Archive for the 'Logic of Business Management' forum

Most managers think that they manage their business

Do you manage your business? What is the definition of the business that you manage? Ask a manager if he manages his business, the normal response is yes. Ask for the definition of the business they manage, and they do not have a precise definition. Most will describe the enterprise rather than the actual business.

No company, corporation, institution, or other enterprise manager manages the actual business today. The managers employ 20^th century management to administer the enterprise. It is impossible to manage the business today, because the business has never been defined properly or organized.

The business to manage has never been defined and actual business management has never been taught

What is the enterprise business? There are many conflicting and imprecise definitions for the word “business”. Proper definition of the business is hampered by the definition of performance to include both the utilization of capital in actions executed and the results accomplished. Business schools and management books teach 20^th century management to administer structures laid over the business, and do not define the actual business or teach us how to manage the actual business.

Outside of R-pM, there is no source of information on the real-life fundamentals of actual business organization and management. Since there has never been a precise definition of the business or teachings or books on actual business management, managers do not know what to organize in order to manage the business.

R-pM provides a precise definition of the business

So today, results, capital solutions, and performance in the utilization of capital to produce results continue to be confused by the definition of performance. We must separate results and capital utilized from performance using Result-performance Management (R-pM) in order to define and manage the business. [more...].

When business started, the actual business was managed

The common definition of a business enterprise is “the activity of providing goods and services”. In other words, the business is “the utilization of capital in performance to produce value in results”. We all manage our actual personal business to utilize our capital in performance to produce value in results naturally, using common sense.

Several hundred years ago, all business was in individual or small enterprises that managed actual business activity in the utilization of capital available in humans with capabilities and knowledge of the business, business practices followed, management methods and intelligence on customers, and facilities in business locations, equipment, tools, money, and supplies available. They used this capital to produce output results in goods they had to buy, goods produced or improved and relocated, final results in goods and services they had to sell, and money received from sales.

They managed their business naturally by managing utilization of capital in performance to produce value in results. Common sense told them that costs were in the consumption of capital in business activity or performance, and that value created was in results leading to the final goods and services results sold. They realized that customer willingness to pay placed value on the total of raw material results and results in their chain. They realized that profit results came from result value-added that exceeded performance costs. They realized that they had to invest in capital as specific performance solutions to be able to produce results, and that result value had to increase to repay the investment. They realized that performance in capabilities and tools had to be effective to produce a high-quality result. They realized that capacity in time, capabilities, and facilities limited the volume of results produced. They realized that performance uncertainty in producing results as needed posed risk that final results would not be produced as planned. To reduce risk, they managed the performance utilized to produce each result one by one in the chain of results needed to produce final results for their customers.

When businesses grew, enterprises were organized and managed rather than the business

In recent centuries, as businesses grew, the complete sets of capital employed and results produced became difficult to manage. There were no information systems to help manage the actual business. So, enterprises in companies, associations, and institutions were formed. New structures were contrived to manage the business enterprise, rather than the enterprise business. [more...].

What is the definition of “enterprise business”?

We all have our personal business in the things we accomplish in life, and may work for a business enterprise. But, what is the definition of the business, be it our personal business or the enterprise business? When we organize and manage a business, what is the precise business that we organize and manage?

In our personal business, we naturally utilize our capital in our performance to produce desired results

In our personal business we naturally utilize our time, capability, knowledge, cash, tools, outsourced services, a process, etc to produce a result, such as prepared dinner, arrived at destination, cleaned suit, repaired house, completed report, purchased product, enjoyed night out, etc. The value of the result we produce must exceed the cost of producing the result in order for us to be happy with the result.

The enterprise business is no different than our personal business

The enterprise business is the same. The enterprise utilizes capital in performance solutions, such as human time and capabilities, cash and supplies, equipment, a process or system, etc to produce economic output results, such as a product produced, a service delivered, payment received, a completed report, etc. This is reflected in the common definition of the enterprise business as “the activity of providing goods and services”. This definition shows that the business has two parts; “the activity of providing”, which is business performance, and “the goods and services provided”, which are business economic output results.

The enterprise business definition is “the utilization of capital in performance to produce value in results”

This enterprise business definition as “the activity of providing goods and services” can be reworded as “the utilization of capital in performance to produce value in results”. Therefore, in order to organize and manage the business, we must organize and manage “the utilization of capital in performance to produce value in results”. Read the details in the article “What is the definition of an Enterprise Business” in 21^st Century Management Magazine at r-pm.net. .

What is management capital? Management capital is not the capability of our managers. That is part of our human capital. Management capital is the capital provided by management so that the enterprise can develop and execute a successful strategy.

You hear of management strategies, management tactics, and management intelligence; but do think of it as management capital? You likely do not, because 20^th century management does not organize and manage management capital as the capital that is utilized to plan, and direct the enterprise business. 20^th century management has functions like corporate planning, internal audit, public relations, legal, marketing, etc. that may administer some management capital, but few, if any, really manage management capital. Many enterprises have problems due to inadequate management capital.

Logically all capital must be defined as performance solutions to be deployed and utilized to produce a specific result. [more...]

