Archive for August, 2008

Many enterprises have persistent performance problems. Maybe its gaining real benefit from new solutions, reorganizing to another unresponsive organization, or precisely managing what people are doing. Enterprises are not able to plan and manage their capital investments to determine or manage the return. They are unable to utilize tangible and intangible capital effectively in performance to produce results. They are not able to determine all costs incurred in enterprise performance against the value created by performance. They cannot manage value chains or value added along a chain. They can not determine the worth of their human or other capital investments or the worth of their business. Enterprises are sold one solution after another, but the fundamental problems remain unsolved.

Corporations face fundamental management and business change problems

Many enterprises want to go back to the drawing board to solve business change and management problems. Their problems are fundamental to the way they do business, and need new fundamental solutions. [more...]

What does performance really mean?

Performance is one of the most widely used words in describing how the business is organized and managed. Therefore, it is very important to have a precise and usable definition of performance. How do you define performance? What is the definition put forward for your performance management methods or solutions? What does your dictionary say? Does the definition make sense? Are your key performance indicators actually performance indicators? Do your performance management structures actually manage performance? What is performance in our enterprise, and how should we define performance?

Both the activity of performance and the result of the performance are defined as performance

If you look up the definition of performance or performance management, you likely will see that performance defines not only the activity in execution of actions , but also the results accomplished by the activity as performance. Does this make sense? [more...]?

Do cost accounting methods capture all costs or charge the costs against the proper entity?

There are many methods of cash expenditure and cost accounting. We cost objects, processes, activities, stations, products, centers, and other entities. But, is there one entity that we really should be costing in terms of incurring costs and one entity that we should be charging to absorb and manage our costs? Do we really know if we are identifying and capturing all of our costs?

Cost accounting must measure the cost of capital consumed or utilized in performance

We continually make investments to acquire, develop, improve, maintain, and support each capital solution. Costs are incurred through the consumption and utilization of capital in performance. Costs are incurred to reduce the balance invested in the capital utilized to zero over the useful life or planned costing period. So the only entity we should cost is capital consumed or utilized in performance. If we are consuming and utilizing capital, we need to document and manage all the capital that is consumed or utilized, like processes, personnel, capabilities, information, strategies, and equipment. [more...].

Business change and change management are unsolvable problems of 20^th century management used by business enterprises today. The unsolvable problems are caused because the actual business “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results” is not organized or managed. 20^th century management fails to define, organize, and manage the three components of the business.

• Results: The economic outputs of value produced from business performance
• Capital: Investments in the business to provide capital solutions of worth to be utilized in business performance
• Performance: The specific capital solutions utilized in performance to incur costs and to produce specific results

There are only two entities that change in business change and in capital development – results and capital solutions. All business decisions and changes involve results to produce from the business and the human and other capital solutions to utilize in performance to produce results.

If the business is not defined, organized, and managed it is impossible to change the actual business. Instead of changing the business and managing business change properly, 20^th century management lays structures over the business. The organize structure is laid over the business. This is a fatal error. Once an organization structure is laid over the business, the business cannot be managed. [more...]

Information system planning often only plans system implementation

Enterprises make large investments to implement all kinds of resource planning, human resource, accounting, customer, logistics, manufacturing, and other information systems. The objective of many of our business change projects is information system implementation that converts existing business operations and data. When you ask anyone involved what they are doing they answer “implementing a new system” or what is their objective they answer “to get he system into operation”. Management consultants have methodologies to implement information systems. The information system implementation objective prevents the needed benefit from business change.

System implementation converts existing business problems to the new system

Is system implementation the proper objective? Does system implementation make existing business problems converted to the new system easier or harder to solve? What is the benefit of system implementation? System specification, acquisition, development, implementation, and operation are all costs and provide no benefit, per se. So we are always implementing costs with no attention to developing benefits.< [more...].

Our Chief Information Officers (CIOs) have a problem, since one person is required to have many capabilities to manage diverse capital. The CIO has to have professional capabilities with management strategy, technology, equipment and network operations, information system logic, business organizations, and business processes. The CIO also needs to have capabilities with all types of enterprise information capital data, knowledge, records, and intelligence.The solution to the CIO problem lies in the organization of corporate capital to define capital as specific capital solutions, apply the distinct human capabilities needed to manage, develop, and support the capital solutions, and to manage the performance of capital solutions in utilization. The solution is provided by Result-performance Management (R-pM).

The CIO and IT manage diverse capital as technology

The CIO problem extends down from the CIO into the Information Technology (IT) function. IT has to have capabilities with the various capital as well. All the enterprises have problems somewhere or another, because organization and management structures are laid over the business, and IT does not have the capability to handle all of its capital support responsibilities.

