Archive for November, 2009

The on-going economic crisis demonstrates the need to manage capital as part of the business

We hear a lot about capital these days be it capital asset values, capital scarcity, new capital products and instruments, and so on. You can see that no one is too sure what all this talk of capital means and how capital relates to actual corporate businesses. The confusion arises because the future worth of capital assets or solutions and the historic return on investments in capital solutions has never been managed properly in 20^th century management used today.

The problems that caused the economic crisis are actually symptoms of one problem; the failure to manage the business. Financial institutions crashed because they could not manage asset value in the capital worth as an ongoing part of the business. Corporations are unable to manage the individual businesses within corporation as a part of the managed corporate business. Enterprises are not able to capture actual business data and do not have the information to manage the business.

The only answer is to learn what capital really is, the worth of capital utilized in the business, and how capital must be managed as part of the business. Business management eliminates the problems by organizing capital solution investments as part of the business, by managing capital solutions utilized in performance to incur costs and create added-value in actual business results to provide return, and by managing solution sale or disposal after use by the business.

What is the business and capital as part of the business?

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”. Every business in the world invests in capital needed, in order to utilize capital in performance, in order to produce output results. The capital must have a worth that justifies the investment costs for acquisition or development and implementation as capital solutions and the continuing utilization over the useful life of the solution. Capital solutions are utilized to produce result value, be in business results produced or in income, growth, and disposal result value for solutions purchased as investments. Capital solutions have a disposal worth in the result value produced from sale or liquidation at the end of the useful life or in the sale of solutions purchased as investments.

Capital is the investments in the business to have the capability to produce results

The only reason to invest in capital is to provide the capability to produce results. [more...].

20^th century enterprise management lays structures over the business to control the enterprise

The operations and development of the enterprise today are controlled by structures laid over the business for:

• Financial and statistical accounting through a chart of accounts structure
• Financial control through actual compared to budgeted measures
• Cost accounting through activity, center, and product structures
• Capital development control through project structures and asset registers
• Quality control through TQM, six sigma, and other quality structures

The control provided by each of these structures is limited to certain entities and known measures. Financial control covers capital for tangible assets and finances for cash receipts and expenditures against plans or budgets. Cost control is limited to known costs against arbitrary entities like activity or center. Non-financial control is sporadic depending on individual management. Quality control focuses on performance producing selected end-product results.

Accounts record accrued and actual receipts and expenditures from point money comes in to the point money is spent. There is no control of the business cycle from the point money is spent until value is created to enable money to come in. Accounting control is enforcement of rules and principles rather than providing accurate information for business control.

Capital development lumps costs together as a project or tangible asset. The specific capital solutions developed are not controlled and may be lumped together as one large asset or classified as intangible assets. No method or information is provided to plan and control return on specific capital solution investments. Projects are not organized to capture investment costs for implemented solutions and plan value-added to the business from solution utilization. Capital worth numbers are sporadic for some asset and liability solutions, but real capital worth in the capability to produce future business value is unknown.

Each structure is separate from other structures and uses its own terminology and definitions to describe the enterprise. Each structure introduces high costs and much effort to collect and report information. But, none of these overlaid structures can control the actual business.

The actual business must be controlled for each component of the current and planned business

In order to control the business the actual business must be organized, planned, and directed as explained in previous articles. [more...].

Some enterprises take pride in their business complexity

When you talk to a company manager about employing a standard solution the response is often “Our business is too complex for a standard solution”. This is said with a measure of pride in being associated with a complex business. Is a complex business something to strive for or to be proud of? What is the alternative to a standard solution? Do non-standard solutions simplify the business? What is better, simplify the business to use standard solutions, or continue to develop non-standard solutions that compound existing complexity?

Business complexity is eliminated by organizing only the business essentials

Enterprises today introduce business complexity as soon a they implement an organization structure that is laid over the business. Since the business is not organized, they must lay more structures for strategy, accounts, business processes, performance management, etc over the business in order to manage the enterprise. Each additional structure introduces more entities with conflicting definitions to be managed and increases business and information complexity.

Business complexity is a misnomer. The business is not complex; enterprise management through rigid structures laid over the changing business is complex. The answer is to clear away contrived overlaid structures and organize the business for simplified 21^st century business management. All business organization, planning, direction, control, reporting, and governance employs the current and strategic business structures and only the essential business data entities.

