Organize the Business to Manage Intellectual Capital

This article was published in Intellectual Asset Management (IAM): Issue 27, under the title "It’s Time to Leave the 20th Century Behind".

By Harry Greene

20th century management used today evolved before information technology could help organize and manage the enterprise business. Simple structures were contrived to manage the enterprise and control financial assets. These structures have grown more complex, but still do not meet 21st century management needs. Well-known 20th century problems in reorganization, strategic value, investment return, project management, change management, business records, costing, value and quality, administration, business and information complexity, book and market worth, corporate governance, outsourcing, alignment, business collaboration, and on and on remain unsolved.

20th century management does not provide the capability to manage the specific intellectual content of output results that must be protected as intellectual property or to manage capital, including intellectual capital, intangible assets, intellectual property protection solutions, and capital worth. But now, Result-performance Management (R-pM) is available to organize and manage the enterprise business, including intellectual property and intellectual capital. R-pM employs consistent 21st Century Management definitions and standards to manage any business and leave 20th century problems behind.

20th century management does not manage business capital utilization or economic output production

20th century management defines business performance to include not only the capital utilized, as in human performance, but also the economic output results produced, as in sales performance. Mixing results with performance prevents the business, defined generally as “the activity of providing goods and services”, from being organized. So, an arbitrary enterprise organization structure is laid over the business. Since the business is not organized, enterprise management structures must be laid over the business for strategy, accounts, processes, systems, administration, and other needs. Overlaid structures mix results together with the utilization of capital in business activity as performance and in key performance indicators. The contrived structures conflict with the actual business creating the unsolvable 20th century problems.

20th century management administers known assets, but does not define the capital utilized by the business. With modern technology, “intangible assets” and intellectual capital now contribute a significant part of enterprise capital worth. Cash and financial assets are administered today by banks and information systems. But, we continue to administer financial assets, rather than managing all enterprise capital. “Human capital” continues to be administered as employees, rather than managed as capital of worth.

20th century management addresses problems by laying additional structures over the business. Such structures as activity-based-costing, performance management scorecards, asset registers, and knowledge subjects and topics are laid over the business to manage intellectual capital. But no overlaid structure has successfully managed intellectual capital.

Information technology is available, but has never been used to organize and manage the business. Instead, IT is used to computerize the many overlaid 20th century structures, with their conflicting entities and definitions, creating information complexity.

Each of us manages our personal business to produce desired results. We do not contrive structures. We naturally utilize our personal organization, time, capability, knowledge, a strategy or plan, intelligence gathered, reusable equipment, a process, data and records, consumable cash and other supplies, and tactics in our performance to produce results of value to us.

Yet, all business schools, management books, business consultants, software, and other business solutions propagate 20th century management. Every day new structures and books attempt to solve problems that can never be solved by laying new or improved structures over the business.

20th century problems will continue as long as we manage the business enterprise, instead of the enterprise business. The problems must be left behind, by separating results from performance to organize the business for 21st Century Management.

21st Century Management needs differ from those of the early 20th century

21st century management requirements differ from those that spawned 20th century management, such as:

  • Competition and opportunities from around the world require business flexibility and fast response
  • Capital employed is changing from tangible assets to business, information, human intellectual, and management capital that must managed and leveraged to create value
  • Supplier and customer integration and business collaboration require commonly-defined costs and value
  • Products are increasing differentiated by the intellectual property in the features, quality, and support. Innovative products are copied quickly anywhere in the world, requiring intellectual property protection solutions
  • A simplified view of the business must replace the growing complexity of structures that make the enterprise increasingly difficult to manage
  • Actual and accrued cash expenditure and receipt controls are automated and less important. The full financial and statistical business cycle must be recorded to know value received for money spent, subsequent value added, and value provided for money received
  • All capital must be developed as specific performance solutions to increase specific result value with knowledge for effective utilization
  • All capital must be managed to know the cost of development and operation, charge the cost of utilization against the value created, improve result value-added, and increase capital worth
  • Management needs actual business data on results produced, value and quality created, capital utilized, performance costs and effectiveness, value-added after costs incurred, strategic business estimates, benefits and impact of change, and the worth of the enterprise and its capital

New 21st Century Management is required to take advantage of modern technology and manage the enterprise business to compete in the new environment.

