Why define your business?
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 performance solutions. So, capital is broken down into specific performance 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 performance 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 deployment of capital as a specific performance solution to be utilized in performance to produce a specific result. Business performance is identified by the performance solution identifier and the result 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 performance 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 “the utilization of capital of worth in performance to incur costs to produce value in 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 “the utilization of capital of worth in performance to incur costs to produce value 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 to manage the business:
- Capital defined and organized as performance solutions: Total cost, effectiveness, capacity, uncertainty, expectations, utilization, worth, etc
- Results: Value, quality, volume, risk, goals, quality determinate, total cost, value-added, defects, etc
- Performance: Cost, capital consumed or utilized, effectiveness determinate, rules, exceptions, problems, time, etc
These attributes of capital, results, and performance provide the information needed to understand and manage the business. Performance indicators measure performance and the total performance of specific solutions and capital as a whole. Result metrics measure the results produced by the business. 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 “the utilization of capital of worth in performance to incur costs to produce value in results”. This definition must be used to organize the business as capital available defined as performance solutions, performance in the utilization of capital, and economic output results produced. 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. The enterprise business can be organized and managed only by organizing and managing the utilization of capital of worth in performance to incur costs to produce value in results with Result-performance Management (R-pM).
This is the article seven under the forum “Why Manage your Business”
The Business Change Forum is now running series of articles under the forum “Why Manage your Business?” to explain R-pM fundamentals for actual business organization and 21st Century Management. This is article seven in the forum. A new article is posted to the forum every Friday.
Visit result-performance-management.com to learn about the breakthrough advantages of R-pM and how you can use R-pM to organize your business for 21st Century Management.
