Why define your business?
The economic crisis arises from “failure to manage the business”
Many articles in the Business Change Forum cite “failure to manage the business” as the cause or the current and previous financial and economic crises and corporate governance scandals. What precisely is the business and why is the business not managed today?
What is the definition of your business?
Have you organized your business? Do you manage your business day by day? What is the definition of the business that you have organized and that you manage? Most managers think that they are organizing and managing their business. But when asked they cannot define the business that they have organized and are managing. They usually define the enterprise, rather than the business, since they have actually organized and are managing the enterprise, and not the business.
It is important to have a clear definition of the enterprise business
It is important to have a precise definition of the enterprise business that is organized and managed. Otherwise, we will never know if we are organizing and managing the actual business. Today there are many conflicting definitions of the word business, none defining what is organized and managed to manage the business. But one definition stands out as the most popular for the “business enterprise”, which is generally defined as “the activity of providing goods and services”. This definition provides a starting point to define what to organize and manage in order to organize and manage the business.
The business must be defined to know and manage the components of the business
What distinct components comprise your business? What components must be managed to manage your business? If we do not know the components of the business, we cannot organize and manage the business.
The definition “the activity of providing goods and services” says that the business includes the activity of providing and the goods and services provided. The activity of providing is business performance, in actions executed by the business. How does the business execute actions or engage in activity? Actions must be executed by human or other capital and in utilization of capital invested in the business. But what is capital and how is capital organized and utilized? Capital is the resources the business invests in or utilizes to provide goods and services. Capital includes all human resources, tangible assets, and intangible assets. The business invests money to acquire and develop capital, so capital must have some worth that should be managed. Capital must be utilized in business activity to produce goods and services. Therefore, capital must be defined as specific human and other capital items that can be utilized to provide goods and services. We can call these capital items capital solutions. So, capital is broken down into specific solutions as a set to be utilized in business performance. Capital is one component of the business.
The goods and services provided are the economic outputs from the business. Many economic outputs must be produced to provide goods and services to the customer. The economic outputs from the business are called results. Results are economic outputs of positive or negative value that can be counted and measured. Results produced embody the quality produced within the business and leaving the business. Results produced across the business, as a set, is the second component of the business.
As we said previously, capital is utilized in business activity or performance. So business performance is another component of the business. But what is business performance? Business performance is the utilization of capital in the business to produce results from the business. In order to utilize capital in business performance to produce results, the capital must be defined to the level of detail as specific identifiable solutions that can be utilized and results must be defined to the level of detail to define the specific outputs produced from the utilization of the capital. Business performance to be managed as a component of the business is then defined by the implementation of capital as a specific solution to be utilized in performance to produce a specific result. Business performance is identified by the result identifier and the capital solution identifier and incurs the cost of doing business in the utilization of capital, such as a process or equipment, or consumption of capital, such as personnel time or supplies. Business performance also defines the details of how capital is utilized or how costs are incurred to produce a specific result.
The business consists of three components; capital, performance, and results
From these definitions and analysis of the business, we can see that the business is comprised of three components:
- Capital defined as “the set of assets and capabilities in specific performance solutions of positive (asset) or negative (liability) worth invested in and supported for utilization to produce specific business results”
- Performance defined as “the utilization of capital by the business in specific solutions at a level of effectiveness to incur costs and create value and quality in specific results”
- Results defined as “the set of economic outputs of positive or negative value that can be counted and measured and are produced within a time period against goals”
In order to define, organize, and manage the business we must define, organize, and manage capital, performance, and results.
The definition of business is “investments in capital as solutions utilized in performance to produce results”
Since the business consists of invested capital available, performance in the utilization of capital, and results in economic outputs produced, the business can be defined precisely as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. This is the first definition of the business that can be utilized to organize and manage the business. To organize and manage the business, we must organize and manage the utilization of capital of worth in performance to incur costs to produce value in results.
