Archive for June, 2009

Rule No. 5 of the ten rules of 21^st century business management is Operate to optimize operations, result value-added, and the profit result. This rule requires that the capital solutions utilized to produce each result are optimized to be cost-effective and produce a high value-quality result, so that all business operations are optimized.

21^st century business management organizes the performance producing each result

Business operations cannot be optimized unless the business is organized in order to manage the specific performance that produces a specific result. The 21^st century business is organized using Result-performance Management (R-pM) knowledge and procedures, so the business can be optimized, by ensuring that capital solutions are deployed or implemented to produce the proper results and are integrated to employ the most cost-effective performance to produce the highest value-quality result.

21^st century business management organizes capital investments as specific solutions

21^st century business management organizes the capital the enterprise invests in as specific capital solutions that are implemented to be utilized to produce one or more specific results. This allows the enterprise to capture the cost of developing or improving the capital and to assess the:

• Cost of consumption of the capital in operations
• Performance costs generated as solution worth declines over the solution life
• Effectiveness of the capital to produce a high-quality result
• Capacity of the capital to produce a volume of results
• Uncertainty of the performance of the capital and the risk of a poor result
• Return provided on the investment in the capital from the share of result value added to date
• Level of performance of the capital against expectations
• Worth of the capital assessed from result values to be produced over the remaining life

Capital solutions are categorized as business, human, facility, or management capital so that a performance manager with specific capabilities can be responsible for providing qualified solutions. Within each category, solutions are classified as one of three classes; as readiness solutions to prepare an organization responsible for a set of results, as production solutions to be used or consumed in producing each actual result, and as information solutions to support or document results. Capital solutions are integrated by capital class for utilization to produce a result.

21^st century business management organizes the outputs from business performance as specific results

21^st century business management organizes the inputs incorporated and outputs produced by the enterprise as results. [more...]

All capital development should develop capital, plus business results for return on investment

Every business enterprise must produce output results that lead to goods and service results to create value. An expanding enterprise must produce new results of increasing value. The enterprise needs additional capital in order to produce new results as part of the business. The capital must be acquired or developed, implemented as specific capital solutions, and then utilized to produce improved or new results of increased value. The value added to new business results must justify the capital expenditure to acquire or develop needed solutions and provide the return on investment.

All capital development is really result and capital development to develop capital as solutions to be utilized to create additional value in output results produced by the business. The additional value of output results provides the return on the capital development investment. If the capital solutions utilized and the results produced by business performance are not managed, result and capital development cannot be managed properly and the return on investment cannot be measured. Even physical capital development, like a new building, produces capital solutions to produce results, be it the enterprise office facility solution or a facility solution to produce lease or rental income results.

20^th century enterprise management does not organize or manage results or capital as sets

20^th century management used today does not manage the enterprise business, defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. [more...].

20^th century management does not maintain accurate financial and non-financial records on the business

Records are tangible information capital to record and document the actual business. Records are the predominate information capital in 20^th century management. But, 20^th century management does not manage enterprise records as capital. Most records are maintained by an individual or organization unit. There is no defined responsibility for maintaining records on the business. 20^th century accounting maintains partial financial records against a contrived chart of accounts. Some corporations have a secretarial function to maintain corporate and shareholder records. Each enterprise has to develop its own procedures to see that important records are kept. Many important business records like proposals, designs, quotations, and documentation are maintained ad-hoc by a department or individual or simply get lost in the passage of time.

Financial accounting is often confused with business record-keeping

An earlier article in The Business Change Forum says that “Accounting is one of the top ten problems of 20^th century management”. [more...].

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

Every day new enterprises are started-up around the world. New enterprises have the one-time opportunity to organize and manage the enterprise business from scratch. These new enterprises unthinkingly adopt obsolete 20^th century management and doom themselves to the burden the unsolvable 20^th century management problems discussed here at the Business Change Forum. They waste the precious “green field” advantage of no legacy structures and the opportunity to do it right from the start.

Conventional wisdom says copy an existing business model or organization theory and do not “reinvent the wheel”. This “wisdom” replicates other enterprises’ problems.

Many new start-up enterprises retain management consultants to conduct an organization study. Management consultants still recommend that new enterprises lay obsolete 20^th century management structures over the business, rather than organizing and managing the business for significant competitive advantage.

Do not lay an organization structure over your business!

Once a new enterprise lays a rigid organization structure over the business, the business can never be managed. The enterprise must lay additional management structures over the business. The many inflexible structures conflict with the business causing unsolvable 20^th century management problems with business change, unknown business data like costs and value creation, unknown investment data like capital worth and investment returns, excessive IT and other capital overheads, mismanaged capital development, business and information complexity, unknown business management information, unsupported corporate governance, and so on.

New enterprises must not waste that precious “green field” advantage

New start-up companies have the opportunity to do it right from the start by organizing the business for 21^st century business management. [more...].

