Use R-pM for 21st Century Management to Leave 20th Century Problems Behind

Needs for 21st Century Management

20th century business change improves an existing structure or lays new structures over the business. The academic approach says to make incremental change in the published record and the way things have always be done. Business management books must be substantiated as accurate by footnoting sources from previous works. These approaches try to improve the 20th century enterprise, as it exists. We continue to manage using contrived entities like department, job, function, object, activity, etc which mean nothing on their own and must be defined further to relate them to the business. We continue to develop more sophisticate structures to lay over the business like record, document, and report management systems, IT architectures, quality management structures, etc. But unsolvable problems can never be solved by improving or contriving new organization and management structures that are laid over the business. Conventional thinking prevents the breakthrough needed and burdens all businesses with bad management practices and unsolvable problems.

We must go beyond conventional thinking to define 21st Century Management  

We need to think again from scratch to find the one and only right way to organize and manage the enterprise business. First, what is the business enterprise? There are many definitions, but one seems to be the most common; the business enterprise is “the activity of providing goods and services”. Business activity is performance in the utilization of capital invested in the business. Good and services are economic output results produced by the business. If we analyze the business, we produce a more precise definition; the business is “the utilization of capital of worth in performance to incur costs and produce value in results”.

We need to clear away contrived structures and directly organize and manage the business

Unsolvable 20th century management problems are caused by conflicts between the actual business and structures laid over the business. The business changes while the structures remain fixed in place. Since we now have a precise definition, we can get rid of all problems of the 20th century management by directly organizing the business for 21st Century Management. If we organize the business, the organization changes with business change. We can use the same business structure for all planning, direction, control, reporting, and governance. We can clear away all the contrived 20th century management structures laid over the business and leave 20th century management problems behind.

The business consists of three components capital, performance, and results

The business is the utilization of capital of worth in performance to incur costs and produce value in results. The definition shows that the business consists of three components:

  • Capital: The investments in capital of worth in specific performance solutions available to be deployed for utilization in performance
  • Performance: The deployment and utilization of a specific performance solution to incur a cost in producing a volume of a specific result
  • Result: The economic output of a volume and value produced by utilization of all solutions in business performance  

The enterprise invests large sums of money in acquiring and developing capital to be utilized in the business, but 20th century management does manage the specific capital developed for the business and utilized by the business. The enterprise must produce output results of value to be successful and to reach the final results used by customers, but 20th century management does not manage business results as a set, and only manages some results as separate unrelated entities, such as a product, sale, or revenue. The enterprise must utilize capital to incur costs and create value in results through performance, but 20th century management confuses results, capital, and performance together as performance.

Results, capital, and performance must be separately organized and managed

Since the 15th century, performance has been defined as both the utilization of capital in actions executed and the outputs or results accomplished from the performance. 20th century performance management structures, systems, books, and indicators employ this definition. The definition of performance has been the biggest historical barrier to understanding and managing business. We need to redefine performance to separate capital and results from performance. 21st Century Management defines performance as “the utilization of capital as specific performance solutions to incur costs and provide effectiveness to produce value and quality in specific results”.

Capital utilized and the outputs or results produced are not performance. Capital must be defined as a complete set of performance solutions organized to be supported and to be utilized in performance. Results must be defined as a complete set of end-results produced directly from performance, and higher-level set-results and key results. Performance must be defined as a complete set by the deployment and utilization of a specific performance solution to produce a specific result with needed rules and exceptions.

Results are economic outputs produced by business performance

20th century management does define some results as separate unrelated entities. This includes material, components, products, orders, sales, revenues, services, etc. But the enterprise does not define and manage these results in a consistent set of interrelated results, including all the other results that are not identified or managed today.

Results are the outputs both good and bad, from enterprise performance that may also be inputs to further performance to be transformed into other results. Results are identifiable entities that can be counted. Results are the basic measure of enterprise economic output. When we produce a result we create value.

We must define results at some level that defines everything that is produced across the full scope of the enterprise business. Results are produced at several levels; end-results produced directly from performance, set-results produced by a chain of end-results, and key results produced by set-results at the highest level across the business. About 10 to 20 key results are produced at the highest level across the business. End-results are produced directly from performance at the lowest level. Set-results organize end-results and other set results at one or more levels to produce a key-result.

Results relate to each other. Some results must be organized and managed together. Results contribute costs and value to higher-level results. Some results form a chain of results that lead to a final result. One result may be dependent on another result occurring first. A result could impact the value or quality of another result.

So we must analyze the outputs produced from performance and define individual results that comprise a set of results that logically define all the value created across the business.

Capital provides the performance solutions to be utilized or consumed in performance

20th century management concentrates on fixed or moveable assets as capital. We keep records on money, employees, some processes and systems, etc, but not in terms of capital utilized in performance. Then we have the black hole that no one knows about where we keep “intangible assets”. So the enterprise clearly does not manage the capital utilized in performance.

Capital includes all of the money, material, people, equipment, structures, techniques, information, guidance, and anything else that must be utilized to produce a result. Capital includes all tangible and intangible assets. Utilizing capital in performance is the source of our costs. We can know and manage our costs, only if we know and manage the utilization of capital in performance. Capital cannot be lumped as major assets for entry in an asset register and depreciation. Capital must be defined as specific performance solution to meet two requirements; the performance solution must be supported by those with the needed expertise and capability, and the solution must be integrated with like solutions to produce one or more specific results.

Performance is the utilization of a specific performance solution to produce a specific result

21st Century Management organizes capital as specific performance solutions that can be utilized to produce specific results. Then we have one entity “performance solution” in the set of performance solutions that covers all capital utilized, organized in a capital structure. We have another entity “result” in the set of results that cover all economic outputs, organized in a result structure. The business is organized when specific performance solutions are deployed to be utilized in performance to produce specific results. Each performance solution deployed to a result, with rules and exceptions for cost and effectiveness measurement, forms a performance domain. The set of performance domains constitutes the performance structure.

The result structure that organizes all results needed by the business, the capital structure that organizes all solutions available to the business, and the performance structure that organizes the performance solutions utilized to produce results, creates a business structure that can be used for all business organization and management. Business transactions are generated each time a volume or count of results is produced, to record the performance cost and effectiveness of each solution utilized to update the performance domain record, the result record for result totals, and performance solution record for solution totals.

The enterprise does not have to replace all of the entities utilized today like organization unit, process, system, product group, service, etc for 21st Century Management. But, it must define each entity precisely as results,  performance solutions, or business descriptors to be organized as part of the business.

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