R-pM organizes the enterprise business for 21st Century Management

Result-performance Management (R-pM) is a breakthrough that organizes and manages the enterprise business. The business, “the activity of providing goods and services”, utilizes specific capital as performance solutions in business activity to produce economic output in specific goods, services, and other business results. Therefore, the business of every enterprise is defined by only three components:

  1. Results: The specific economic outputs of value that must be produced by the full scope of the business
  2. Capital: The specific performance solutions of worth invested in the business to be utilized in performance
  3. Performance: The utilization of a specific performance solution to incur costs and produce a result

Results and capital are separated from performance. Results are defined and structured with distinct result descriptors and metrics. Capital is defined and structured as performance solutions with distinct solution descriptors and performance indicators. Performance is defined when a solution is deployed with rules and exceptions to produce a result. Business activity updates capital utilized, performance to incur costs, and the result value produced. The business is managed by result managers who utilize performance solutions to produce results and achieve goals, performance managers who provide qualified performance solutions that meet expectations, and by senior management who manage results and performance by time period to create strategic result value.

R-pM organizes and manages results and performance solutions in one business structure

R-pM employs one integrated business structure like a spreadsheet with results structured in column headings across the top and performance solutions structured in row headings down the left. The business is organized when specific performance solutions are deployed to domains to produce specific results to record business performance. Each cell with a deployed solution is a performance domain. The business is managed by capturing data on the capacity, cost, and effectiveness of performance solutions utilized to produce a volume, value, and quality of results for each domain, result total, and performance solution total.

R-pM operates and manages the enterprise business naturally, as we manage our personal business, in the utilization of performance solutions to produce results. Simplified management information reports the complete business through six consistently-defined information sets. One integrated business structure is used for all management organization, planning, directing, reporting, and control. Management decisions are reduced to what result to produce and which solutions to utilize. Business processes are redefined as result value-quality chains to manage performance utilized to produce each result. The order fulfillment process is a chain of results such as order received, order filled, invoice produced, order delivered, etc. Monolithic processes and systems that restrict results are gradually replaced by simple business-system process modules that produce a specific result, allowing the enterprise add intellectual value to results and flexibly chain the results that it wants to produce.

R-pM organizes and manages economic output production as specific results

Any output, good or bad, produced by business performance is a result. Quality and value are attributes of the result. Results are defined at some level across the enterprise, such that all business performance produces a result.

The enterprise also acquires input results from suppliers. Results are either implemented as performance solutions or transformed by the business along a chain of results to produce final results. Final results leave the enterprise as the goods and service results utilized as input results to the customer enterprise or personal business.   

Business results relate by adding value and costs to a higher-level result to form distinct result sets. Results in the set that produces a final customer result form natural value-quality chains. Each result is defined with description, customer, volume measure, goals, determined value, quality determinates, and other descriptors and measured in such  result metrics as volume count, total cost, quality, value-added, actual against goals, etc. Result responsibility is defined by deployed solutions for business organization unit and human personnel responsibility. Result totals include the measured utilization of solutions that produced the result. Subsidiary data and systems are maintained for important business results like material items, products, sales orders, customer projects or accounts, etc.

R-pM organizes and manages the capital utilized to produce results as performance solutions

R-pM identifies and manages all capital, including intangible assets, as performance solutions. Any technique, tool, power, space, human time, capabilities, information, protection, guidance, etc used to produce a business result is a performance solution. Performance solutions incur costs and must effectively produce a value and quality of result. Result value-added is the result value less the total costs of performance solutions utilized.

Performance solutions are defined at the level to deploy a specific solution to produce a result or a set of results. Each solution is described with support responsibility, utilization measures, costing method, effectiveness measure, capacity measure, assessed worth, expectations, and other descriptors. Performance indicators include actual cost, effectiveness, capacity, actual against expectations, etc. Solution totals include utilization by all results produced by the solution. Subsidiary data and systems are maintained for detailed performance solutions like employees, fixed assets, supply items, knowledge, compliance accounts, etc.

Performance solutions are organized in the capital structure within the enterprise business structure. Performance solutions are deployed to domains in the performance structure for selected results organized in the result structure to be utilized to create result value.

The business produces intellectual output as intellectual property in a result

Human capital performance solutions utilize their creativity, capability, and knowledge to create intellectual value in results produced. Results also gain intellectual value by utilizing other intellectual capital solutions such as the production process and enterprise image, branding, and trademarks. This intellectual value in results is the enterprise intellectual property. Results contain intellectual property in the specific design, features, and attributes that distinguish the result from competitive results, and supporting information to make the result desirable, easy-to-use, advantageous for specific purposes, etc.

Some results produced from a new design, creative writing or performance, an innovative idea, methods of differentiation, etc have high intellectual property content. These results may be protected by patent, copyright, trademark, and other intellectual property protection performance solutions.

Each result produced is distinct and measured. Low-value results that end up as waste or unused are minimized. Most higher-value results leave the enterprise to go to a customer or other party. The value of intellectual property from these results is included in revenues. Other results are implemented as performance solutions to become enterprise capital. The value of this intellectual property becomes intellectual capital of worth.

Result management encourages utilization of intellectual capital to produce intellectual property in results and to understand, evaluate, and manage intellectual property.

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