We have such examples as:

• Many organization and management structures such as maps and plans, processes, accounts, activities, projects, functions, and scorecards are laid over the business requiring excessive IT resources to process
• Application systems are managed as technology and laid over the business rather than being integrated with the business process as part of the business
• Much high worth capital is labeled as “intangible assets” and is not defined or managed at all
• Each information system defines the enterprise differently creating information complexity and producing much conflicting information on enterprise operations and development
• The information complexity problems is addressed by more IT investments in data reconciliation, enterprise information management, and IT architectures
• The analysis of business improvement needs is separated from the business into IT, and needs are satisfied by technology rather than precisely-defined business improvements
• Business change is then often stuck in the technical IT backlog
• Users assistance is restricted to how to use technology per se and is no help in using technology to solve business problems
• Information is managed as technology, not as capital to be utilized
• Stress on data and records with little support capability for knowledge or intelligence
• System utilization is managed as availability or a service level, rather than supporting utilization of the system to create value

So, how do we solve the CIO problem and the problems faced by IT?

We now propose a Chief Technology Officer (CTO) to handle information and communication technology needs. The idea of splitting out management of our capital based on professional capabilities required is valid, but we must do it right.< [more...]

The academic approach dictates incremental improvement and prevent breakthrough thinking and innovations

Business management methods are devised using the “academic approach” that accepts the solutions in place and the existing body of knowledge as the basis and seeks to make improvements. The academic approach may produce incremental improvements, but it also prevents new management thinking and breakthroughs. New business management methods build on old methods. New business management books and articles must be substantiated as accurate by footnoting previously published works and referencing existing methods in use.

There are many fundamental problems with traditional organization and management methods that cannot be changed by traditional change methods

What if the body of knowledge in the “published record” is inaccurate or if basic management methods in use are flawed? The academic approach then propagates inaccuracies and flaws. The Business Change Forum contains hundreds of examples where today’s 20^th century organization and management methods, principles, structures and definitions are flawed and inaccurate. So, new methods build on flawed old methods. New books repeat old inaccuracies.

The Business Change Forum discusses unsolvable 20^th century management problems that have never been solved despite thousands and books and methods based on the academic approach to management improvement. [more...].

Your business consists of capital investments, performance utilizing capital, and results produced

Your business is defined properly as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Your business consists of three components that must be organized in one business structure for effective business management:

1. Results: Economic outputs of volume, value, and quality essential for business success
2. Capital: Investments in solutions of worth to be utilized by the business
3. Performance: Utilization of solutions for costs and effectiveness to produce specific results

The business structure for any part of your business looks like a spreadsheet with results required organized in columns across the top and capital utilized organized as solutions down the rows. A cell is a performance domain where a solution is deployed with cost and effectiveness exceptions to produce a result. Solution rows utilized down one result column total the cost, value-added, and quality for the result volume. Result columns that utilize a solution across one row total the cost and effectiveness of solution performance.

The enterprise organization structure is the fatal error of 20^th century management

Instead of organizing your business structure, a fixed enterprise organization structure is laid over your business, so your business cannot be managed. Management structures like corporate plans, processes, budgets, functions, accounts, cost activities, systems, etc define the enterprise differently causing business and information complexity. Rectifying structures for data reconciliation, scorecards, IT architectures, etc just compound business organization and management problems and increase IT overheads.

20^th century management structures prevent business management

You make significant investments in capital, but cannot plan return on investment, manage development of specific solutions needed by the business, determine worth of solutions to the business, measure solution return, or capture costs incurred in utilizing the solution. You must produce results from supplier input results, along a value-quality chain to produce final results that satisfy a customer willing to pay. [more...].

R-pM community users ask questions about identifying enterprise capital, particularly for intangible assets, and defining specific capital solutions. Each question is answered by email, but we summarize common questions in the series of articles on How to Use R-pM. (Note: performance solution and performance structure  in Version 1 of R-pM are called capital solution and capital structure in Version 2 of R-pM).

Defining capital solutions is part of learning the business

Start with the definition of the business: “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Identifying and defining capital solutions is part of learning the actual enterprise business. Defining capital solutions is new, since capital solutions utilized by the business have never been identified and managed as a set. R-pM recommends setting up result teams to analyze and define results and performance teams of capital support personnel to analyze and define capital solutions. Defining and organizing capital solutions is part of business organization capital support. it is important to designate a capable business analyst to lead business organization capital, so that expertise is developed, and a specialist can guide others. Designate someone familiar with each capital category to take the lead with business capital, human capital, facility capital, and management capital. [more...]

According to another post at the Business Change Forum, corporate governance is one of the top 10 problems of 20^th century management. The corporate governance problem is caused by outdated 20^th century management methods used today that do not organize and manage the actual business and cannot provide complete and accurate management information on the actual business. A myriad of different management structures are laid over the business that describe the corporation differently and produce many conflicting ways a corporation can be reported. We govern by enforcing policies and rules, because we do not understand the substance and reality of the actual business.

Now there is a solution to the corporate governance problem, Result-performance Management (R-pM), which organizes and manages the actual corporate business to utilize capital in performance to produce value in results. R-pM plans results of value needed for success, capital investments to provide solutions of worth, and performance in the utilization of capital to incur costs to create result value-added. R-pM plans the strategic business in strategic results to produce and capital solutions to be developed to produce the results. R-pM plans value creation and capital development through period by period result goals. Corporate governance can manage strategic value creation as the current business converges on the approved strategic business.

Shortcomings of 20^th century management that produce poor corporate governance

20^th century management organizes the corporation by laying an organization structure over the business, so the business cannot be managed. [more...]