Archive for April, 2009

The enterprise organization structure is the fatal error that prevents business management

I have participated in many organization studies in my years as a management consultant. My approach to organization studies was to organize the business first, and then assign the people to manage and operate the business.

If the business is not organized the business cannot be managed. The business must be managed to prevent the problems that underlie the current economic crisis such as “unknown asset values”, unwieldy and unmanageable corporations, unknown business information for government regulatory and economic management, the focus on performance and not the results produced, the consequential lack of management information on result value and the cost of producing results, and governance through regulation because the business cannot be governed.

Conventional business organization prevents business organization and management

But, I always find that others concentrate on organizing the people first in a contrived enterprise organization structure and then laying the structure over the business, making the business adjust to the way people were organized. This prevents the enterprise from organizing and managing the business and invariably introduces many more unsolvable problems.

• Contrived entities like departments, sections, functions, positions, etc., were defined, that did not relate to the business and restricted business flexibility
• Since the business was not organized, the business could not be managed
• Other structures used for planning, direction, accounting, performance, reporting, etc. were overlaid or changed to fit the organization, rather than using the business for management
• Managers and staff could justify their existence in the enterprise by filling an organization position, with no reference to the value they created through their performance
• Capital was assigned to the organization to reside rather than to the business to be utilized
• The organization was measured for time consumed, money spent, etc. rather than measuring the business. The organization may have been re-engineered into a process in order to measure the process rather than the business
• By definition, since the organization was different than the business, the enterprise was laying structures over the business and preventing integrated business planning and management
• The organization structure is fixed in place, while the business continually changes, creating pressure for organization change and upheavals in re-organization and change management problems. Re-organization begins another cycle of unsolvable problems
• The list of unsolvable problems is infinite, and the problems can never solved by improving structures laid over the business

So, let’s go back to organizing the business first. If the business is organized, the organization changes with business change, eliminating reorganization and change management problems. The first thing you have to do is to understand the reality of how your business operates and define how it should operate. To do this, you must understand what the business is. [more...].

The Enterprise Performance Problem

Enterprises developed conventional ways of operations and administration over the years to arrive at the 20^th century enterprise management used today.

Enterprise performance structures are laid over the business

Business performance used today is a misnomer. It is really enterprise performance and is unrelated to actual business performance. The fundamental problem is that today’s enterprise performance structures are laid over the business, rather than directly managing business performance in the capital solutions utilized to produce business results.

The generally-accepted definition of performance includes not only capital solutions utilized in the actions executed in performance, but also the output results accomplished from the performance. Results produced, capital utilized, and performance in the utilization of capital to produce results are defined together as performance and are not separately defined or managed in business processes, performance management methods, resource planning systems, and key performance indicators (KPI).

Business processes are re-engineered to improve enterprise performance and “performance quality”. Business process management lays a process structure over the business to produce an output result from the process, but does not organize the business to utilize capital solutions in performance to produce output results, within the process. Business process management manages quality checkpoints or other contrived methods to manage performance quality, but does not manage the cost-effectiveness of specific capital utilized in performance to manage result value and quality along the chain of results.

Enterprise systems are laid over the business for system processing

Enterprise information systems are implemented through conversions as additional overlays on the business, without positive business change. [more...].

We have been indoctrinated to accept contrived 20^th century enterprise management as the way that things are done

All existing business methods, all business school teachings, all new business and management solutions, and all management books produced today propagate contrived 20^th century enterprise management, which manages the enterprise by laying organization, account, process, activity, and other management structures over the business. Here at the Business Change Forum we have hundreds of articles that explain the fatal flaws and fundamental unsolvable problems with obsolete and outdated 20^th century enterprise management. We explain the alternative for natural 21^st century business management to manage the business directly as one business structure.

Even with all their flaws, 20^th century business organization and management structures are generally-accepted. People do not want to think and analyze to solve problems; they want a ready-made proscribed solution based on familiar methods. But since 20^th century management is a very costly and flawed way to manage, all we do is propagate bad management, high costs, and unsolvable problems.

