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

By Harry Greene

Today’s 20th century management

Business organization and management structures were proposed and developed in thousands of books and solutions throughout the 20th century to become the structures still used today. But do these business organization and management structures actually organize and manage the business? Any organization that utilizes capital of worth in performance to incur costs and produce value in economic output results is a business enterprise.

Does the enterprise you work for organize and manage its business? Is your business really organized or are people, functions, responsibilities, and reporting relationships fixed in an enterprise organization structure laid over your business? How is your business managed? Is the business itself planned, directed, controlled, and reported or are separate management structures laid over the business?

The 20th century business organization does not organize the business

If your enterprise ever needs reorganization, the business is not organized. When we organize, we may define the objectives and mission of the enterprise. But then instead of organizing the business to execute the mission and achieve the objectives, we organize the enterprise in people and authority. There is only one way to organize the business, but there are many organization theories and alternatives to organize the enterprise.

So we contrive an organization structure that defines organization units, functions, positions, reporting lines, staff counts, salary scales, and all kinds of other entities that do not directly relate to the business. We usually consider alternative ways to organize. There may be inputs from people wanting more power, a bigger office, a better personal opportunity, etc. Eventually, we come up with a rigid organization structure that was contrived with little consideration of the actual business.

The organization structure, laid over the business is the fatal error of 20th century management

The business is then expected to adjust to the rigid organization structure laid over the business. The business must change continually, if the enterprise is to improve and grow. But business change is hampered by the fixed enterprise organization. The more the business changes, the more difficult it becomes to adjust the business to fit a rigid organization structure. This builds up the pressure to reorganize to produce a new structure more closely aligned with the actual business.

When we reorganize, we have a big project with disruptions, consultants, and change management problems. We do not recognize the need to organize the business for a true business organization, to eliminate reorganizations. Instead, we come up with another arbitrary organization structure that decision-makers can agree on. We then lay a new organization structure over the business and repeat the cycle. The organization structure laid over the business is the fatal error of 20th century management. If the business is not organized, the business can never be managed,

The strategy and plans lay other structures over the business to plan the enterprise

So after we organize, we need to operate and manage the enterprise. First, we need a strategy and some plans. There are many structures for creating a strategy. Most structures relate the strategy to estimated future outputs from the business rather than the business itself. Many structures address value creation or customer value propositions. But the calculation of value is through contrived formulas rather that substantiating the growth from the value produced in business today to reach the value set at the end of the plan. Separate strategies may be developed by different organizations for the line business, finances, capital development, information technology, etc. So we end up with a corporate plan, map, or other structures that employ their own set of contrived entities and are laid over the organization structure.

Then we have to plan and budget. Usually planning uses another structure separate from the strategy and may be only loosely linked to the strategy instead of being built into actually reaching a successful strategy. Budgets plan what we are going to spend money on rather than how we are going to use money supply to benefit the business.

Functions, processes, systems, and other structures laid over the business direct the enterprise

The enterprise is directed to operate and develop to carry out plans through another set of structures. Administrative functions are defined to administer known capital. Processes and systems may be implemented to direct parts of the enterprise. Project structures may be contrived to develop capital separate from the business. Work flows may direct intellectual activity. These structures are rarely connected to the strategy and plan structures to execute plans.

An Account Structure laid over the business records cash and accruals to control the enterprise

Then we want to record and control what we are actually doing. But, we have never organized or planned what we are actually doing. We have historically controlled our capital in cash through a charts of accounts that is laid over the business. We can only report against the contrived entities like responsibility centers, project or activity, object of expenditure, etc. Our accounting controls only from the point we receive money to the point we spend money on something. We account by following rules rather than by professionally recording the actual business. Much of what management needs to know is from the dark side of accounting from the point we spend money to the point we create value to receive money. Other structures for activity costing, quality control, etc may also be laid over the business to control the enterprise.

Performance management and data reconciliation structures report the enterprise

Each structure laid over the business defines the enterprise with its own set of entities and definitions. Data must be collected against each of these structures, and mountains of conflicting information can be reported from the various structures, creating business and information complexity. The problem is addressed by laying additional reporting structures over the management structures for data reconciliation, enterprise information management, and performance management structures, such as control panels, scorecards, cockpits, and dashboards. These reporting structures require extensive IT investments. But, since the structures laid over the business collect only incidental business data related to non-business entities, no reporting structure can report what capital the enterprise is actually using and what the enterprise is producing across the business. Management cannot get accurate and complete information on capital investments and returns, capital worth, performance costs incurred in capital utilization, result value created, performance effectiveness, result quality, and value added across the business.

Overlaid structures prevent a transparent view of the business for good governance

When we get to corporate governance, we have a distorted picture of the business. The business is not organized and managed, so we have statutory reports that are based on contrived entities and following rules rather than reporting actual business status against plans. 20th century accounting puts gaps in financial reporting. Important non-financial business reporting is neglected. Regulations and external audit requirements often distort reports that management is required to sign as accurate. Performance measurement reports various indicators against other indicators that are defined for the purpose of the reporting structure rather than reporting actual business. Those who look at reports are forced to accept what is reported at face value, because they have no context in the actual business.

We end up with many problems managing and governing the enterprise because we cannot see and manage the substance of what the business is doing and how things are done. Instead of organizing and managing business, we manage by policy and rule enforcement. We add on more rules, policies, and reporting requirements, adding enormous costs, making the enterprise even more difficult to manage, and moving further away from managing the actual business.

Overlaid structures produce high costs and overheads and unsolvable problems

In the end we end up with many structure laid over the business, all of which use different entity definitions that must be interfaced. The many structures must be administered using extensive human, information technology, and other capital incurring high costs. Many information systems are required to manage and report the structures creating complexity. Additional IT investments for data reconciliation, enterprise information management, and IT architectures cannot solve the problem and just compound IT costs. The enterprise faces unsolvable problems with business and structure alignment, intangible assets, unknown costs and value, human worth development and management, business change, investment analysis, capital development, unknown capital worth and returns, corporate governance, business collaboration, and on and on.

When we need to change, we do not know where to start. With all the overlaid structures it is difficult to identify the impact of change and to ensure that all of the processes, function, activities, systems, positions, reporting formats, etc. are changed. Instead of an organized business that changes with business change, we have unsolvable change management problems.

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