Archive for the 'Administration and Capital Management' forum

20^th century enterprise management does not enable governance of the corporate business

20^th century enterprise management used by corporations today prevents actual governance of the corporation business. Organization and management structures are laid over the business preventing actual business management. Corporation management receives mountains of reports against structures laid over the business. The reports are inconsistent since each structure defines the corporation differently. The reports are incomplete since actual business data is not captured and reported. There is no consistent framework for business management and governance. The corporation strategy map or corporate plan is different from business processes, projects, and functions, used to direct the corporation, which are different from the chart of accounts, activities for costing, or quality structures used for corporation control. These structures may have their own reporting that is different from corporation management reporting through various performance management control panels, scorecards, etc. The structures laid over the business prevent good corporate governance of the actual corporate business.

Corporate governance is through compliance with rules and regulations

Since the corporation is unable to manage and govern the actual business, corporate governance is not positive in ensuring that the business is properly governed. [more...]s

Why do we have such a problem relating knowledge to our business needs?

Enterprises have a well-known problem in relating knowledge to business needs.This is because enterprises do not organize and manage the business. Dead-end 20^th century management used today lays organization, business process, administration, and a variety of other structures over the business to manage the enterprise. Knowledge is not related to the business; knowledge is related to contrived structures laid over the business, such as an index of subjects and topics.

The business is “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Knowledge is capital consisting of specific solutions of worth utilized to improve the utilization of other solutions for cost and effectiveness of performance to produce value and quality in results. Knowledge is human capital that increases human personnel capital worth by improving their performance in utilizing various capital solutions effectively and producing higher value-quality results. Knowledge is used to develop specific human capability solutions that are utilized to produce specific difficult results to be of high value-quality,

Enterprises need a systematic way to identify specific business results that must be supported by knowledge, identify specific capital solutions that must be utilized properly to produce the result, define the precise knowledge needed, to relate knowledge to the capability of the user applying the knowledge, to link knowledge to where and by whom it is needed, to understand the value created by knowledge that gives worth to the knowledge, and to get feedback and improvement on the knowledge. This can only be done by managing the actual business.

There are many problems inherent in knowledge management today

Many enterprises make large investments in knowledge, but 20^th century methods that we use to manage knowledge limit the value created and the return of the investment:

• Knowledge is labeled as intellectual capital or intangible assets to relieve us of the responsibility to manage knowledge as an asset of worth
• Knowledge is organized by topics or subject matter, which depend on someone referencing the topic to their job or function to put knowledge to use
• Knowledge is human capital to improve human capability, but it is rarely managed as human capital
• Knowledge is delivered through learning, but learning material is often separate from knowledge
• Knowledge is information capital to contribute to the overall business information base, but is usually separated from other information
• Knowledge is not integrated with the business to be utilized as a capital solution to produce value for the enterprise
• Knowledge gains worth by creating value in business results, but results are not managed and only a few results are supported directly by knowledge

Conventional methods hamper the application of knowledge by using structures that are defined through various contrived entities like department, activity, and object, while organizing knowledge by topic, subject, etc. These fundamental problems prevent knowledge from being leveraged to be high-worth capital utilized in a managed business.

Knowledge is human capital that enables other human capital to utilize specific capital solutions to produce specific results

Knowledge is human capital that must be created and managed specifically to increase human capital worth through the value of results produced. Knowledge is also information capital that must be integrated with business data and delivered where needed to produce specific results and to support human capabilities utilized. [more...].

20^th century management lays reporting structures over the business

Since the business is not organized or managed today, the actual business cannot be reported. Management reporting is against the myriad of organization, management, administrative, and other structures laid over the business. Each structure employs its own terminology and information systems to produce reports on the structure. This produces a myriad of unrelated management reports for plans, business processing, resource planning and utilization, manufacturing, supply chains, customer relationships, accounting, quality control, financial management, human resource management, information technology management and on and on. The reporting possibilities create information complexity with no specific framework to relate all the reporting. Despite all the reports and complexity, there is no direct reporting on the actual business.

