Specific Problems with Organization and Management Methods

Investing in Corporations that cannot manage their own Investments

Conventional methods invest in costs and prevent investment in benefits. Invest in enterprises that employ R-pM to manage the return on investments.

By: Harry Greene

As an investor, you try to identify precisely how you are to gain a return on your investment and what that return should be. But, do you know that the corporations you invest in do not have the capability to itemize the value benefits to be produced as the basis for analysis or investment feasibility or for determining the return on their capital development investments. Corporations do not itemize the specific capital developed or the costs of development that must be known to determine actual return.

Review the R-pM community download "Beneficial Result-performance Development" to understand the problem and the solution for your corporation. The download is included in the R-pM Toolkit..

Corporations are not structured for investment analysis, planning, and management

Even when corporations attempt to invest in capital development and growth, they face difficulties because they are not structured to plan and manage investments. They cannot identify the precise points that benefits are produced to build up the individual benefits that justify the investment. And if they cannot plan these benefits, they certainly cannot manage benefits through to the return.

Corporations do not identify the specific items of capital that must be utilized to incur costs and create specific value to provide the return. Capital is developed as a large tangible asset or as a project cost. Intellectual, business, information, and management capital is not identified and is often considered as intangible assets, producing unknown costs. If the corporation does not manage the capital developed, it cannot manage performance costs against the value created.

Capital development investments in management improvement are investments in costs

Corporations estimate the return for core business investments like a new production line. But they rarely have a precise idea of the return from investments, particularly for investments in organization and management improvement. The objective of improvement investments is performance improvement or solution implementation. Investments meeting these objectives are investments in costs, but provide no benefit per se.

Most investment projects itemize the development cost as cost incurred, but not against the item of capital developed. Return on investment is a estimate of how much certain entities like sales or revenues will improve. The estimate is often camouflaged as a sophisticated cost-benefit or internal rate of return analysis.

The corporation must itemize and manage benefits to achieve the return on investments

Rather than estimating how an investment will increase sales and revenues, the corporation must itemize and manage the individual benefits of each improvement to justify investment and follow through to see that the actual individual benefits add up to increased sales and revenues.

The corporation must itemize and manage the specific items of tangible and "intangible" capital that must be developed and absorb development costs and then utilized to incur operation costs and provide the return by producing managed benefits. The specific items of capital to be developed must be managed as the output results from the development project.

Conventional capital development steps are on the cost side, with no steps on the benefit side

Those of you familiar with conventional development methods will wonder how to itemize and manage the specific costs and benefits of an investment. Conventional development methods follow such steps as identify the problem, design the solution, plan the cost of the solution, acquire or develop the solution, test the solution, train users on the solution, implement the solution, and operate the solution. All of these steps are on the cost side of the investment and develop one solution cost. There are no steps on the benefit side.

This problem has existed, since the beginning of business. 20th century corporations are structured to incur and manage tangible costs, but they are not structured to manage unknown costs and to create and manage the value required to provide benefits and the return on investments. Corporations do not manage the utilization of each item of capital in operations, so they have no professional capabilities to manage the development of capital.

Corporations employ management consultants to solve the investment problem, but consultants face the same problems

Since corporations find investments so hard to manage, many do not develop the internal capability to manage investments. They bring in consultants to manage the investment for them. The consultants face the same problem. Their methods do not plan or manage the benefits or return on investments.

Corporations and consultants will never be able to manage investments with conventional development methods that develop and manage contrived entities like processes, systems, and activities, rather than developing and managing the business.

R-pM is the solution to the investment analysis and management problem

Result-performance Management (R-pM) organizes, manages, and develops the business through the only two entities that directly define the business in one integrated business structure:

  • Results produced that define the economic outputs from the business that must increase in value or add new value to justify any capital development investment
  • Performance solutions utilized by the business that define all items of capital to be developed to the detail that they can be utilized to produce specific results

The value and benefit of investment come from result development; the costs come from performance solution development. The corporation must use R-pM to take fundamental steps to manage investments properly:

  • Structure corporation results to plan and manage value, including the value-added by investments
  • Structure capital as performance solutions to be professionally managed in development and operations
  • Develop a professional investment management capability to plan and manage development over time
  • Plan and itemize the benefits of investment from the value to be added to specific results by utilizing the performance solutions to be developed
  • Plan and itemize the costs of development for each new performance solution that must be developed to add value to the results
  • Plan the development project with its own business structure with the specific performance solutions to be developed and implemented as project results and the human and other capital assigned to execute the project as performance solutions.
  • Capture project result costs to be the development cost for each solution implemented to be amortized over the solution payback period

Value can be planned and managed only through results. Costs can be planned and managed only through performance solutions. So, only when the corporation has structured its results properly, has structured its capital as performance solutions, and has the professional capability to manage change over time, will the corporation be able to plan and manage the benefits of investment and measure of the precise return on investment. However, once the business is organized for 21st Century Management, investment planning and capital development for a planned and managed return is routine.

Investors can invest in R-pM corporations with the confidence that investments are managed

Only when a corporation has organized the business for 21st Century Management with R-pM, can investors be confident that the corporation will plan and manage the utilization of their investment for a planned and managed return.