed in the business organization solution. Capability capital provides the special capability needed for difficult high-value results. The capability is salesmanship, problem solving, maintenance expertise, research ability, etc needed. Human capability capital is defined independent of human personnel capital, which are the specific individuals providing time and capabilities. Business process capital works with human capability capital management to deploy, acquire, or develop the needed capabilities in personnel capital.
Business process capital integrates the human capability capital with the business process so that the result is produced effectively. Business process capital also defines consumable supply capital needed in money, supplies, energy, utilities, etc. Management tactics that define the specific management requirements, result goals, environment, or guidelines to produce the result or like results are also integrated into the process. This eliminates the haphazard approach to results of 20th century management and enables the performance costs, value-added, and quality to be determined for strategic results.
Business data capital is the information that describes each result and is produced by business transactions
20th century management maintains business data for separate result entities that are defined. Normally this data is in an information system that manages entities like material, product, order, maintained asset, revenues, etc. Data is maintained on enterprises that interact with the business such as suppliers and customers. This data is often managed as information technology, rather than as business capital. Much of the data captured and processed by information systems is not actual business data. Much important business data on performance capacity, costs and effectiveness and result volumes, value, and quality are not captured today.
All the data describing results, performance solutions utilized, and enterprises involved in providing solutions, providing the result, or utilizing the final result outside the business are business capital. Business data is high-worth business capital and must be managed with other business capital to manage the access to the data, the accuracy and completeness of the data, and to provide business data solutions needed to produce results.
Business data and documentation produced by the business is provided to update facility records to record the financial and non-financial business by time period. Human knowledge, facility record, and management intelligence information solutions are integrated with business data or accessed through business data, as needed, to produce specific results.
Business capital must be managed to manage the actual business
Business capital is the most important capital in any business. Yet today, it is not specifically defined or managed as capital. Business capital is hidden under organization, “business process”, information systems, and other structures used to manage the enterprise, rather than the business.
Business capital must be identified and documented in specific results that must be produced for a successful business, and the specific performance solutions utilized by the business to produce results. Business capital is not administered to make it available. Business capital is managed to provide the business solutions needed across the complete business to produce results. In this way, result managers are fully supported with integrated solutions they need to produce high value and high quality business results.
The descriptions of business capital may seem like a lot of work. But, much is done one time to organize the business and the rest quickly becomes routine to manage the business. The business management system can utilize a flexible general ledger or information management system. Existing systems continue to process results and maintain business data until advantageous to move to result-specific processing.
When the business is organized, all the structures laid over the business, all the work involved that is not related to the business, and the information processed that is not relevant to the business can be cleared away and the enterprise can concentrate on managing the organized business.
Logical business capital 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.
