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, and 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 enterprise management to administer the enterprise. It is impossible to manage the business today, because the business has never been defined or organized properly.

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 our explanations of business management, 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.

Business management 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 in order to define and manage the business. [more...].

Over the past three months, the Business Change Forum published a series of articles on the “Ten Rules to Organize the Business for 21st Century Management” to guide business organization for competitive 21^st century business management.

The ten rules of 21^st century business management are:

1. Organize and manage the business
2. Generate revenues from a chain of known value and quality
3. Organize and manage capital for high utilization and return
4. Keep accurate financial and non-financial records on the full business cycle in operations and development
5. Operate to optimize operations, result value-added, and the profit result
6. Plan and govern the transition from today’s value to approved strategic value
7. Manage all capital investments to gain a planned return through results
8. Manage human personnel, capability, and knowledge capital to increase human worth
9. Collaborate to maximize shared value and minimize shared costs
10. Employ 21^st century business management conventions and standards

The ten rules are described in the linked article and under the forum “Ten Rules for Business Management”. [more...]

The enterprise organization structure prevents management of your company business today

All enterprises employ 20^th century enterprise management, which lays organization and management structures over the business to manage the enterprise. Once an enterprise organization structure is laid over the business, the business can never be managed. The enterprise organization structure is rigid while the business changes. This produces the reorganization problem. If the business is organized, the organization changes with business change eliminating the reorganization and change management problems.

Your company business consists of five important areas that must be managed for value, cost, and profits

The company 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 manage the business, five important areas must be managed.

• Value and quality in results: Economic output results needed for business success must be managed to produce interrelated outputs across the business and manage the value added to the profit result
• Capital investments in the business:  All capital investments must be managed to acquire, develop, and implement capital solutions needed to produce specific results, to plan the value added to results, to plan the worth of solutions, to know the cost of investments, and to justify the return of investment
• Implementation and maintenance of capital as solutions: Capital utilized by the business must be supported and managed as specific solutions implemented to produce results and provide the actual result value-added return on investment
• Costs and effectiveness of performance: Business performance must be managed to utilize capital solutions cost-effectively to produce value-quality output results
• Strategic result value creation: Business performance must be managed over time to create value in results and develop new solutions needed against strategic business plans

The company business must be managed as one current in operation business structure and the planned strategic business structure. Once the business is organized; organization, planning, accounting, performance management, reporting, and other structures used today to manage the enterprise are no longer needed.

Manage the value and quality of all results produced by your company business along the full revenue-generation chain

The objective of every company business is to produce products and services and other economic output results in a chain of results that lead to the revenue and profit results. [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...].

20^th century management structures laid over the business cause unsolvable problems leading to the economic crisis

Enterprise management today uses a variety of enterprise structures such as organization charts, corporate plans, account charts, processes, information system flows, administrative functions, scorecards, etc. The arbitrary structures do not define the actual business, but are laid over the business to manage the enterprise. The structures do not provide a structure for business management, but rather prevent the business from being managed. The structures are rigid and difficult to change, and the definitions used by the structures vary widely. Data is collected against the structures, not the business. Large quantities of management information are reported against overlaid structures, but actual business management information is not reported. The business changes continually, and conflicts with rigid unchanging structures, causing unsolvable 20^th century management problems. Eventually, there is upheaval in “business change” to align overlaid structures closer to the real business, and repeat the cycle.The overlaid structures prevent business management causing the fundamental problem of the economic crisis, the failure to manage the business.

Governments today are not able to solve the economic and financial crisis because they do not understand the underlying problem, the failure to manage the business, and they cannot gain actual business data needed to regulate corporations properly.

R-pM organizes the actual business to provide a structure for 21^st Century Business Management

Result-performance Management (R-pM) 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”. R-pM simplifies business management to manage the business directly, rather than managing structures laid over the business. R-pM supports all phases of business management through the business structure. The structure design and framework is not subject to change, but is flexible to change and grow as business components and data entities change. Current and strategic business structures are used for all business organization, planning, direction, control, reporting, and governance. [more...]e.

The economic recession is caused by one problem: the failure to manage the business

20^th century management employed by all enterprises today lays organization and management structures over the business to manage the enterprise arbitrarily, rather than managing the business. 20^th century management produces mountains of “management information” on arbitrary structures, but does not provide the one set of complete, consistent, and accurate business management information needed. This causes the fundamental problem in all business management that has caused all previous crises and is the basic cause underlying the current economic crisis and recession. The problem is the failure to manage the business.

The current business, financial, and economic symptoms of the problem are numerous and complex. But, the problem is basic and simple. Today, all governments, enterprises, and experts are trying to understand the symptoms and to alleviate the symptoms. No one is trying to get beneath the layers of symptoms to solve the one fundamental problem. The only real solution is to organize and manage the business with Result-performance Management (R-pM).

20^th century management does not provide basic information for business, financial, and economic management

20^th century management used today does not capture actual business data on the three components of the business: all results to be produced across the business for success, all capital solution investments, and utilization of capital solutions in all performance to produce specific results.

Because of this, enterprises cannot manage result chains and important result metrics like result value, result volume, result quality, total result performance costs, result value-added, and result risk against result goals; important performance indicators like performance costs, capital utilization, performance effectiveness, value contribution, and performance uncertainty against performance expectations; or important capital measures like investment costs, total solution performance costs, un-amortized balance, solution capacity, qualifications, investment return, solution worth, and solution reliability against solution potential.

All “problems” that cause the economic recession identified to date, such as problem financial products, the credit freeze, sudden need for large write-offs and losses, sudden losses appearing in various corporate units, etc are symptoms of the failure to manage the business. [more...].

Governments are looking for a unifying architecture for best business management and market, financial, and economic management

Governments will be meeting to construct an international response to the financial crisis. They will discuss new best business management practices to solve problems that caused the crisis, and new architectures for the financial system and economic management to prevent future crises. Again, as always in the past, they likely will fail to comprehend and address the unsolvable 20^th century management problems that cause the crisis and will add new practices and architectures on top of existing dead-end 20^th century management structures, and claim to have solved the problem. In order to make real progress, those involved must set current structures aside and take a completely new look at what comprises a business and how businesses relate to industries, markets, financial systems, and economies.

R-pM is the only solution available to eliminate unsolvable problems that caused the crisis

Result-performance Management (R-pM) organizes the actual business as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. 20^th century management structures are replaced by one business structure to eliminate unsolvable problems in unknown capital solution investments in the business, unknown economic output results produced in chains across the business, unknown value of results from the business, unknown costs to produce results, unknown value-added to manage value and quality, unknown returns on capital investments from the added value to results, unknown capital worth in future output and disposal result value-added, and on and on. R-pM captures actual business data to manage all corporations, financial institutions, and other enterprises properly and report on the actual business to regulators.

R-pM is the only unifying architecture to integrate businesses, markets, industries, and financial and economic management to prevent future crises

R-pM builds up from the business structure to provide actual business architectures by industry or economic area or sector to consolidate actual business data. Data can be consolidated by market for business input and output results and capital solution utilization. Industries, such as the financial industry, can be managed for the value and quality of results and the utilization of financial and other capital solutions. [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. .