Problems are unsolvable, when our mind is closed to solutions

The biggest obstacle to solving business management problems is not finding the solution, but opening our minds so that we can see the solution. Even if the solution is right in front of us and should be obvious, we are blinded by a mind that is closed to the solution. Many experts and analysts are looking for a solution to prevent future economic crisis. The obvious solution, manage the business, cannot be seen. [more...].

Investors have lost trillions of dollars and more trillions are committed to attempt to clean up the economic crisis

We see the intervention by governments in the US and around the world to address the symptoms of the fundamental problems in 20^th 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 leveraged security solutions sparked the crisis, there are underlying problems in the basic management methods utilized by all the enterprises involved that prevent them from capturing actual business data and generating direct business management information.

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. 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.  The three components of the business in business results produced, capital solutions invested in the business, and performance of the business in the utilization of a solution to produce a result are not defined as data sets. Therefore, actual business data concerning results produced, capital utilized, and performance employed cannot be captured. 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 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
• 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 that can be 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 lay archaic 20^th century management structures over the business producing well-known, but 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. 20^th century management is a dead-end. New 20^th 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 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.

20^th century organization structures used today do not organize the business

20^th century management lays a contrived enterprise organization structure over the business, instead of organizing the business. This is the fatal error of 20^th century management. [more...].

The fundamental cause of the economic crisis is failure to manage the business

One major problem causing the economic crisis was the lack of accurate management information on the actual business of investment institutions, banks, corporations, and other enterprises. Financial institutions cannot manage “asset value” in the worth of capital, companies do not know full costs or customer value provided, and corporations can not consolidate actual business information from the various units in the corporation.The fundamental problem is the lack of one complete and accurate set of information on the actual business, due failure to manage and measure the business.

20^th century management reports against structures laid over the business

The generally-accepted definition of enterprise business is “the activity of providing goods and services”. In order to organize and manage the business, we must organize and manage the activity of providing in the utilization of capital in the performance required to provide. We must also organize and manage goods and services as output results provided to customers.

20^th century management used today does not provide a structure to do this. Instead of organizing the business, an organization structure is laid over the business to define organization units, functions, and positions. Since the business is not organized, management structures must be laid over the business. A business strategy defines visions, objectives, maps, owners, and other entities. The chart of accounts defines centers, objects, and codes. Business processes, activity costing, performance management and the many other structures laid over the business produce information complexity and hide the actual business.

Overlaid structures capture vast amounts of data and report mountains of information, but not on the actual business

None of these structures captures actual business data or reports actual business information. [more...].

20^th century management consulting propagates the problems that caused the economic crisis

Many capital development, business change, and management improvement programs involve management consultants. 20^th century management consulting services normally add to or change organization, account, or management structures laid over the business. Each consulting firm has their own approaches and methodologies that are not familiar to the enterprise client. Services tend to be led by the consultant, with limited client participation, and the client must await a deliverable. Misunderstandings often arise over the scope of the project and the responsibilities of the consultant and the enterprise. 20^th century management consulting does not enable clients to manage their actual business and propagates the problems that cause the current economic crisis.

21^st Century Business Management Consultants help enterprises prevent problems that cause economic crisis

21^st Century Business Management Consulting is based on helping enterprise clients organize and manage their business in “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. The current economic crisis is caused by one fundamental problem; the failure of financial institutions, corporations, and other enterprises to manage the business. 21^st Century Business Management Consulting is required to help client enterprises to organize and manage the business, and then to optimize the worth of solutions developed, the cost and effectiveness of solutions utilized in performance, the value and quality of results produced by the business, and the return on all capital solution investments.

