Archive for the 'The Solution to the Economic Crisis' forum

The enterprise organization structure is the fatal error that prevents business management

I have participated in many organization studies in my years as a management consultant. My approach to organization studies was to organize the business first, and then assign the people to manage and operate the business.

If the business is not organized the business cannot be managed. The business must be managed to prevent the problems that underlie the current economic crisis such as “unknown asset values”, unwieldy and unmanageable corporations, unknown business information for government regulatory and economic management, the focus on performance and not the results produced, the consequential lack of management information on result value and the cost of producing results, and governance through regulation because the business cannot be governed.

Conventional business organization prevents business organization and management

But, I always find that others concentrate on organizing the people first in a contrived enterprise organization structure and then laying the structure over the business, making the business adjust to the way people were organized. This prevents the enterprise from organizing and managing the business and invariably introduces many more unsolvable problems.

• Contrived entities like departments, sections, functions, positions, etc., were defined, that did not relate to the business and restricted business flexibility
• Since the business was not organized, the business could not be managed
• Other structures used for planning, direction, accounting, performance, reporting, etc. were overlaid or changed to fit the organization, rather than using the business for management
• Managers and staff could justify their existence in the enterprise by filling an organization position, with no reference to the value they created through their performance
• Capital was assigned to the organization to reside rather than to the business to be utilized
• The organization was measured for time consumed, money spent, etc. rather than measuring the business. The organization may have been re-engineered into a process in order to measure the process rather than the business
• By definition, since the organization was different than the business, the enterprise was laying structures over the business and preventing integrated business planning and management
• The organization structure is fixed in place, while the business continually changes, creating pressure for organization change and upheavals in re-organization and change management problems. Re-organization begins another cycle of unsolvable problems
• The list of unsolvable problems is infinite, and the problems can never solved by improving structures laid over the business

So, let’s go back to organizing the business first. If the business is organized, the organization changes with business change, eliminating reorganization and change management problems. The first thing you have to do is to understand the reality of how your business operates and define how it should operate. To do this, you must understand what the business is. [more...].

Investors have lost trillions of dollars and more trillions are committed to attempt to clean up the economic crisis

We see the intervention by governments in the US and around the world to address the symptoms of the fundamental problems in 20^th century management. We see trillions of dollars of losses in stock markets and businesses worldwide, and more trillions being spent to buy low-worth capital asset solutions, unfreeze credit, and restore confidence in obsolete enterprise management.

While the distortions and risks created to replace fixed mortgage asset solutions with leveraged security solutions sparked the crisis, there are underlying problems in the basic management methods utilized by all the enterprises involved that prevent them from capturing actual business data and generating direct business management information.

In addition, we see little effort to understand and eliminate the underlying unsolvable business management problems that cause this and other recurring crises, particularly on the part of business owners and shareholders who have the most to gain or lose, professional bodies who establish business management principles and standards, and governments who are responsible for economic management. Most corporate executives will not try to identify their real problems and improve their management, unless put under pressure from their shareholders or their government.

The current financial and management crisis is caused by failure to organize and manage the business

The fundamental unsolvable problems are present in all banks, financial institutions, and other enterprises because the enterprise is managed by structures laid over the business. The actual business in “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results” is never managed.  The three components of the business in business results produced, capital solutions invested in the business, and performance of the business in the utilization of a solution to produce a result are not defined as data sets. Therefore, actual business data concerning results produced, capital utilized, and performance employed cannot be captured. Enterprises today are unable to measure or manage the following important capital measures, performance indicators, and result metrics that describe the actual business:

• Investment costs incurred in the acquisition and development of specific capital solutions, be they solutions implemented to produce business revenue results or financial facility solutions utilized to produce direct income and growth results
• Actual capital solution worth in the potential to contribute to future result value creation
• Actual performance costs that amortize investments as solution worth declines in the consumption and utilization of capital or in reduction in solution disposal worth
• Added solution investment costs and potentially added-worth in solution improvement and replenishment
• Economic output result value created from the utilization of capital in performance
• Value added in result value greater or less than performance costs for all solutions utilized to produce a volume of full or partial results
• Result value-added across result chains within the final result value-added, to identify and rectify low-value results and ineffective solutions
• The return on solution investments in attributable contribution to result value-added to date
• The changing ongoing solution worth in future contribution to result value or income added over the remaining solution life, plus the solution disposal result value
• The projected gain or loss on capital solution investments in the current solution worth less the unamortized investment balance
• The qualifications of specific capital solutions to perform effectively to produce specific high-quality results
• The potential of solution utilization in performance to meet expectations and reach result goals
• The managed reliability of solutions to reduce performance uncertainty and result risk
• The inadequate or deficient capital solutions causing performance problems that produce symptoms in late or low value-quality results and the elimination of result symptoms by solving performance problems through improved capital solutions
• The strategic result value-added and shareholder value to be created by managed strategic results
• The itemized result value-added planned to justify result research and capital acquisition and development projects

