Archive for May, 2009

Rule No. 1 for 21^st century business management: Organize and Manage the Business

The article of May 19, 2009 lists the ten rules of 21^st century business management. Rule No. 1 is Organize and manage the business. This rule is fundamental to eliminating 20^th century organization and management problems.

The 20^th century enterprise has never organized or managed the business creating unsolvable problems that can only be eliminated by organizing the business for 21^st Century Management.

The enterprise business is the activity of providing goods and services

Perhaps when you read the title to this article you thought “my company already organizes and manages the business”. Most people think that the 20^th century organization and management structures used today actually organize and manage the business. But, the common 20^th century definition of the enterprise business is the activity of providing goods and services. Therefore, the activity of providing goods and services must be organized in order to organize the business. [more...]>

20^th century enterprise management cannot capture and report essential business management information

20^th century enterprise management lays separate structures over the business for management organization, planning, direction, control, and reporting, such as:

• Organization charts, reporting relationships, and job descriptions for organization
• Strategy, corporate plan, investment, and budget structures for planning
• Work flow, function, project, process, and system structures for direction
• Financial and statistical accounting, activity and project costing, and quality structures for control
• Financial statements, performance management, and strategic enterprise management structures for reporting

Each structure defines inconsistent and conflicting entities like business unit, department, center, function, activity, project, responsibility, etc. The overlaid structures can produce enormous amounts of information producing business and information complexity. But 20^th century management cannot capture essential business data and report actual financial and non-financial business management information.

20^th century enterprise management does not define the entities that contain cost, value, worth, and return

In order to capture data and report information about an entity, the entity must be defined and recorded. 20^th century management attempts to report cost, value, worth, and return without defining the entities that contain cost, value, worth, and return.

Costs are attributed to some known tangible assets and collected against contrived entities like activity, project, and accounts that were not produced by the costs. Numbers for value are produced by certain contrived methods and formulas to lay value chains over the business, without defining and managing the entity that contains value. Worth is defined by arbitrary depreciation formulas for fixed assets, but ignored for human and other capital. Much high-worth capital is labeled as “intangible assets” and not accounted for or managed. Capital worth is usually mislabeled as “asset value” today. [more...].

20^th century management lays a contrived Chart of Accounts over the business

20^th century management used by all enterprises today cannot account for the actual business, since the business is not organized or managed. Instead, an arbitrary Chart of Accounts is contrived and laid over the business. The Chart of Accounts is, by definition, an inaccurate substitute for the business and often contains distortions introduced by management or accounting to meet their own agenda. The chart of accounts is designed to record accrued and actual cash receipts and disbursements and the arbitrary worth of known assets less the worth of known liabilities.

20^th century accounting does not keep accurate and complete records on the actual business as needed for good management and governance:

• Facility records, including accounts, are not managed as capital of worth to be maintained to provide capital solutions needed to produce business results
• Accounting records only a part of the business cycle from the point that cash is received until cash is spent, but does record from the point that cash is spent until cash is received
• Accounting may include statistical accounting within the chart of accounts, but tends to resist keeping full financial records or non-financial records, so that other business records must be kept by other organizations or individuals or fall through the cracks
• Much capital that incurs expenditures or costs against the actual business is not defined as an asset or is labeled as “intangible assets” producing inaccurate net worth and unknown costs
• Important business data on the value of economic output results from the business, the costs incurred to produce the results, the result value-added, and the worth of capital utilized to produce the value-added is not captured or reported
• Accounting is separate from the business rather than being part or every business decision made, both in making the decision and in recording the decision made
• 20^th century accountants are given a narrow education and taught to follow proscribed principles, rather than being prepared to understand and record the actual business and provide information solutions needed for actual business management
• Accountants have a conflict between many masters, the dictates of accounting, the dictates of external auditors, or the dictates of management that pays their salary
• Contrived 20^th century accounting principles are valid only because they are “generally-accepted” rather than fundamentally-valid principles that accurately record the actual business
• Accounting does not view it role as maintaining accurate records of the actual business as information capital and providing accurate and timely information from records as solutions for good corporate management and governance

The limitations of accounting and the information provided by accounting for management and governance is one of the serious unsolvable problems of 20^th century management.

21^st Century Management records and manages the actual business

Rule No. 4 of the 10 rules of 21^st Century Management: Keep accurate financial and non-financial records on the full business cycle in operations and development. The business is defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. In order to plan, budget, account for, manage, report, or govern the business, all investments in specific capital solutions, all economic economic output results produced, and each capital solution utilized in performance to produce a specific result must be managed. [more...].

The enterprises, where we work, do not manage the business

Enterprises today do not manage the business, which is defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Instead of organizing the actual business, an organization structure organizes people, positions, functions, and reporting relationships and is laid over the business. The organization structure is the fatal error of 20^th century management. Once an organization structure is laid over a business, the business cannot be managed. The enterprise is managed using process, function, account, performance management, activity, and other structures laid over the business.

We utilize our capital in our performance to produce results naturally, utilizing common sense

We all know how to manage a business. We naturally manage our personal business using common sense. We do not lay organization charts, business processes, or functional procedures over our personal business. We manage our personal business as a chain of results to be completed: such as up and dressed, breakfast prepared, breakfast consumed, and arrived at work. In order to complete each result, we utilize our personal capital in our time, capabilities, knowledge, possessions, supplies, tactics, and process followed. [more...].

We must organize the enterprise to manage results and objectives as guided by Peter Drucker

Peter Drucker influenced management thinking with his fine works “Management by Objectives” and “Managing for Results”. Drucker showed that strategic objectives are defined by the future strategic results that the enterprise must produce. Near-term objectives are achieved by producing final results from business performance.

Peter Drucker showed that results contain economic value

Peter Drucker showed that results contain the economic value created by the utilization of enterprise capital in enterprise performance. Drucker said to focus on the result not the activity, a sound concept that largely is ignored today. Goods and services and other results must be organized first and the capital utilized and the activity or performance must be organized to produce the results.

Managers lacked a method to organize the business and put Drucker’s principles into practice

Drucker’s principles require that the business be organized in terms of results produced, capital utilized, and the performance producing the result. But, there was no method available to organize results, capital, and performance. So, Drucker’s results could only be valued as they left the enterprise. The only way to put Drucker’s principles into practice within the enterprise is to organize and manage the business. [more...].

The economic crisis arises from “failure to manage the business”

Many articles in the Business Change Forum cite “failure to manage the business” as the cause or the current and previous financial and economic crises and corporate governance scandals. What precisely is the business and why is the business not managed today?

What is the definition of your business?

Have you organized your business? Do you manage your business day by day? What is the definition of the business that you have organized and that you manage? Most managers think that they are organizing and managing their business. But when asked they cannot define the business that they have organized and are managing. They usually define the enterprise, rather than the business, since they have actually organized and are managing the enterprise, and not the business.

It is important to have a clear definition of the enterprise business

It is important to have a precise definition of the enterprise business that is organized and managed. [more...]s.