21^st Century Business Management Consultants have a model to work in partnership with the enterprise

21^st Century Business Management Consultants work in partnership with enterprise clients in enterprise-led result-performance development projects to provide the needed capabilities and resources the enterprise lacks.  The enterprise and consultant define the development and improvements that provide planned and measured benefits to the enterprise, through a 21^st century business management consulting model that:

• Is based on organizing and managing the actual enterprise business
• Provides services to help the enterprise organize, manage, improve and develop the actual business for measured value-added benefit
• Provides a method for enterprise clients to lead and participate properly in business management improvement
• Provides a clear framework to understand scope and means of participation for both parties
• Provides the organization and approach that eliminates the fundamental problems in 20^th century business change and management consulting methods
• Provides methods and tools that both the enterprise and consultant understand and use
• Provides a means to plan and measure the value the consultant provides and the value-added success the enterprise achieves.
  

These standards cannot be met with 20^th century management structures and consulting approaches, since the structures hide the business, and there is no framework to scope change and measure the value produced from the specific scope of change.

Business management consulting organizes the actual business for 21^st Century Management

21^st Century Management Consulting is based on organizing and managing the actual enterprise business as one integrated and transparent business structure. [more...].

The economic crisis produced large investor losses

Several trillion dollars of investor funds were lost in the past six months. Investors, advisers, and experts point out many mistakes made, poor government oversight, the credit freeze, unknown asset value, investor greed, poor corporate governance, and other symptoms as the cause of investor losses. These mistakes are contributors, but not the cause of investor losses. Investment banks, investment funds, stock brokers, investment advisers, government regulators have demonstrated their lack of knowledge of what is really happening and the real cause of the financial and economic crisis and investor losses. They have demonstrated their inability to manage the problem or to identify real solutions. Blind investment professionals are leading blind investors.

Investors must look deep to understand the cause of loss to avoid future loss

Everyone looks for quick fixes and easy solutions every time there is a crisis, so the real fundamental problems continue unsolved. The fundamental problems require deep analysis and understanding of the actual business. Investors must understand the real reason for their losses. There is only on fundamental reason: the failure of financial institutions and other corporations to manage the business to plan the capital investments they must make to create value, manage the proper utilization of their investments to create value, and manage the results produced from their investments that provide value to investors.  Financial institutions and other corporations are not able to do this systematically. They cannot manage capital worth (often called asset value) in the future result cost absorption and result value-added from the utilization of investments and the result value-added to be available from the sale or disposal of the capital solution asset. They are unable to provide information on the transparent actual business for proper government supervision and informed investor decisions. Accounting accounts for cash in a contrived chart of accounts that is not related to the actual business. Arbitrary accounting principles, such as “mark to market” are employed instead of accounting for the business. Financial and risk models used are arbitrary and are not related to the business. Financial statements produced are inaccurate and limited and do not report the business to reveal problems.

Corporations lay structures over their business and manage the enterprise

All financial institutions and other corporations today employ dead-end 20^th century management. [more...].

The G20 failed to identify or address the problems that caused the economic crisis

Many government and non-government experts have identified the need for new business practices and management structures to solve the problems within financial institutions and corporations, in order to prevent repeat the losses and failures that led to the economic crisis. The fundamental problems with risk management, capital worth (asset value) measurement, financial management, output result and value management, recording of financial and non-financial business data, consistent and accurate business management information, consolidation of businesses of corporations and institutions, and the many others must be solved in order to prevent future crisis. These 20^th century enterprise management problems are identified and described in detail here at the Business Change Forum.

Descriptive white papers on 21^st century business management; the only solution to the economic crisis, and on a government business management program to address the crisis were sent to all government agencies and multilateral institutions related to finance, commerce, banking, economy, and business worldwide. The information conflicts with the conventional thinking that limits the possibilities of these agencies, so it is deleted or ignored.

The G20 successfully repeated the mistakes of the past

The G20 meeting is being hailed as a success. The contributions to the IMF and the World Bank should help recovery in some needy countries. But, the biggest success of the G20 was to repeat prior successes in similar government action following earlier financial, economic, and corporate governance problems. One objective of the summit was to restore confidence in the methods, systems, structures, and regulations that caused the economic crisis. Like the response to all previous crises the G20 tweaked a few existing methods and called for expanded regulation of corporations, financial institutions, and tax havens.< [more...].