Specific Problems with Organization and Management Methods

Talking about Value, with no way to manage Value

We talk of value and contrive formulas to calculate values, but we cannot manage value.

By: Harry Greene

Value is an impressive word. People talk about value creation, value propositions, customer value, value chains, enterprise value, shareholder value, value management, etc. It sounds like they know more than the rest of us. But, what is the value of all this value?

Many enterprises have a strategy to create value. How do they define and measure the value they are creating? Different enterprises have different definitions. Usually they define some value that will be there at end of the strategy. Few, if any, actually plan and build up managed value in the execution of the strategy.

Some say they provide a good customer value proposition. Often customer value seems to be sales hype rather than a substantiated number.

Others talk about value chains, without a specific definition of the chain or what comprises the links of value in the chain.

Value-based management seems to be based on many contrived methods of valuation. We see how our many methods of business valuation, all give different numbers. We have confusion between stakeholder value and shareholder value. We hear of value-added. But, what value is added on what value?

So, again, what is the value of all this value? Is it possible to have one basic definition of value that we all can use to manage our business?

Value cannot be managed with 20th Century Management

The problem is we can never really manage value using 20th century management. We can chase costs around and use the many definitions to calculate different numbers for value, but we cannot add value to value to make value really valuable. We need to re-evaluate value first.

20th century management does manage the actual business, so it does not define and manage the business entity that contains business value, and does not define and manage the business entity that produces business costs. Therefore, 20th century management is unable to plan, measure, record, and manage actual business costs and value.

R-pM organizes and manages the business to manage the value of results produced

Result-performance Management (R-pM) is a new breakthrough to organize the business for 21st Century Management that enables us to manage value. R-pM manages the two entities that define the enterprise business; the capital utilized in performance and the result produced from performance, as one integrated business structure. Performance consumes capital and incurs costs to create value in the result produced.

Our internal and external customers purchase our results. Even for a service, they purchase the result in the benefit and appreciation of the service as their input result. So, if we are going to understand and manage value, we must understand and manage results.

Strategic value can only be created by producing strategic results

We say we have a strategy to create value. But the components of the strategy that contain value are results. We need to manage results to define each point that value is created across the whole enterprise and plan and manage the strategic value from the bottom up.

We all know that we incur costs in executing a strategy. The costs come from consuming capital. We must define our capital as specific performance solutions in order to relate the cost of capital we are consuming to the result value we are creating. Value is then a manageable number that we can use in day-to-day enterprise management. The difference between result value created and the cost of creating result value, is result value-added. What does positive result value-added tell us? What does negative result value-added tell us?

So by breaking down the value we are creating in a strategy, we can build a strategic business structure at our strategic horizon. We can understand the worth of what people as human capital do in carrying out a strategy. We can understand the value of new capital development embodied in the strategy. We can optimize the cost incurred in creating value against the value created to maximize value-added. Our stakeholders or shareholders can track their portion of that value. Our corporate governance, records management, internal evaluation, and management reporting can track everything the enterprise does to the strategic value being created.

Value chains can only be created by managing results

When our business partners also track the value being created in their strategy, we can collaborate and build a value chain based on a common understanding of value to truly maximize shared value and minimize shared costs.

The only entity that can contain value in a value chain is the economic output results produced by the business. The obstacle faced by many enterprises is Business Process Management. Business Process Management mixes results and performance and calls both performance, in contrived business processes laid over the business.

In order to manage value we must organize the actual business to identify the results produced by the business, the business process and other performance solutions utilized to produce the results, and the natural business relationships between results.

The enterprise confers value on input results by paying suppliers. Supplier input results are transformed by a natural value chain to final results to the customer. Customers confer value on the final result by paying for their input results. Internal result value is agreed by internal customers. The total value of input results and internal results in the chain cannot exceed the value of the final result.

R-pM uses basic principles to manage value in 21st Century Management

R-pM provides the way to make value valuable in 21st Century Management through basic principles, such as:

  • Structure the actual enterprise business based on results produced to identify how and where value is created in results and measure the creation of value
  • Structure the capital consumed in creating value for professional management and costing against the value created
  • Identify future results needed for enterprise success and project the value of strategic results
  • Develop strategies for producing the other results of value needed to produce strategic results and add up to the strategic value created
  • Set result goals to produce result value time period by period and estimate actual achievable against planned in the strategy
  • Manage strategic capital development to develop specific solutions needed to create strategic result value
  • Measure and report result value and value added and track strategic result value creation
  • Manage the transition of result value in the current business structure to result value in the strategic business structure for good corporate governance
  • Relate our result value to the final result value perceived by our customers and the value we perceive in input results from our suppliers and contractors
  • Relate the capabilities of managers and staff to the creation of result value and help them develop high worth capabilities to produce more valuable results

Only when we use R-pM to measure result value will our personnel, management, stakeholders, shareholders, collaborations, and customers understand how valuable we really are.