Rule No. 3 of 21st Century Business Management: Organize and Manage Capital for High Utilization and Return
Administration is one of the top ten 20th century management problems
As explained in other articles in the Business Change Forum, administration is one of the top ten problems of 20th century enterprise management used today. Enterprises have large sums invested in the capital that is utilized in performance, but most do not even know the extent of this capital. There is no manageable organization of capital as specific capital items of worth to be managed and utilized to create value in the business. Much high-worth capital is labeled as “intangible assets”. Capital that is known is administered, rather managed for investment, development, and utilization in operations. Many capital items requiring very different inherent capabilities and skills to support properly are mixed together in artificial categories like information technology and financial management.
Conventional administrative performance does not manage capital
Capital is created day in and day out without being recognized as something of worth that should be managed and made available to improve performance. Enterprises may have an assets register and think of managing capital as utilization of assets. Many think that managing capital means assigning it to a responsibility center, which actually removes capital from management for the benefit of the enterprise. Typical responsibility center managers do not take responsibility for managing capital and are unable to manage capital that they share with other responsibility centers.
Other capital is administered under an administrative function like accounting, IT, purchasing, HR, corporate planning, etc. These functions do not actually recognize a responsibility for managing capital, and most have no perception of helping the enterprise gain benefit from the utilization of capital, especially those “intangible assets”. They perform day-to-day functions that might help to operate or support capital.
Known capital is organized by function and knowledge area rather than the human capability to manage capital
We have well-known problems because administrative units manage capital that requires very different professional capabilities. IT and CIOs have problems managing technical facilities, business process capital, and strategic management capital that is categorized for IT knowledge. Accounting is expected to manage financial records and provide management intelligence. Business, human, equipment, and management capital are mixed together to be managed as a monolithic business process.
Many equate capital management with the financial management function. Financial management manages financial facility capital, some strategy capital, and some investment management results, based on financial knowledge. Much of the historic need for financial management has decreased through advanced methods and technology. The separate emphasis on financial management prompts neglect of non-financial tangible and “intangible” capital.
We administer information and information systems as technology, rather than managing it as capital. We administer human resources as employees, rather than managing human capital. We administer assets. cash, and supplies, rather than managing utilization and consumption to create known value. We record and account for accrued and actual cash expenditures and receipts, but not financial records for result value, performance costs, or capital worth or many non-financial records.
Administrative functions invest in new capital, but do not manage the return on investment
Administrative units make large investments in capital that are paid back only when the capital is employed to increase result value. Existing capital may be developed or improved, but the assessed capital worth can only be increased or substantiated, by knowing the increase in result value produced. However, administration does not manage capital utilization for measured benefit or measure the return on investment.
All enterprises utilize capital in performance to produce value in results. But, capital is not developed as specific capital items or solution investments that are implemented to be utilized to create value in results, so development costs are not captured and the needed knowledge and documentation is not created. The enterprise cannot manage the utilization of capital to increase the value of results, and thereby provide the return on the capital investment, and substantiate the capital worth.
Every enterprise has much benefit to gain by managing capital and optimizing the utilization of capital. Capital must be managed to understand result requirements and to carry through with capital improvement and development.
20th century management is unable to manage information capital
20th century management structures use different entity names and definitions to describe the same part of the enterprise. Information technology is used to computerize the various structures producing the information complexity problem as enormous amounts of information can be produced that is inconsistent and inaccurate.
Information capital management is not well organized. Accounting is responsible for financial records, information technology may perform data management and record retention, there may be a function for knowledge management, record management, or business or management intelligence. Even with this, there is little management of information for application to improve the business. There is no structure to relate information directly to the business and no data is collected on the actual business as a related set.
These problems are aggravated by the proliferation of IT use for email, Internet downloads, information exchanges, imaged documents, etc. Enterprises are now making enormous investments in various systems that lay subject, category, and workflow structures over the business for document, record, report, image, data, content, knowledge, etc management. These investments only aggravate the information management problem with additional structures and entities.
Professional capital management is an integral component of business management
The administration problem is eliminated by organizing and managing the actual business, using the knowledge provided by Result-performance Management (R-pM). R-pM follows Rule No. 3 of the 10 rules of 21st century business management: Organize and Manage Capital for High Utilization and Return.
The enterprise business, which consists of three entities: 1) results produced as outputs from performance, 2) capital solutions that provide the capital utilized in performance, and 3) the actual performance in utilizing capital solutions to produce results.