We are all familiar with the capital administered today in the buildings, land, infrastructure, communication systems, computer hardware and networks, fixed assets, financial assets, consumable supplies, cash, and accounting records. These traditional tangible assets provide the facilities utilized by the business. R-pM organizes this capital as facility capital.

Logically all capital must be defined as performance solutions to be deployed and utilized to produce a specific result. The post on August 6, 2007, The Logic of Capital Management, provides the background.

Capital utilized by the business is organized into four categories

Capital utilized by the business requires different professional capabilities to be professionally managed, which organizes four categories of capital:

• Business organization, process, and data capital to manage capital that directly produces a result and cannot, generally, produce another result. Business capital requires business knowledge and analytical capability
• Human personnel, capability, and knowledge capital to support and develop the worth of human capital. Human capital requires human handling, development, and coaching capabilities
• Facility equipment, supply, and record capital to manage reusable and consumable tangible assets and records. Facility capital requires expertise with the specific capital and administrative ability
• Management strategy, tactics, and intelligence capital to plan results and performance investments, to keep on course, and to know opportunities and ward off threats. Management capital requires management analysis and research capabilities

All capital must be professionally managed as capital utilized to produce results.< [more...]

Most of us think of human capital as human resources or the people that are employed in the business. This is one part of human capital. Human capital includes people as human personnel capital.

Human capital also includes the capital that improves innate human performance. This capital includes human capabilities as a separate set that can be developed and managed to produce results. This capital also included human knowledge as a separate set that can be created and delivered to assist humans utilize other performance solutions and produce higher-value results. Human capital is logically defined as “the personnel, capability, and knowledge capital that is mobilized through performance solutions to execute enterprise operations and produce results”.

Logically all capital must be defined as performance solutions to be deployed and utilized to produce a specific result. The post on August 6, 2007, The Logic of Capital Management, provides the background.

Capital utilized by the business is organized into four categories

Capital utilized by the business requires different professional capabilities to be professionally managed, which organizes four categories of capital:

• Business organization, process, and data capital to manage capital that directly produces a result and cannot, generally, produce another result. [more...]

You may be asking; what is business capital? You hear of business organization, business processes, and business data; but do think of it as business capital? You likely do not, because 20^th century management does not organize and manage business capital as the capital that is directly utilized to produce an economic output result. 20^th century management administers known tangible capital, rather than managing capital. Capital is lumped together as an asset, much never been documented and managed as capital, and much is labeled as “intangible assets”.

Logically all capital must be defined as performance solutions to be deployed and utilized to produce a specific result. The post on August 6, 2007, The Logic of Capital Management, provides the background.

Capital utilized by the business is organized into four categories

Capital utilized by the business requires different professional capabilities to be professionally managed, which organizes four categories of capital:

• Business organization, process, and data capital to manage capital that directly produces a result and cannot, generally, produce another result. Business capital requires business knowledge and analytical capability
• Human personnel, capability, and knowledge capital to support and develop the worth of human capital. Human capital requires human handling, development, and coaching capabilities
• Facility equipment, supply, and record capital to manage reusable and consumable tangible assets and records. [more...]

Previous articles The Logic of Business Organization and The Logic of Business Management discussed logically organizing the business and managing the business. This article discusses the logical need for one integrated structure for business organization and management. Business management is discussed for the classical management duties for planning, direction, reporting, and control. There is also the need to organize and manage capital development as an integral part of the business.

20^th century management lays organization and management structures over the business

20^th century management separates organization and the management duties to use different structures laid over the business. 20^th century management does not organize or manage the business. The enterprise is organized by an organization structure. Strategic planning lays a corporate plan over the business. Other plans and budgets from various parts of the enterprise are laid over the business. Management direction can use a variety of structures such as business processes or administrative structures. [more...]

20^th century capital development is not integrated with the business

20^th century management provides no business framework for capital development, particularly for new solutions that must be integrated with the business. Most capital is not recorded as capital. Much capital is considered as “intangible assets” and is ignored. There is no direct management of capital developed to provide the return on capital development investments. Capital is developed as a fixed asset or simply as a project outcome.

Most development is performed as an ad-hoc project, and managed as an isolated undertaking to implement new structures and solutions over the business. This makes it difficult to manage the relationship between the project and the business, gain business user acceptance of new solutions implemented, and plan and measure return on the capital development investment. A previous post in this series discussed the Logic of Business Change, which provides some background.

Capital is developed and utilized to produce business results

The purpose of enterprise capital is to provide the performance solutions needed by the business to produce value in business results. [more...].

Capital Management is the management of enterprise capital in performance solutions to produce results of value needed by the enterprise. Capital management is an important part of 21^st Century Management.

Capital is not managed in 20^th century management

20^th century management does not manage capital. 20^th century management provides administration functions like finance, accounting, human resource administration, purchasing, information technology, and corporate planning to administer selected tangible capital. Most capital is not identified or managed by the enterprise. Much capital is created and used in the enterprise, but is known only in the department that keeps it. Much enterprise capital is assigned to a responsibility center and managed no further. The capital in administrative units is administered rather than managed to provide solutions, control costs, create value, and increase in worth.

Capital investments are not managed to develop specific capital to produce value in results

Enterprises invest significant sums in the capital used, but these investments are not managed to provide the specific returns. The tangible capital is normally developed as a lump sum for an asset or a project. [more...]