We try to bring together information from the diverse structures by adding special 20^th century reporting structures, such as:

• Performance management: Control panels, dashboards, scorecards and various other structures to capture and report information
• Strategic enterprise management: Structures to consolidate defined information from specific information systems
• Data reconciliation: Structures to gather and redefine inconsistent data from diverse systems
• Decision support and drill down: Structures to allow management to search and find information in diverse systems
• Categorization: Structures laid over information to reconcile and restructure information and to manage records, documents, reports, content, and other information sub-sets

These various reporting structures and supporting information systems constitute a large overhead and contribute to rather than solving information and business complexity problems. Management information produced is inconsistent, inaccurate, and incomplete in terms of what is actually happening in the business.

Business management reporting must be against the current and planned business

In order to report the business the actual business must be organized, planned, directed, and controlled as explained in previous articles. Actual business reporting is provided by reporting the three components of the business:

• Results: The economic outputs of value and quality produced across the business
• Capital: The investments in capital as specific solutions that must be acquired and developed to provide the capability to produce future results and that must be utilized in business performance to produce actual results
• Performance: The deployment and utilization of a specific capital solution to incur costs and provide effectiveness in producing a specific result in a performance domain

The business can be reported only by organizing the actual business as current results produced, invested capital available to the business, and performance in the utilization of a capital solution to produce a result. [more...].

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 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...].

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...]

Financial Management is one of the top 10 problems of 20^th century management

Financial Management manages money separate from other tangible assets

The early 20^th century enterprise was concerned about managing and protecting cash. Financial management fundamentals were established to manage actual and accrued cash from the point received until the point that it is invested or spent. Financial management problems such as unknown capital worth, unknown costs, unknown value creation, and unknown return on capital investments have never been solved by traditional financial management. Financial management tends to be equated with capital management. This allows non-financial capital to be administered, rather than managed, or to be labeled as “intangible assets” and not accounted for or managed. Today, financial capital is managed largely by computers. Non-financial capital and intangible assets are an increasing percentage of enterprise worth and must be managed properly.

Financial capital must be managed with other tangible facility capital to create value in results

Financial capital must be managed as part of the business and not administered separate form the business. 21st business management utilizes financial management capabilities to manage all tangible facility assets. Financial assets and facilities are a sub-set of reusable facility equipment capital, cash is a sub-set of consumable facility supply capital, and accounts are sub-set of facility records capital.

All facility capital requires similar application of expertise to operate and maintain, to supply, and to record. In a managed business, all facility capital is supported for operation and development and for utilization to produce value in results.

The business also integrates financial parts of other results that have been separated out. Management strategy capital includes financial strategies as an integral part of management strategy solutions. Investment management results manage shareholder funds for investment, capital development, and shareholder value results.

The Financial Management Problem

20^th century financial management gives us intangible assets, unknown costs, unknown value, and unknown worth

Now, as we go into the 21^st century, there is a growing need to go beyond financial management fundamentals and change the way enterprise capital is managed: [more...]

Business performance utilizes capital available to the business to produce business results

Business management defines the business 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, in order to have the capital needed to produce output results. Every business in the world must produce specific economic output results in order to be successful. Business performance is the actual utilization of capital to produce results.

20^th century business performance includes both actions executed and results accomplished

The 20^th century definition of performance used in business today includes both the actions executed and results accomplished. This definition causes many 20^th century management problems and prevents actual business definition and management. Business performance management, capital development, business processes, management reporting, key performance indicators, etc mix both performance and results produced together as performance. This causes problems today in actually distinguishing and separating results produced from the performance executed. Sales performance includes the both utilization of human salesmanship capability in actions executed and the volume and value of sales accomplished.

21^st century business management separates results from performance to manage the performance producing a result

Actual business performance does not include things accomplished or business results. [more...].