None of these important measures, indicators, and metrics that can be produced by the actual or planned business are known or managed by management today, because the actual business is not planned, organized, or managed.

Instead, enterprises lay archaic 20^th century management structures over the business producing well-known, but unsolvable, problems with reorganization, alignment, “business complexity”, “business change”, unknown costs and value, unknown capital worth and returns, intangible assets, IT and business conflicts, investments, projects, accounting limitations, inaccurate information, corporate governance, quality, risk, collaboration, outsourcing, IT overheads, and on and on. 20^th century management is a dead-end. New 20^th century structures can never solve these problems, but just increase business complexity and escalate IT and other costs.

We will continue to lack the information needed for proper business management and continue to face unsolvable problems, until we organize and manage the actual business of every enterprise and base accounting, industry regulations, auditing, and compliance reporting on the actual organized and managed business.

20^th century organization structures used today do not organize the business

20^th century 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. [more...].

The fundamental cause of the economic crisis is failure to manage the business

One major problem causing the economic crisis was the lack of accurate management information on the actual business of investment institutions, banks, corporations, and other enterprises. Financial institutions cannot manage “asset value” in the worth of capital, companies do not know full costs or customer value provided, and corporations can not consolidate actual business information from the various units in the corporation.The fundamental problem is the lack of one complete and accurate set of information on the actual business, due failure to manage and measure the business.

20^th century management reports against structures laid over the business

The generally-accepted definition of enterprise business is “the activity of providing goods and services”. In order to organize and manage the business, we must organize and manage the activity of providing in the utilization of capital in the performance required to provide. We must also organize and manage goods and services as output results provided to customers.

20^th century management used today does not provide a structure to do this. Instead of organizing the business, an organization structure is laid over the business to define organization units, functions, and positions. Since the business is not organized, management structures must be laid over the business. A business strategy defines visions, objectives, maps, owners, and other entities. The chart of accounts defines centers, objects, and codes. Business processes, activity costing, performance management and the many other structures laid over the business produce information complexity and hide the actual business.

Overlaid structures capture vast amounts of data and report mountains of information, but not on the actual business

None of these structures captures actual business data or reports actual business information. [more...].

The economic crisis produced large investor losses

Several trillion dollars of investor funds were lost in the past six months. Investors, advisers, and experts point out many mistakes made, poor government oversight, the credit freeze, unknown asset value, investor greed, poor corporate governance, and other symptoms as the cause of investor losses. These mistakes are contributors, but not the cause of investor losses. Investment banks, investment funds, stock brokers, investment advisers, government regulators have demonstrated their lack of knowledge of what is really happening and the real cause of the financial and economic crisis and investor losses. They have demonstrated their inability to manage the problem or to identify real solutions. Blind investment professionals are leading blind investors.

Investors must look deep to understand the cause of loss to avoid future loss

Everyone looks for quick fixes and easy solutions every time there is a crisis, so the real fundamental problems continue unsolved. The fundamental problems require deep analysis and understanding of the actual business. Investors must understand the real reason for their losses. There is only on fundamental reason: the failure of financial institutions and other corporations to manage the business to plan the capital investments they must make to create value, manage the proper utilization of their investments to create value, and manage the results produced from their investments that provide value to investors.  Financial institutions and other corporations are not able to do this systematically. They cannot manage capital worth (often called asset value) in the future result cost absorption and result value-added from the utilization of investments and the result value-added to be available from the sale or disposal of the capital solution asset. They are unable to provide information on the transparent actual business for proper government supervision and informed investor decisions. Accounting accounts for cash in a contrived chart of accounts that is not related to the actual business. Arbitrary accounting principles, such as “mark to market” are employed instead of accounting for the business. Financial and risk models used are arbitrary and are not related to the business. Financial statements produced are inaccurate and limited and do not report the business to reveal problems.