Business complexity is accepted as normal in today’s enterprise

Business complexity is built in to 20^th century enterprise management methods, so business complexity is accepted as normal. We have no straightforward method to identify and root out business complexity and then to prevent future business complexity. [more...].

20^th century enterprise management lays structures over the business to direct the enterprise

The day to day operations of the enterprise today are directed through a variety of structures laid over the business. These structures focus on enterprise performance, which mixes the actions of performance together with the results accomplished. The main structures used to direct the enterprise are:

• Processes, which define the flow of performance across the enterprise
• Functions, which define activities performed by the enterprise
• Information systems, which provide the flow of information processing
• Work assignments and tasks, to perform ad-hoc activities
• Projects, to perform one-time enterprise endeavors

These structures are used to direct performance of the enterprise and to produce results as separate entities, such as products, services, sales, and revenue.

None of the overlaid structures directs the actual business

The actual business consists of results produced, capital available in performance solutions, and performance to utilize solutions to produce each result. None of the overlaid structures direct the utilization of capital solutions to produce results. Most enterprise direction is up to the experience and capability of the manager to make decisions and take actions without a business framework.

Structures used to direct the enterprise do not relate to other management structures

The structures used to direct the enterprise do not relate directly to the structures used to organize, plan, control, and report the enterprise. A prior article showed that certain structures are used to plan the enterprise in strategic maps and corporate plans, financial plans and budgets, information technology plans and architectures, investment and capital development plans, and operational plans. The structures used to direct the enterprise are not connected to or do not necessarily refer to the structures that plan the enterprise. Enterprise direction and management is disconnected among a wide variety of structures that can be contrived and laid over any business, such as business process, administrative function, risk management, performance management, and information system structures.< [more...].

20^th century enterprise management problems are caused by rigid structures laid over the business

The generally accepted “business enterprise” definition is the activity of providing goods and services. The failure of 20^th century management to organize and manage the business enterprise in the activity of providing goods and services creates unsolvable management, business, and performance problems.

The fatal error of 20^th century management, employed by all companies, corporations, and other enterprises today, is laying a rigid enterprise organization structure over the business, rather than organizing the business. Since the business is not organized, the business cannot be managed. Therefore, rigid enterprise management structures for planning, processes, systems, financial and cost accounts, quality, administration, performance, reporting, etc must be contrived and laid over the business. Structures laid over the business conflict with the actual business, restrict business flexibility, move out of “alignment” as the business changes, prevent direct business data capture and management, and do not provide the direct management information needed to manage the business.

20^th century enterprise management improvements can never solve unsolvable problems

We continue to teach 20^th century enterprise management, contrive new 20^th century structures and “business solutions” to lay over the business, and write more 20^th century management books, but we have never solved the top ten problems of 20^th century enterprise management.

1. Reorganization: The business changes while the organization structure remains rigid, causing upheavals to lay a new rigid organization structure over the business and repeat the cycle
2. Accounting and Financial Management: Historic legacies focus on cash control and prevent professional records management and modern capital management of the actual business increasing financial risk and preventing accurate business management information
3. Investment Analysis and Development Project Management: Investments and projects are managed separate from the business, rather than itemizing, planning, and managing the costs, benefits, and return of capital development investments, as part of the business
4. Administration: Performing functions, while leaving tangible and intangible capital utilization and improvement unmanaged
5. Performance Management: “Performance” definitions mix actions executed with the result accomplished, so business processes, performance management, and KPIs mix results and performance and manage “performance quality”
6. Business Complexity: Each organization, plan, processes, system, administration, or other structure is defined separately with different definitions creating business and information complexity and preventing business collaboration and common solutions applicable to any business
7. Information Technology: Business systems, data, information solutions, networks, and architectures are designed to process overlaid structures and managed as technology, not capital, creating costly IT infrastructures and continuing capital management problems
8. Change Management: Change management addresses the conflicts between structures laid over the business and the actual business to change structures, while the business remains undefined and unmanaged
9. Corporate Governance: Problems are addressed from the governance side to restrict and control management, rather than organizing the business to be governed by management on the corporate side
10. Alignment: Rigid overlaid structures go out of alignment as the business changes requiring continual changes to the structures to align closer to the business

These and other unsolvable 20^th century enterprise management problems are discussed, in detail, here at the Business Change Forum.

