Archive for the 'Ten Rules of Business Management' forum

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...]

20^th century enterprise management has no consistent conventions, definitions, and standards

20^th century enterprise management, used by all enterprises today, lays a wide variety of organization and management structures over the business, and, therefore, cannot manage the business. A different set of conventions, definitions, and standards is used for each of the structures laid over the business. The many 20^th century enterprise management books contain different conventions, definitions, and standards. The many different business processes, information systems, IT architectures, costing and accounting, performance reporting, and administration structures each have their own set. The enterprise employs a wide variety of conventions, definitions, and standards to manage the enterprise, rather than one limited and consistent set to manage the business.

20^th century management does not support common solutions, collaboration, or measurement across enterprises

The lack of consistent conventions, definitions, and standards prevents business collaboration and integration, common solutions that any enterprise can use, business measurement for comparison across enterprises, common learning that can be applied to any business, educated and trained personnel that can fit into any business, and other long-unfulfilled business needs.

Rule No 10: Employ 21^st century business management conventions and standards

Rule No. 10 of 21^st century business management eliminates the problems of conflicting and confusing business conventions, definitions, and standards by providing one set related to directly organizing and managing the actual business. Terminology that is not related to the actual business and conventions and standards established to maintain structures laid over the business are not continued.

21^st century business management provides one set of consistent conventions, definitions, and standards for the actual business

21^st century business management is documented in the knowledge and procedures provided by Result-performance Management (R-pM). [more...].

Business collaboration is a 20^th century management problem

Business collaboration and outsourcing is recognized as a major problem today. Businesses cannot collaborate if the actual business of each partner is not organized or managed. There is need to organize the business of each partner, to integrate suppliers and customers with the enterprise business, to integrate business partners and outsource providers in value chains, and to consolidate business operations. There is a need to know the specific business requirements of customers. There is a need to know the costs incurred and value created by partners in a value chain.

Business collaboration solutions require expensive IT investments

The solutions proposed for 20^th century business collaboration involve heavy investments in common information technology to capture and report consistent information across partners, or to reconcile and recast inconsistent data maintained by partners. Often another structure is laid over the business for activities to capture known costs or contrived “value chains’ to estimate values. Even with these investments, no method has been found for real flexible and accurate business collaboration, since the business is not organized or managed.

Rule No. 9 of 21^st century business management: Collaborate to maximize shared value and minimize shared costs

Business collaboration and integration is an important requirement of 21^st century business management. [more...].

20^th century enterprise management administers human resources

20^th century enterprise management provides the human resource function to administer human resources. Human resources provide administration for recruitment, actions, payroll, and some development functions. While human capital may be called human capital, rarely is there any real effort to develop humans as actual capital solutions to meet the specific business needs and increase individual human worth to the enterprise.

20^th century enterprise management cannot develop and apply human and knowledge capital directly to the business

Some more advanced companies try to develop human capital, but as humans rather than as the specific capital solutions needed by the business. They are at a disadvantage because the business is not organized to define specific business needs, to understand where special capabilities are required in the business, to understand the value created in the business through application of human capabilities, and the added worth of human capabilities through value creation.

Rule No. 8 of 21^st century business management: Manage human personnel, capability, and knowledge capital to increase human worth

21^st century business management organizes the business results produced and human capital as specific solutions to be utilized to produce specific results. Rule No. 8 requires that human capital be identified as specific capital solutions utilized to produce business results, investments be made to develop human capital to increase the value of assigned results, human capital performance be managed against the results produced to increase human worth, and that human reward be a commensurate part of proven human worth to the business. As part of this rule, there are business management principles for strong human capital management:

• Define economic output results that must be produced across the business and those high-value results that require specific human capability solutions
• Analyze the business process to produce difficult high-value results and describe how human capabilities must utilize the process
• Define specific high-worth capabilities to produce high-value results as capital solutions for specific human knowledge and human capability development
• Focus human capital on results, so that they always know the results expected and how to apply their capabilities to produce results
• Develop human capabilities as specific capital solutions to produce specific high-value results
• Support human capital with knowledge capital to utilize specific capital solutions to produce specific results
• Let human capital know the value of their results and how their performance can add value to results
• Let human capital know the relationship between the value added to results produced and their worth to the enterprise as human capital
• Compensate and reward human capital in accordance with their human capital worth

Strategic human capital development develops the capabilities described in the business process and the knowledge required to produce new high-value strategic results. [more...].

20^th century enterprise management cannot plan and manage investments for a specific return

20^th century enterprise management used today concentrates on performance and the need for performance improvement. Development planning and execution concentrates on the capital needed for performance. Investments are directed primarily at tangible assets or achieving a project outcome. Return on investments cannot be calculated, since specific capital items and business improvements are not defined. So, potential increases in sales, revenues, etc are estimated to justify the investment. Project management manages the project separate from the business as an entity in itself.

20^th century enterprise management objective is capital development without managing the capital developed

20^th century enterprise management supposedly manages capital development. The managed capital developed is limited to capital that is managed, primarily in assets and employees. Most other capital is not managed or is classified as intangible assets. Development costs are not captured against the specific capital items to be utilized by the business to provide the return. [more...].

Rule No. 6 of the Ten Rules for 21^st century business management states: Plan and govern the transition from today’s value to approved strategic value. This rule requires the development of management capital in strategy to plan the strategic business, in tactics to evaluate and assess progress of the current to strategic business, and in intelligence to anticipate opportunities, threats, and new developments. The rule must be followed to ensure good corporate governance.