Administration is one of the top ten 20^th century management problems

As explained in other articles in the Business Change Forum, administration is one of the top ten problems of 20^th 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.< [more...].

Management consultants and their clients are unable to work together to improve actual business management

Many capital development, business change, and management improvement projects involve management consultants. Since the business is not defined, organized, or managed, management consultants cannot work with client enterprises to improve the actual business. Each management consulting firm has their own approaches and methodologies that are not related to the business and are not familiar to the enterprise client. Misunderstandings often arise over the scope of the project and the responsibilities of the consultant and the enterprise.

Management Consulting today faces many unsolvable problems that prevent scoped and measured business change

20^th century management improvement consulting projects have many fundamental and unsolvable problems, such as:

• The enterprise business is not organized, so there is no framework to scope and plan change projects and services
• The business results to improve are not known or managed for added-value
• The capital solutions to acquire, develop, and utilize are not known and managed
• Performance in the utilization of capital solutions to produce results is not defined or managed
• The specific changes needed for success can not be identified and managed
• Consultant services do not change the business, but change structures laid over the business
• The enterprise must learn new organization, plan, process, system, or performance structures with added terminology and definitions
• Changed structures are implemented to adds costs, but not to create value
• The value-added by consulting services is not measured to know success
• The enterprise lacks the capability to manage the investment in development and change
  
• The enterprise does not lead and participate properly to best take over changes
  
• Human and other capital is not managed for utilization allowing change problems
  

These are some common problems with organization and management structures and management consulting approaches utilized today for capital development, business change, and management improvements. Today, the enterprise client and consultant must work in good faith in an unmanaged business environment to produce ad-hoc changes that may or may not improve business results. Business organization and management consulting services tend to be led by the consultant and the client enterprise awaits a deliverable and then decides whether the deliverable is acceptable.

Enterprise clients and management consultants need to work together in partnership to improve the actual business

The enterprise and consultant need a way to define the development and improvements that will provide clear and measurable benefits to the enterprise. The only way is to base business management improvements and management consulting services on the actual business. A new management consulting model is needed that:

• Provides services to help the enterprise organize, manage, improve and develop the business for measured value-added benefit
• Provides a method for enterprises to lead and participate properly in business change
  
• Provides a clear framework to understand scope and means of participation for both parties
• Provides a way to plan and measure the value added by business change to know the return on specific capital investments
• Provides a method to plan, acquire, develop, improve, and utilize specific capital solutions required
• Provides the organization and approach that eliminates the fundamental problems in current business change
  
• Provides a 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.< [more...].

The economic crisis shows that banks and corporations cannot manage investment returns or capital worth

Many investors invested in financial institutions and other corporations only to discover that the corporation is unable to manage investments, the return on their investments, and the ongoing worth (asset value) of investments made. How much money must investors lose, before they wake up to the fact that no corporation today is able to plan and manage investments to ensure a positive return, is able to plan the capital worth of each investment, or is able to manage the changing on-going worth of capital investments as part of routine business management. As we saw, reductions in capital worth come to light only when there is an attempt to sell or dispose of the asset. Then, suddenly there are large capital write-downs and losses for investors.

The 20^th century corporation is not organized to manage investments

You likely invest in corporations. As an investor, you try to identify precisely how you are to gain a return on your investment and have some idea of what that return should be. Do you realize that the corporations that you invest in have no way to do the same when they use the money you have invested?

20^th century management does not provides a business structure or other framework to manage investments, specific capital solutions acquired or developed, solution investment costs, the worth of capital solutions, solution amortization in performance costs as solution worth declines, the value-added to the business over the solution life, or the worth of the solution to be sold or disposed of after its life with the corporation.

Corporations are not organized to manage investments, so corporations do not have a fundamentally strong means to plan and manage the return on their investments, from initiation through to measuring the return. So corporations rarely really invest, they either spend or speculate. [more...].

Rule no. 2 of 21^st century business management: Generate profits from a chain of managed value and quality

21^st century business management manages economic outputs from the business as results, manages investments in the business as specific capital solutions, and separately manages performance in the utilization of specific capital solutions to produce specific results. Separating results and capital from performance enables the enterprise business “the activity of providing goods and services” to be managed directly.

Goods and services are final results that go to the customer and have value in the customer willingness to pay and must be of the quality to satisfy the customer. The final goods and services results are produced by a chain of results of value starting from input results from the supplier. Business activity is the utilization of human and other capital in performance to produce a given result. So the business in “the activity of providing goods and services” must be managed by managing the performance producing each result of managed value and quality in a chain of results from supplier input results, through internal result transformation, to the final customer results. The result value-added in excess of performance costs across the chain contributes to the profit result.

20^th century management manages performance across processes and information systems

20^th century enterprise management, used by all enterprises today, does not recognize or manage output results from the business as a business entity. Results or accomplishments are managed as a component of “performance” along with the business activity in utilizing capital in performance to produce the result. [more...].