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.
Corporate governance is an unsolvable 20th century management problem that arises because corporations do not organize and manage the business. ]]>
Throughout the 20th century, various management structures for operating and developing the company have been contrived and refined, becoming the conventional management structures that we use today. The structures organize and manage the company or other enterprise. Structures such as the organization, business processes, accounts, costed activities, system architectures, scorecards, and on and on are utilized to manage the enterprise.
We improve management and effect change by laying new contrived structures over the company or enterprise business. Even with all the enterprise organization and management structures, we continue to have fundamental problems with re-organizations, intangible assets, accounting limitations, cost control, information management, alignment, etc. We still have not found the one right method to organize and manage the company business.
Over the past decades, we implemented breakthroughs like business process re-engineering, business transformation methods, business performance management, and enterprise resource planning. But, these turned out to be just new conventional management structures laid over the business and other structures to manage the enterprise the same as before.
Why are there so many different management structures to do the same thing? Why isn’t there just one right management structure? ]]>
Business operations cannot be optimized unless the business is organized in order to manage the specific performance that produces a specific result. The 21st 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.
21st 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:
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.
21st century business management organizes the inputs incorporated and outputs produced by the enterprise as results. ]]>
Every business enterprise must produce output results that lead to goods and service results to create value. An expanding enterprise must produce new results of increasing value. The enterprise needs additional capital in order to produce new results as part of the business. The capital must be acquired or developed, implemented as specific capital solutions, and then utilized to produce improved or new results of increased value. The value added to new business results must justify the capital expenditure to acquire or develop needed solutions and provide the return on investment.
All capital development is really result and capital development to develop capital as solutions to be utilized to create additional value in output results produced by the business. The additional value of output results provides the return on the capital development investment. If the capital solutions utilized and the results produced by business performance are not managed, result and capital development cannot be managed properly and the return on investment cannot be measured. Even physical capital development, like a new building, produces capital solutions to produce results, be it the enterprise office facility solution or a facility solution to produce lease or rental income results.
20th century management used today does not manage the enterprise business, defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. ]]>
Records are tangible information capital to record and document the actual business. Records are the predominate information capital in 20th century management. But, 20th 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. 20th 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.
An earlier article in The Business Change Forum says that “Accounting is one of the top ten problems of 20th century management”. ]]>
Every day new enterprises are started-up around the world. New enterprises have the one-time opportunity to organize and manage the enterprise business from scratch. These new enterprises unthinkingly adopt obsolete 20th century management and doom themselves to the burden the unsolvable 20th century management problems discussed here at the Business Change Forum. They waste the precious “green field” advantage of no legacy structures and the opportunity to do it right from the start.
Conventional wisdom says copy an existing business model or organization theory and do not “reinvent the wheel”. This “wisdom” replicates other enterprises’ problems.
Many new start-up enterprises retain management consultants to conduct an organization study. Management consultants still recommend that new enterprises lay obsolete 20th century management structures over the business, rather than organizing and managing the business for significant competitive advantage.
Once a new enterprise lays a rigid organization structure over the business, the business can never be managed. The enterprise must lay additional management structures over the business. The many inflexible structures conflict with the business causing unsolvable 20th century management problems with business change, unknown business data like costs and value creation, unknown investment data like capital worth and investment returns, excessive IT and other capital overheads, mismanaged capital development, business and information complexity, unknown business management information, unsupported corporate governance, and so on.
New start-up companies have the opportunity to do it right from the start by organizing the business for 21st century business management. ]]>
As explained in other articles in the Business Change Forum, administration is one of the top ten problems of 20th 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.
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.<]]>
Many capital development, business change, and management improvement projects involve management consultants. Since the business is not defined, organized, or managed, management consultants cannot work with client enterprises to improve the actual business. Each management consulting firm has their own approaches and methodologies that are not related to the business and are not familiar to the enterprise client. Misunderstandings often arise over the scope of the project and the responsibilities of the consultant and the enterprise.
20th century management improvement consulting projects have many fundamental and unsolvable problems, such as:
These are some common problems with organization and management structures and management consulting approaches utilized today for capital development, business change, and management improvements. Today, the enterprise client and consultant must work in good faith in an unmanaged business environment to produce ad-hoc changes that may or may not improve business results. Business organization and management consulting services tend to be led by the consultant and the client enterprise awaits a deliverable and then decides whether the deliverable is acceptable.
The enterprise and consultant need a way to define the development and improvements that will provide clear and measurable benefits to the enterprise. The only way is to base business management improvements and management consulting services on the actual business. A new management consulting model is needed that:
Many investors invested in financial institutions and other corporations only to discover that the corporation is unable to manage investments, the return on their investments, and the ongoing worth (asset value) of investments made. How much money must investors lose, before they wake up to the fact that no corporation today is able to plan and manage investments to ensure a positive return, is able to plan the capital worth of each investment, or is able to manage the changing on-going worth of capital investments as part of routine business management. As we saw, reductions in capital worth come to light only when there is an attempt to sell or dispose of the asset. Then, suddenly there are large capital write-downs and losses for investors.
You likely invest in corporations. As an investor, you try to identify precisely how you are to gain a return on your investment and have some idea of what that return should be. Do you realize that the corporations that you invest in have no way to do the same when they use the money you have invested?
20th century management does not provides a business structure or other framework to manage investments, specific capital solutions acquired or developed, solution investment costs, the worth of capital solutions, solution amortization in performance costs as solution worth declines, the value-added to the business over the solution life, or the worth of the solution to be sold or disposed of after its life with the corporation.
Corporations are not organized to manage investments, so corporations do not have a fundamentally strong means to plan and manage the return on their investments, from initiation through to measuring the return. So corporations rarely really invest, they either spend or speculate. ]]>
21st 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.
20th 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. ]]>