Corporations lay structures over their business and manage the enterprise

All financial institutions and other corporations today employ dead-end 20^th century management. [more...].

The G20 failed to identify or address the problems that caused the economic crisis

Many government and non-government experts have identified the need for new business practices and management structures to solve the problems within financial institutions and corporations, in order to prevent repeat the losses and failures that led to the economic crisis. The fundamental problems with risk management, capital worth (asset value) measurement, financial management, output result and value management, recording of financial and non-financial business data, consistent and accurate business management information, consolidation of businesses of corporations and institutions, and the many others must be solved in order to prevent future crisis. These 20^th century enterprise management problems are identified and described in detail here at the Business Change Forum.

Descriptive white papers on 21^st century business management; the only solution to the economic crisis, and on a government business management program to address the crisis were sent to all government agencies and multilateral institutions related to finance, commerce, banking, economy, and business worldwide. The information conflicts with the conventional thinking that limits the possibilities of these agencies, so it is deleted or ignored.

The G20 successfully repeated the mistakes of the past

The G20 meeting is being hailed as a success. The contributions to the IMF and the World Bank should help recovery in some needy countries. But, the biggest success of the G20 was to repeat prior successes in similar government action following earlier financial, economic, and corporate governance problems. One objective of the summit was to restore confidence in the methods, systems, structures, and regulations that caused the economic crisis. Like the response to all previous crises the G20 tweaked a few existing methods and called for expanded regulation of corporations, financial institutions, and tax havens.< [more...].

Corporations, financial institutions, and other enterprises do not manages their businesses

The Business Change Forum discusses the problems of 20^th century management used today that lays organization and management structures over the business and does not manage the business. The actual business in “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results” is not defined, organized, or managed. This failure to manage the business is the fundamental problem that leads to all economic, financial, business, industry, and corporate governance problems.All the problems cited by experts and the media as the cause of the economic crisis are really just the apparent symptoms of the failure to manage the business.

The current economic crisis is caused by the inability of corporations, financial institutions, and other enterprises to manage the business. Anyone following the news of the crisis has seen bank and corporate management cite such problems as the following as the cause of their losses and failures:

• Financial institutions are not able to manage “asset value” in their investment portfolios
• Corporations cannot plan or manage the actual return on investments
• Corporations cannot manage investments to know current and future capital worth
• Management does not have the business information needed to anticipate and prevent problems
• Current accounting practices produce inadequate and inaccurate information
• Corporations do not know full costs incurred or value created across operations
• Corporations are not able to manage effectively all the various units of the corporation
• Corporations are unable to consolidate corporate businesses into one oorporation business
• There is no structure to manage businesses, finances, industries, markets, and economic sectors as an interrelated whole

These are just some acknowledged examples of the unsolvable problems of 20^th century management that afflict all enterprises today. Many commentators and experts call for new business management practices to solve the problem. These problems can never be solved by more 20^th century management structures and practices laid over the business. The problems can only be eliminated by learning, organizing, and managing the business directly. A new set of actual business management practices organize the business for 21^st century business management.

Financial institutions are not able to manage “asset value” in their investment portfolios

Financial institutions cannot manage “asset value” as part of the business. [more...]s

Business transformation has a bad name today because of past problems and failures

20^th century business transformation was a big thing over the past twenty years. But did it transform the actual business and solve fundamental problems with a sound structure for business success; or did it simply rearrange the 20^th century management structures and methods that are the cause of business problems? We see the problems suffered by financial institutions that cannot manage “asset value”, corporations that are unable to manage their businesses, and limited and inaccurate accounting that cause the financial crisis and economic recession.

20^th century transformation did not transform the actual business or provide expected benefits

20^th century business transformation changes the organization structure, strategy structure, business process structure, performance management structures, account structures, information technology architectures, management information structures, and other structures that are laid over the business, rather than organizing and managing the actual business. Conventional 20^th century enterprise organization theories never organized the business. If the business is organized, routine business change updates the business organization continually, instead of having separate business change and transformation projects.