20^th century strategies are planned and described by laying structures over the business

Strategies are planned today by laying structures over the business such as corporate plans, maps, investment analyses, budgets, etc. Separate and unrelated plans are often prepared for operations, finances, information technology, capital development, human resources, and other areas. The strategic business is not defined and strategies do not relate to the actual business. Goals and value creation are estimates and projections rather than the planned transition from the existing business. The rigid structures laid over the business conflict with the actual changing business and do not provide a foundation for good corporate governance.

Corporations govern by enforcing rules, because they cannot govern the business

Corporate governance is an unsolvable 20^th century management problem that arises because corporations do not organize and manage the business. [more...]

Rule No. 5 of the ten rules of 21^st century business management is Operate to optimize operations, result value-added, and the profit result. This rule requires that the capital solutions utilized to produce each result are optimized to be cost-effective and produce a high value-quality result, so that all business operations are optimized.

21^st century business management organizes the performance producing each result

Business operations cannot be optimized unless the business is organized in order to manage the specific performance that produces a specific result. The 21^st century business is organized using Result-performance Management (R-pM) knowledge and procedures, so the business can be optimized, by ensuring that capital solutions are deployed or implemented to produce the proper results and are integrated to employ the most cost-effective performance to produce the highest value-quality result.

21^st century business management organizes capital investments as specific solutions

21^st century business management organizes the capital the enterprise invests in as specific capital solutions that are implemented to be utilized to produce one or more specific results. This allows the enterprise to capture the cost of developing or improving the capital and to assess the:

• Cost of consumption of the capital in operations
• Performance costs generated as solution worth declines over the solution life
• Effectiveness of the capital to produce a high-quality result
• Capacity of the capital to produce a volume of results
• Uncertainty of the performance of the capital and the risk of a poor result
• Return provided on the investment in the capital from the share of result value added to date
• Level of performance of the capital against expectations
• Worth of the capital assessed from result values to be produced over the remaining life

Capital solutions are categorized as business, human, facility, or management capital so that a performance manager with specific capabilities can be responsible for providing qualified solutions. Within each category, solutions are classified as one of three classes; as readiness solutions to prepare an organization responsible for a set of results, as production solutions to be used or consumed in producing each actual result, and as information solutions to support or document results. Capital solutions are integrated by capital class for utilization to produce a result.

21^st century business management organizes the outputs from business performance as specific results

21^st century business management organizes the inputs incorporated and outputs produced by the enterprise as results. [more...]

20^th century management does not maintain accurate financial and non-financial records on the business

Records are tangible information capital to record and document the actual business. Records are the predominate information capital in 20^th century management. But, 20^th century management does not manage enterprise records as capital. Most records are maintained by an individual or organization unit. There is no defined responsibility for maintaining records on the business. 20^th century accounting maintains partial financial records against a contrived chart of accounts. Some corporations have a secretarial function to maintain corporate and shareholder records. Each enterprise has to develop its own procedures to see that important records are kept. Many important business records like proposals, designs, quotations, and documentation are maintained ad-hoc by a department or individual or simply get lost in the passage of time.

Financial accounting is often confused with business record-keeping

An earlier article in The Business Change Forum says that “Accounting is one of the top ten problems of 20^th century management”. [more...].

Administration is one of the top ten 20^th century management problems

As explained in other articles in the Business Change Forum, administration is one of the top ten problems of 20^th century enterprise management used today. Enterprises have large sums invested in the capital that is utilized in performance, but most do not even know the extent of this capital. There is no manageable organization of capital as specific capital items of worth to be managed and utilized to create value in the business. Much high-worth capital is labeled as “intangible assets”. Capital that is known is administered, rather managed for investment, development, and utilization in operations. Many capital items requiring very different inherent capabilities and skills to support properly are mixed together in artificial categories like information technology and financial management.

Conventional administrative performance does not manage capital

Capital is created day in and day out without being recognized as something of worth that should be managed and made available to improve performance. Enterprises may have an assets register and think of managing capital as utilization of assets. Many think that managing capital means assigning it to a responsibility center, which actually removes capital from management for the benefit of the enterprise. Typical responsibility center managers do not take responsibility for managing capital and are unable to manage capital that they share with other responsibility centers.< [more...].

Rule no. 2 of 21^st century business management: Generate profits from a chain of managed value and quality

21^st century business management manages economic outputs from the business as results, manages investments in the business as specific capital solutions, and separately manages performance in the utilization of specific capital solutions to produce specific results. Separating results and capital from performance enables the enterprise business “the activity of providing goods and services” to be managed directly.

Goods and services are final results that go to the customer and have value in the customer willingness to pay and must be of the quality to satisfy the customer. The final goods and services results are produced by a chain of results of value starting from input results from the supplier. Business activity is the utilization of human and other capital in performance to produce a given result. So the business in “the activity of providing goods and services” must be managed by managing the performance producing each result of managed value and quality in a chain of results from supplier input results, through internal result transformation, to the final customer results. The result value-added in excess of performance costs across the chain contributes to the profit result.

20^th century management manages performance across processes and information systems

20^th century enterprise management, used by all enterprises today, does not recognize or manage output results from the business as a business entity. Results or accomplishments are managed as a component of “performance” along with the business activity in utilizing capital in performance to produce the result. [more...].