In order to manage the business, all capital must be managed as specific capital solutions utilized by the business to incur costs and create value in output results produced. There is no such thing as “intangible assets”. All capital solutions utilized in the business require tangible investment to acquire, develop, and implement the solution. Administration is replaced with two important responsibilities for capital management and performance management.
- Capital Management: Manage and support capital by producing capital results, so that capital continues to operate and function properly; so that capital is regularly improved, reassigned, or replaced; so that new capital solutions are developed as needed; and so that capital utilization for benefit is managed from the capital point of view
- Performance Management: Organize and manage the performance of each capital solution implemented to produce a result for the benefit of the business
Performance management is a sub-set of capital management to ensure that qualified solutions are provided to produce results and that the solutions add value added to know the return on investment and assess the capital worth.
Capital is organized by the professional capability required to support the capital
21st century business management organizes capital solutions by the four basic human capabilities needed to manage capital. This gives four capital categories:
- Business knowledge and analysis capabilities to organize the business, manage business and information processing, and to define and manage business data. Business capital is utilized to produce a specific result, rather than results in general
- Human development and handling capabilities to manage personnel, develop specific capabilities needed by the business and manage the creation and application of human knowledge. Human capital includes all the internal and external individuals, capabilities, and knowledge utilized to produce results
- Facility expertise and administration capability to manage reusable equipment facilities, provide consumable supplies, and maintain financial and non-financial records. Facility capital includes all the traditional financial and non-financial tangible assets
- Management judgment, analysis, and research capability to define the strategic business, provide competitive tactics, and derive internal and gain external intelligence for management decisions. Management capital includes all plans, competitive methods, assessments, evaluations, and analyses of the business
Capital organized in these four business, human, facility, and management categories can be properly supported in capital development and operations.
Capital is organized within category to be utilized to produce results
Capital solutions within each category are organized further, so that they can be utilized and managed to produce results in three classes:
- Readiness capital provides the business organization, human personnel, facility equipment, and management strategy capital that is integrated by an organization unit to be ready to produce the results that define the organization
- Production capital provides the business process, human capability, facility supply, and management tactics capital needed on an on-going basis and utilized directly to produce a specific result
- Information capital provides the business data, human knowledge, facility records, and management intelligence that must be integrated and accessed to utilize solutions, produce results, and document the results produced
Capital organized by class can be integrated with other capital of the same class and utilized effectively to produce specific results under result management.
Information capital management is an emerging 21st century business management need
21st century business management organizes all information capital to be supported by those with the capability and to be integrated for application to the business, according to the following rules for 21st Century Information Capital Management:
- Manage all information capital in the specific capital management units to provide information solutions for the business by result and capital solution identifier
- Maintain the current business structure as business organization capital to document and update all business results produced and capital solutions used in the current business
- Maintain the strategic business structure as management strategy capital to plan and document approved strategic results and capital solutions for development
- Maintain business data to update the business entities for results and capital solutions and manage references to knowledge, records, and intelligence
- Reference and manage all information capital solutions utilized within the business and all business transactions, correspondence, reports, documents, etc entering or leaving the business by the specific result or capital solution identifier
- Manage emails, correspondence, documents, reports, images, etc produced or received anywhere in the business, related to business initiatives, decisions, transactions and follow-ups as facility records capital. referenced to specific results or capital solutions, for solutions, retention, and archiving
- Manage Internet downloads or transmitted information files related to knowledge about the business, industry, etc produced or received anywhere within the business as knowledge referenced to current or strategic results and capital solutions
- Manage Internet downloads or transmitted information files related to competitive information and management decision information produced or received anywhere in the business as intelligence referenced to current or strategic results or capital solutions
- Apply standardized 21st century business management definitions and conventions across business enterprises for data and information consistency and understanding
This provides the only solution to the increasingly important need to manage business information capital professionally and reduce the exploding IT overheads that can never solve the information complexity and management problem.
Professional 21st century capital management improves capital worth and enterprise profit margins
The business is managed for results to produce results by utilizing specific capital solutions, and for performance by providing and maintaining high worth capital as effective solutions to be utilized. Capital is managed to be of high-worth, by being utilized for a managed performance cost to create greater value in the results produced. New capital is developed to meet result requirements for specific solutions to increase result value and be of managed worth.
All enterprises can improve profit margins by organizing and managing capital for high utilization and return as part of the managed business. But, enterprises can never manage capital while it lies in centers hidden from view, while it is classified as “intangible assets”, and while those who should be managing it are performing administrative functions.
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.
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