The business changes with every business decision, not every few years when management decides it is time for business change. The only reason that business transformation is needed is because the business is not organized and managed. Conventional business change and transformation is not change to the business, but change to the structures laid over the business. Many 20^th century business transformation methods, like total quality management (TQM), business process reengineering (BPR), and activity-based costing (ABC) laid new contrived structures over the business, and are no longer considered viable today.

Business transformation must organize and manage the business as one structure

Business transformation describes what is needed to learn, organize, and manage the actual business for 21^st century business management. [more...].

All the economic crisis problems revealed are symptoms, and the remedies proposed address symptoms

Many experts are discussing and writing about the problems causing the financial and economic crisis and recession. They discuss problems in managing “asset value”, in managing complex financial securities, in preventing large sudden financial losses, in confusing interrelationships between institutions, in understanding the real financial situation or credit worthiness of a bank or other enterprise, in the need for some sort of regulation, and on and on. None of the problems discussed are the real problem. They are symptoms of one real problem. Remedies discussed are not directed at solving any real problem. Remedies address the symptoms to prevent failures and to keep the business and financial system functioning, in spite of the fundamental unsolved problem.

The symptoms are complex and confusing and do not indicate any solution

The symptoms of the problem are difficult to understand. Since they are symptoms, it is difficult to find real solutions. Symptoms cannot be solved; symptoms can only be alleviated. Money spent to bail-out companies, to provide capital or loans for continued operations, or to provide insurance or guarantees only enable continuance of unsolved problems. [more...].

Investors are the big losers in the economic crisis

Corporate investors have lost trillions of US Dollars in the current economic crisis. The recession appears to be long and deep delaying any gains in a recovery. Investors need to understand the fundamental problem causing the widespread problems in financial institutions and corporations around the world. Corporate investors are up against conventional corporate management thinking, which propagates dead-end 20^th century management and prevents 21^st century business management. Every business in a corporation must be managed consistently to consolidate into one corporate business. Corporate shareholders must pressure corporate management to manage the actual corporate businesses to eliminate the problems that caused past and present crisis, and surely will cause future crisis.

Investors lose because they invest in corporations that do not organize, plan, direct, or control the business

The business is “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Corporations do not manage the business today. They organize the corporation with an organization structure, plan with strategy and corporate plan structures, direct with function and process structures, control with account and quality structures, report with compliance and financial reporting structures. The structures laid over the business are not related to the business, often are not related to each other, consume enormous IT resources and costs, and do not collect or report actual data concerning the business.< [more...].

The current economic crisis arises because managers do not manage the business

Business managers today do not manage their businesses. Business managers employ dead-end 20^th century management to manage structures laid over the business. Business managers must manage 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”. All business decisions and information needs boil down to business results needed for success, capital investments to provide qualified solutions, and the utilization of solutions to produce results,

The failure to manage the business is the one underlying cause of symptoms of economic recession in the unknown “asset values”, unmanaged speculation that built bubbles, unknown product value and costs, corporate business consolidation problems, accounting failures, lack of business transparency, unknown human value-added to the business, and on and on. The problem can never be solved until managers around the world organize their businesses for 21^st Century Management. The managed business provides significant competitive advantage over enterprises burdened by unsolvable 20^th century management problems.

Business managers must recognize their unsolvable problems and the need for actual business management

All business schools, management books, packaged solutions, and on-the-job learning propagate dead-end 20^th century management. But, 20^th century management is not natural management. Managers must invest time to contrive, learn, and work with structures laid over the business, such as the organization chart, corporate plan, processes and systems, chart of accounts, costing activities, positions and salary scales, quality structures, scorecards, and on and on. Corporate executives and other managers thus have lifetimes invested in learning and working with 20^th century management. It is difficult to contemplate that 20^th century management should be replaced.

Managers must open their minds to recognize that 20^th century management has never organized and managed the business. They must recognize that their actual business is hidden under structures that prevent actual business data capture or use of actual business management information. They must recognize the unsolvable problems they have faced throughout their careers that cost their enterprises and cause enormous waste. They must recognize that continuing 20^th century management will never solve the problems that caused the financial and economic crisis or current business downturns. They must think of the benefits of clearing away overlaid structures and concentrating on their actual business.

Managers must think in terms of actual business management

Managers must recognize the inevitability of organizing the actual business for 21^st Century Management. 21^st Century Management is now gaining momentum and all managers will be faced with the need to learn, organize, and manage their business. [more...]s.