Archive for the 'Investment Management' topic

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...].

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...].

20^th century enterprise management plans the future enterprise and does not plan the business

20^th century enterprise management used today develops strategies and plans using maps, corporate plans, budgets, etc that are laid over the business. Corporate plans plan the corporation and are unable plan the strategic value to be created by the business and the capital development needed to create strategic value. The business is not planned and strategies and plans become invalid as the business changes. New plans try to bring the enterprise plans in closer alignment with the current and future business.

The business strategy plans the actual future business needed for success

Business management defines the enterprise business as “the utilization of capital of worth in performance to incur costs to produce value in results”. This definition includes the current business that must be conducted every day to utilize capital the enterprise invests in to produce results needed for business success. The definition also includes the future business that must be the objective or the business strategy to produce strategic results utilizing capital that must be available when needed?

The management strategy plans the business at the strategic horizon

The strategic business is “the utilization of capital of worth in performance to incur costs to produce value in results at the strategic horizon”. The strategic business is described as management strategy capital. The business strategy, strategic business structure, and business plans to execute the strategy are management strategy solutions.< [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...]

Investment Analysis is one of the top 10 problems of 20^th century enterprise management

20^th century investment analysis cannot plan the actual return on investments

How does your company analyze strategic investments in capital development? Does your company perform a cost-benefit analysis? Are all the specific investments needed for business success planned? Are the costs of the investment analyzed, itemized, and scheduled? Are the benefits of the investment analyzed, itemized, and scheduled? Is the value to be added to the business planned and set up as goals to menage the return on investment?

For the most part, 20^th century investment management cannot itemize the costs or benefits of investment, particularly investments in management improvement and business change. Costs are project expenditures rather than investments in specifically-identified capital items. Benefits are usually estimates of increases in revenues or reductions in costs.

Identify and value results needed to justify investments and set result goals to manage the return on all investments

21^st century business management manages the economic outputs of the business as specific results and manages the invested capital utilized to produce results as specific capital solutions. [more...]

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 cost 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.

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 business results. Capital is all the tangible and intangible assets available to be utilized by the business. Capital includes the business organization, processes and systems, humans and their capabilities, facility equipment and supplies, management plans and tactics, and information capital. Capital has a worth in the capability to create result value attributable to the capital over the remaining capital life.

20^th century management fails to organize and manage capital as part of the business

Today, people think of capital as items in an asset register or on the payroll, rather than as items to be managed and utilized as part of the business. Businesses invest in enormous sums of money capital and then fail to identify the specific capital solutions developed, the costs of developing the capital, the worth of the capital as developed, the utilization of the capital to create value, the cost of capital utilization or consumption as capital worth deteriorates, and the value created to return the original investment. [more...].

Information Technology is one of the top 10 problems of 20^th century management!

Information Technology incorporates a wide variety of unsolvable problems

Information Technology (IT) employed today has many inherent problems that many expensive solutions have never been able to solve:

• Information technology is managed as technology, rather than as capital preventing integration with the business
• Information technology employs large monolithic information systems that are laid over the business, instead of information processing solutions that are utilized by the business
• Information Technology defines different architectures to define and align the business, systems, hardware and networks, and data and information, rather than integrating each with the business
• Different categories of information capital are mixed in many systems using different entity names and definitions producing information complexity and preventing proper information capital management
• Since the business is not organized, information systems manage information related to structures laid over the business and do not capture, process, or report actual business data or report actual business management information
• Information Technology is difficult to manage because it mixes business, facility, and management capital that require diverse management and operating capabilities
• It is difficult to manage return on IT investments since the investments are lumped together and do not produce direct measured business improvements
• Information Technology has grown into a large expensive empire that involves much unnecessary processing, extensive overheads, and unsolvable problems

These problems can never be solved with 20^th century management that tries to improve the enterprise by laying new or improved structures over the business.

Information Technology problems disappear when organizing the business for 21^st century business management

The only way to eliminate the Information Technology problems is by organizing the business with to enable 21^st century business management. Information technology must be integrated in the business as capital defined as specific solutions utilized to produce specific business results. Business management enables the following measures to eliminate the unsolvable Information Technology problem:

• The actual business is organized as specific capital solutions, including IT solutions, utilized in performance to produce specific business results
• Information system solutions are defined and integrated with the business process as modules to produce a specific result or a chain of results
• Information systems focus on managing actual business data in result value and quality, performance cost and effectiveness, capital worth, and return on capital investments that is not processed today
• Information Technology is defined and organized as capital, with other capital of the same category, for proper capital management by those with the professional capability
• Information capital is defined and managed as business data, human knowledge, facility records, and management intelligence to produce information solutions needed by the business
• Enterprise information is integrated by capital solution utilized, result produced, supplier, customer, time period, business transaction, etc in an enterprise Business Information Base for one set of complete and accurate business information
• Information systems and processing devoted to managing arbitrary structures laid over the business and special systems to address problems in data reconciliation, information integration and extraction, and management reporting are discontinued, if not directly needed by the business
• New information system implementation integrates business and information processing with other capital solutions to produce specific output results needed by the business
• The business is organized for a new generation of 21^st century business management systems and business-information process modules, to process the actual business result by result, and provide one set of consistently-defined management information

Managing information technology as capital utilized by the actual business eliminates the unsolvable IT problems in business alignment, information complexity, data reconciliation, unknown costs and value, unknown capital worth and returns, CIO and IT management capabilities, data integration and control, and on and on.

The Information Technology Problem

Enterprise information systems include a wide variety of systems that are laid over the business

Since the business is not organized, different management structures must by laid over the business to manage the enterprise. [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...].

20^th century enterprise management cannot capture and report essential business management information

20^th century enterprise management lays separate structures over the business for management organization, planning, direction, control, and reporting, such as:

• Organization charts, reporting relationships, and job descriptions for organization
• Strategy, corporate plan, investment, and budget structures for planning
• Work flow, function, project, process, and system structures for direction
• Financial and statistical accounting, activity and project costing, and quality structures for control
• Financial statements, performance management, and strategic enterprise management structures for reporting

Each structure defines inconsistent and conflicting entities like business unit, department, center, function, activity, project, responsibility, etc. The overlaid structures can produce enormous amounts of information producing business and information complexity. But 20^th century management cannot capture essential business data and report actual financial and non-financial business management information.

20^th century enterprise management does not define the entities that contain cost, value, worth, and return

In order to capture data and report information about an entity, the entity must be defined and recorded. 20^th century management attempts to report cost, value, worth, and return without defining the entities that contain cost, value, worth, and return.

Costs are attributed to some known tangible assets and collected against contrived entities like activity, project, and accounts that were not produced by the costs. Numbers for value are produced by certain contrived methods and formulas to lay value chains over the business, without defining and managing the entity that contains value. Worth is defined by arbitrary depreciation formulas for fixed assets, but ignored for human and other capital. Much high-worth capital is labeled as “intangible assets” and not accounted for or managed. Capital worth is usually mislabeled as “asset value” today. [more...].