Each component of the business has specific attributes that must be measured and managed
In order to manage the business we must manage the attributes of the components of the business. Each component of the business has certain attributes that must be measured and managed as a set in order to manage the business:
- Capital defined and organized as specific solutions: Total investment cost, solution worth decline, unamortized investment balance, current solution worth, sale or disposal worth, expected useful life, capacity, qualifications, reliability, result value-added return on investment, total performance costs incurred, cost budget, potential, etc
- Results: Volume, value, quality, risk, goals, quality determinate, total cost, value-added, symptoms, goals, etc
- Performance: Utilization, cost, effectiveness, uncertainty, contribution to result value-added, problems, expectations, effectiveness determinate, rules, exceptions, etc
These attributes of capital, results, and performance are the data that must be measured and captured day to day in the business and processed to provide the information needed to understand and manage the business. Performance indicators measure performance and the specific solutions utilized to produce a specific result. Capital measures measure the total development and utilization of a capital solution for all results. Result metrics measure the results produced by the business for all capital solutions utilized. We cannot manage the business until we capture business data on the attributes of business data entities, like capital, results, and performance and report actual business management information.
The business must be precisely and accurately defined in order to organize and manage the business
So, the definition of business is “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. This definition must be used to organize the business as invested capital available defined as specific solutions, performance in the utilization of capital solutions, and economic output results produced by performance. The business can be managed directly only by managing the attributes of capital, performance, and results.
The enterprise can be organized and managed through many different theories, concepts, and structures. Today specific investments in the business are not identified or managed as a set of capital solutions, the specific economic outputs that must be produced for business success are not defined or managed as a set of result. Therefore the business cannot be organized and managed in the utilization of capital of worth in performance to incur costs to produce value and quality in results.
This is the article seven under the forum “Why Manage your Business”
The Business Change Forum contains a series of articles under the forum “Why Manage your Business?” to explain the fundamentals of actual business organization and 21st century business management. This is article seven in the forum.
Result-performance Management (R-pM) provides the method to organize the business and utilize human and other capital, where needed to produce results
The source of knowledge for corporations to organize and manage their business is Result-performance Management (R-pM). R-pM shows how to organize results to be produced and then how to deploy and implement capital solutions where needed to produce results. Once the business is organized the business can be managed directly, without the need to lay enterprise organization and management structures over the business.
Forward-looking enterprises are now using R-pM guidance to organize and manage their business to gain breakthrough advantages over competitors burdened by unsolvable 20th century management problems. Business management is explained and documented in the Business Management Toolkit. The Toolkit provides procedures for actual business management and maintains emerging 21st century management conventions, definitions, and standards. Management consultants who base 21st century business management services on R-pM knowledge are licensed to help enterprises learn, organize, and manage the actual business. R-pM and business management are supported at result-performance-management.com.
The Solution to the Economic Crisis is explained in free downloads
Three free white papers explain the dead-end 20th century management problems, such as the failure to plan, account for, and manage the actual business, that caused the economic crisis, the way to eliminate the problems, and a government program to address the crisis by stimulating the economy, solving the problems, building a structure for financial and economic management, and organizing local businesses to flourish in the eventual recovery.
- How to Eliminate Problems that caused the Economic Crisis explains the major unsolvable 20th century management problems and the solution to eliminate the problems
- Business management; the only Solution to the Economic Crisis explains how to plan and manage the business to capture business data and provide management the information needed for actual business, corporation, industry, and economic management
- A Government Business Management Program to Answer the Economic Crisis outlines a government program to encourage business management, stimulate the economy, restore confidence, organize businesses to flourish in the recovery, and manage economic cycles to prevent future crisis
These three white paper downloads are available to R-pM Community Members at Result-performance Management.com. There is no cost or obligation to join the R-pM Community. Join by entering your email address and personal password. Your email address is protected and used only for download problems, product updates, and occasional R-pM Member news and white papers.