Solutions to he top 10 management, business, and performance problems of 20^th century enterprise management are described in a referenced article.

The top 10 problems are eliminated by 21^st century business management

20^th century enterprise management problems are unsolvable, because they can never be solved by laying new or improved structures over the business. [more...].

20^th century enterprise management used today lays various plans over the business

20^th century enterprise management cannot plan the business directly because the business is not organized. The enterprise is planned through various structures laid over the business. These overlaid planning structures include:

• Strategic plans using such structures as maps and corporate plans
• Financial plan and budget structures
• Information technology plans and enterprise architectures
• Capital development plans and investment analysis structures
• Human resource hiring and development plans
• Other operational plan structures

Each of these planning structures uses its own set of entities to describe the enterprise, uses different information systems, and requires its own support staff. Each plan must be maintained and updated with actual progress against the planned entities, and reported. The plans plan the enterprise in various ways depending on the particular structures implemented.

None of the overlaid plans plan the actual business

Since the business is not organized, the business cannot be planned. The results produced by the business cannot be planned as an interrelated set. Some results may be planned in isolation as separate entities such as product sold and revenue received. The plans are usually created from estimates rather than a period by period build up from the existing business. Since the business is not planned actual business data is not planned for actual measurement; such as performance costs, performance effectiveness, result value, result quality, capital worth, investment returns, etc.< [more...].

Reorganization is one of the top 10 problems of 20^th century enterprise management

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

Why do we have to reorganize every few years? Why not organize just once and reorganize gradually as the business changes?

There are many 20^th century business organization theories and methods. Hundreds of books have been written on how to organize the enterprise, organization development, and organization change. There are many so-called business organization methods and structures, but these structures organize the enterprise and are laid over the business. The structures do not organize the actual business, causing the unsolvable reorganization problem. If the business is not organized the business cannot be managed. Additional management structures must be laid over the business to manage the enterprise. This is why the enterprise organization structure is the fatal error of 20^th century enterprise management.

Organizes the business for one business organization structure used for all business management

The business enterprise is defined commonly as “the activity of providing goods and services“. [more...]

20^th century enterprise management used today does not organize the business

20^th century enterprise 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. If the business is not organized, the business cannot be managed.

The contrived organization structure follows one of many 20^th century organization theories to organize the enterprise. The business, which we have defined as “investments in capital as solutions of worth utilized for cost and effectiveness of performance to produce value and quality in results” is not organized. The rigid organization structure goes out of “alignment” with every new or closed result or change to a capital solution utilized. Eventually there is need for reorganization to contrive a new organization structure that is closer aligned to the actual business, and the cycle is repeated.

The need for reorganization shows that the business is not organized

Some may argue that their business is organized. Ask if they ever reorganize the business, and they will answer yes, of course. Reorganization is needed because the business is not organized. [more...].

Accounting is part of one of the top 10 problems of 20^th century enterprise management

A chart of accounts is laid over the business, rather than recording the actual business

20^th century management historically has separated cash from other capital to be managed in financial management and to be accrued and recorded through accounting. The need for the separation has decreased due to technology and advanced solutions. Technology has also led to high-worth information and intellectual capital that needs to be accounted for and managed. But the separate focus on cash tends to prevent other capital of worth from being managed professionally. Capital and cash transactions that are recorded are recorded against a contrived chart of accounts, rather than accurately recording the complete financial status of the actual business.

Establish facility records capital to professionally record the actual business

The business organizes all capital, including currently undefined capital and “intangible assets”. The business manages accounts and other records of the business as facility records capital and provides capital solutions from records as information capital. Facility records are the tangible information capital of the enterprise. Facility records go beyond the limitations of accounting to record:

• Financial records for the full business cycle, including fundamental business data on performance costs, result value, and capital worth
• Non-financial records for statistical, documentation, images, and other records

Business management broadens 20^th century accounting to professional records management to keep records on the actual business and to make records solutions available to produce high-value results.

The Accounting Problem

Accounting does not record the actual business

Due to 20^th century management problem number one, the business is not organized. [more...]