The only Way to prevent a Business Financial Crisis is to manage the Actual Business
Investors have lost trillions of dollars and more trillions are committed to attempt to clean up the financial crisis
We see the intervention by governments in the US and around the world to address the symptoms of the fundamental problems in 20th century management. We see trillions of dollars of losses in stock markets and businesses worldwide, and more trillions being spent to buy low-worth capital asset solutions, unfreeze credit, and restore confidence in obsolete enterprise management.
While the distortions and risks created to replace fixed mortgage asset solutions with marketable security solutions sparked the crisis, there are underlying problems in the basic management methods utilized by all the enterprises involved that prevent them from understanding actual capital worth, the value-added by capital solutions in utilization, return on solution investments, projected gain or loss on specific solution investments, reductions in solution disposal worth, and the impact of reductions.
In addition, we see little effort to understand and eliminate the underlying unsolvable business management problems that cause this and other recurring crises, particularly on the part of business owners and shareholders who have the most to gain or lose, professional bodies who establish business management principles and standards, and governments who are responsible for economic management. Most corporate executives will not try to identify their real problems and improve their management, unless put under pressure from their shareholders or their government.
The current financial and management crisis is caused by failure to organize and manage the business
The fundamental unsolvable problems are present in all banks, financial institutions, and other enterprises because the enterprise is managed by structures laid over the business, and the actual business in “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results” is never managed. Enterprises today are unable to measure or manage the following important capital measures, performance indicators, and result metrics that describe the actual business:
- Investment costs incurred in the acquisition and development of specific capital solutions, be they solutions implemented to produce business revenue results or financial facility solutions utilized to produce direct income and growth results
- Actual capital solution worth in the potential to contribute to future result value-added creation
- Actual performance costs that amortize investments as solution worth declines in the consumption and utilization of capital or in reduction in solution disposal worth
- Added solution investment costs and potentially added-worth in solution improvement and replenishment
- Economic output result value created from the utilization of capital in performance
- Value added in result value greater or less than performance costs for all solutions utilized to produce a volume of full or partial results
- Result value-added across result chains within the final result value-added, to identify and rectify low-value results and ineffective solutions
- The return on solution investments in attributable contribution to result value-added to date
- The changing ongoing solution worth in future contribution to result value or income added over the remaining solution life, plus the solution disposal result value less the cost of capital invested in the solution
- The projected gain or loss on capital solution investments in the current solution worth less the unamortized investment balance
- The qualifications of specific capital solutions to perform effectively to produce specific high-quality results
- The potential of solution utilization in performance to meet expectations and reach result goals
- The managed reliability of solutions to reduce performance uncertainty and result risk
- The inadequate or deficient capital solutions causing performance problems that produce symptoms in late or low value-quality results and the elimination of result symptoms by solving performance problems through improved capital solutions
- The strategic result value-added and shareholder value to be created by managed strategic results
- The itemized result value-added planned to justify result research and capital acquisition and development projects
None of these important measures, indicators, and metrics produced by the actual or planned business are known or managed by management today, because the actual business is not planned, organized, or managed.
Instead, enterprises employ archaic 20th century management to manage structures laid over the business producing well-known unsolvable problems with reorganization, alignment, “business complexity”, “business change”, unknown costs and value, unknown capital worth and returns, intangible assets, IT and business conflicts, investments, projects, accounting limitations, inaccurate information, corporate governance, quality, risk, collaboration, outsourcing, IT overheads, and on and on. 20th century management is a dead-end. New 20th century structures can never solve these problems, but just increase business complexity and escalate IT and other costs.
We will continue to lack the information needed for proper business management and continue to face unsolvable problems, until we employ Result-performance Management (R-pM) to organize and manage the actual business of every enterprise and base accounting, industry regulations, auditing, and compliance reporting on the actual organized and managed business.
20th century organization structures used today do not organize the business
20th century management lays a contrived enterprise organization structure over the business, instead of organizing the business. This is the fatal error of 20th century management. If the business is not organized, the business cannot be managed. The rigid organization structure goes out of “alignment” with every new or closed result or change to a capital solution utilized. Eventually there is need for reorganization to contrive a new rigid organization structure that is closer aligned to the actual business, and the cycle is repeated.
The business organization is not a political football, it must be professionally managed capital
The business organization is not a management prerogative or political football. The business organization is capital of worth that must be managed professionally to maintain an accurate view of the current and strategically-planned business. The current business organization is business organization capital that is maintained for each change to the business. The strategic business organization is management strategy capital to define strategic value creation and result-performance development required to research new results and acquire or develop new solutions needed to produce strategic results.
If we do not organize the business, we need additional structures to manage the business
Since the business is not organized, the enterprise must be managed by separate 20th century management structures laid over the business; such as a strategic map or corporate plan, business processes and functions for direction, financial and cost accounts and quality structures for control, and data reconciliation, scorecards, and compliance structures for reporting. Actual business data on capital utilized in performance and results produced cannot be captured as one defined and interrelated set. Distorted and incomplete data is captured against overlaid structures. Each structure defines the enterprise differently, uses different information systems, and reports different entities that must be reconciled by data models and processing structures. These many overlaid structures are rigid and conflict with the actual business producing high costs, excessive IT overheads, and many unsolvable problems.
None of the overlaid structures manages business capital, business performance, or business results
No overlaid structure can plan, direct, control, and report actual business capital measures, performance indicators, and result metrics described above.
The only way to prevent future crises is to use Result-performance Management to organize the actual business as capital solutions available to the business in the capital structure, result chains that produce final customer results and other output results required for business success in the result structure, and capital solutions implemented in performance domains to produce specific results in the performance structure. R-pM clears away overlaid structures to eliminate unsolvable problems. R-pM manages capital worth, investment returns, performance costs, result value-added, strategic value creation, and ongoing shareholder value, as explained in many articles in the Business Change Forum.
Business owners and shareholders must lead management to investigate and prove R-pM
Corporate executives and business managers are burdened by lifetimes of misleading management teachings and experience. They tend to reject R-pM out of hand as “not the way things are done”. Business owners and shareholders must take the lead to encourage management to investigate R-pM and prove why R-pM should not be used to organize and manage the business and shareholder value creation.
Professional accounting, auditing, human resource, productivity, quality, etc bodies must update principles
For years unsolvable business problems have been known and ignored by professional bodies. Accounting has never solved problems with unknown costs, unknown business and capital solution worth, intangible assets, unknown investment benefits and returns, unknown value creation, and so on. Audit bodies fail to provide measures for actual business evaluation and assessment. Human resource bodies do not provide for the management and development of human capital worth. Productivity and quality bodies fail to provide measures for value and quality chains, actual business output measurement, and built-in quality across the business. R-pM provides the foundation for a new set of professional principles and standards based on the actual organized and managed business.
Governments must learn and eliminate the real fundamental problems and regulate actual business management
Governments must investigate the underlying problems in the methods used to manage banks, financial institutions, corporations, and other enterprises and the methods used for regulation and compliance reporting. Adding more regulations that increase the complexity and difficulties in 20th century management is not the answer. The answer is in organizing and managing the actual business with R-pM and to provide guidance, regulations, and compliance reporting based on actual business management of capital measures, performance indicators, and result metrics.
Visit result-performance-management.com to learn about the breakthrough advantages of R-pM and how you can join the many, who are now using R-pM to organize the business for 21st Century Management.
