Why manage the business?
Most managers think that they manage their business
Do you manage your business? What is the definition of the business that you manage? Ask a manager if he manages his business, the normal response is yes. Ask for the definition of the business they manage, and they do not have a precise definition. Most will describe the enterprise rather than the actual business.
No company, corporation, institution, or other enterprise manager manages the actual business today. The managers employ 20th century management to administer the enterprise. It is impossible to manage the business today, because the business has never been defined properly or organized.
The business to manage has never been defined and actual business management has never been taught
What is the enterprise business? There are many conflicting and imprecise definitions for the word “business”. Proper definition of the business is hampered by the definition of performance to include both the utilization of capital in actions executed and the results accomplished. Business schools and management books teach 20th century management to administer structures laid over the business, and do not define the actual business or teach us how to manage the actual business.
Outside of R-pM, there is no source of information on the real-life fundamentals of actual business organization and management. Since there has never been a precise definition of the business or teachings or books on actual business management, managers do not know what to organize in order to manage the business.
R-pM provides a precise definition of the business
So today, results, capital solutions, and performance in the utilization of capital to produce results continue to be confused by the definition of performance. We must separate results and capital utilized from performance using Result-performance Management (R-pM) in order to define and manage the business. R-pM defines the business as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”.
The enterprise business has three components:
- Capital in the professionally-supported capital solutions of worth available to the business
- Performance of the business in the utilization of capital as specific solutions to incur costs and provide effectiveness to produce specific results
- Results in the economic outputs of value and quality produced by utilizing all required solutions in performance
Therefore, if we are going to manage the business, we must organize and manage the capital utilized by the business, the performance of the business in the actual utilization of capital to produce results, and the output results produced by the business. But, today we cannot manage the business because we have never organized or supported human and other capital utilized in business as a set of specific solutions and we have never organized the output results that must be produced for business success as a set of specific results. We have never organized business performance in the specific capital solutions utilized to produce specific results. We now have the information technology we need to organize and manage the actual business, and it must be put to use for competitive advantage.
In order to manage the business, capital, results, and performance must be organized
Every business makes large capital investments that must be managed as part of managing the business. Some capital is administered as money, assets, or employees, but much high-worth capital has been developed but never defined as capital, and much capital is labeled as “intangible assets” and ignored. If we do not organize business capital utilized as a set of specific capital solutions, we cannot plan or manage the utilization of capital in business performance. Capital solutions have common attributes like worth, development costs, capacity, operating costs, effectiveness, uncertainty, and utilization. If we do not manage capital as solutions, we cannot know the amount invested in capital, the capital worth, the cost incurred in the utilization of capital, the value created by the capital, and the return on the capital investment.
Every business produces output results of some level of quality and value that must be managed as part of managing the business. Some results are identified as isolated entities, like material in store, product sold, order booked, revenue received, maintained machine, completed training, etc. But, many important business results are never identified or managed as results of value to the business. Results have common attributes like volume, value, quality, risk, total cost, and value-added that must be managed as a set. If we do not organize and manage results produced by the business as a set, we cannot plan or manage the current or strategic value created by the business.
Every business utilizes capital as specific human and other solutions in performance to incur costs and produce value in specific results that must be managed as part of managing the business. Performance must be set up to know the rules and exceptions, such as cost per result, for measuring performance, and to record the costs and effectiveness of capital utilized to produce value and quality in results. Performance must be recorded against expectations for the performance solution utilized and against goals for the result produced. Performance transactions are recorded to provide accurate business records and management information.
R-pM manages the business through specific results that must be produced for business success
The business consists of very specific output results produced that can be counted and measured. The results relate to each other and must be organized to organize the business. The results require capital investments in specific solutions of worth. The results can only be produced by utilizing capital as specific solutions in performance. The results produced, capital available, and capital solutions deployed to be utilized in performance to produce results define one very precise organization of the business at any particular point in time.
Therefore, results as outputs must be defined separate from the capital utilized and the utilization of capital solutions in performance. Once you have defined your results, your capital utilized and your performance in the utilization of solutions to produce results, you have defined your actual business. They are not contrived departments, functions, positions, etc., which mean nothing on their own. They describe what you are actually using and producing in day to day business performance.
Once the business is defined in terms of specific results to produce and specific capital available as solutions, the business is organized by deploying specific capital solutions to be utilized in performance to produce specific results. This produces a business structure that is used for all management in business organization, planning, direction, reporting, and governance as described in prior articles.
The business can be viewed as a business structure
With R-pM, the business, or any part of the business, can be viewed as a business structure that is like a spreadsheet with results to be produced organized in columns across the top and the capital solutions to be utilized in rows down the side. Each cell with a solution deployed to produce a result is a performance domain to record performance costs and effectiveness. The total costs of solutions utilized down a result column give the total result cost against the result value to determine result value-added. The total costs of a solution to produce results across a row give the total solution cost for capital management.
The strategic business is planned at a strategic horizon in the strategic results to produce and capital solutions needed
The business is planned through strategic results that must be produced at a future strategic horizon to provide growth and strategic value creation. The strategic results require capital as new and improved solutions that must be developed. Strategic results and the capital required is planned in a strategic business structure. The evolution of the business from the current business to the strategic business is planned in period by period result goals that show the value increases required in existing results and the new value to be introduced by new results in a specific period. The capital development required is very specific in capital solutions needed to produce each result. All investment is directed at producing strategic result value. Investments are planned and the investment return is produced in the specific result value-added to be gained by achieving result goals.
All business decisions and business change involve capital utilized and results produced
Every current or strategic business decision boils down to what result to produce and what capital solutions to utilize. Every business change is a change to a specific result produced or to the capital solutions utilized to produce results. The actual business is the utilization of capital of worth in performance to incur costs and produce value in results. Therefore, we must organize and manage capital, performance, and results in order to organize and manage the business.
This article has been detailed in a series of articles “Why Manage your Business”
Many visitors to the Business Change Forum have indicated difficulty understanding the business fundamentals underlying Result-performance Management (R-pM). People often get confused because they mix R-pM business fundamentals with outdated 20th century management that they have been taught and use today. It is very important to separate R-pM and actual business management as a complete new approach for the 21st Century. R-pM replaces 20th century management and the rigid enterprise structures laid over the business.
The Business Change Forum has run a series of articles “Why manage your Business?” to explain the fundamentals of R-pM in business organization and management. Read the articles under the forum “Why manage your Business?” for an understanding of the fundamentals of actual business management with R-pM. To learn more about R-pM and to download guidance on organizing your business for 21st Century Management, visit Result-performance-Management.com.
