The common definition of business is “the activity of providing goods and services”
If you look in dictionaries, there are many definitions of business, and even the business enterprise. There has never been a specific definition of enterprise business to be used for business organization and management. The most widely-accepted definition of business for an enterprise seems to be the “activity of providing goods and services“. But no enterprise today organizes “the activity of providing goods and services”. So even by today’s definitions, the business is not organized. The definition indicates that the business has two separate components: “the activity of providing” and “the goods and services provided”.
The “activity of providing” or performance is one component of the business
One component is “the activity of providing”. Business activity is the actions of performance in carrying out the business. But, how do we carry out the business? We all know that in order to establish, develop, and operate a business we need capital. Capital is in the money and other supplies, humans and their capabilities, infrastructure and equipment, the business organization and processes, the strategies and plans, the competitive tactics, and information that are utilized in the business. We carry out the business through the utilization of human and other capital, such as equipment, system processes, and records. So, one component of the business is the utilization of capital in performance. Utilization of capital is the cost of doing business.
The “goods and services provided” or results is the other component of the business
The other component of the business is “The goods and services provided”. Goods and services are the economic output results produced by the business to achieve business objectives, meet the needs of business customers, and produce business revenue results. Business results are the outputs produced from performance that can be counted and measured. Business outputs or results are produced throughout the business, whether it be a maintained machine, a completed report, material put in inventory, a finished product component, a sales order booked, human capital trained, project completed, etc. A final result that goes to the customer is produced by a chain of results, such service planned, service sold, service results produced, results accepted by customer, customer payment received, etc. Results contain the value created by the business.
The “activity or providing” or performance must be organized to organize the business
In order to organize the business, “The activity of providing”, the utilization of capital available in the performance of the business, must be organized. Capital includes human capital in people and their knowledge and capabilities; business capital in the organization, processes, and data that produce specific goods and services; facility capital in the reusable equipment, consumable supplies, and records maintained on the business; and management capital in the business strategy, tactics, and intelligence that provides direction to the business.
Today, this capital is not organized to be utilized and managed in business activity. Most capital, in addition to “intangible assets”, is not even identified as capital to know actual costs and capital worth.
The “goods and services provided” or results also must be organized to organize the business
In order to organize the business “The goods and services provided”, which are the results produced by the business must be organized. Results are the economic outputs produced that satisfy business objectives, earn revenues for the business, and create the value in the business. Goods and services are produced by a chain of business outputs that lead to the final goods and services that go to the customer.
Today, certain economic outputs such as orders, products, and revenues may be individually managed, but the full range of economic outputs from the business are not identified and managed as one complete set of business results.
The performance solutions utilized must be deployed to the specific results produced to organize the business.
In order to provide goods and services and other economic outputs from the business, the full set of economic outputs desired must be defined, organized, and managed. In order to manage “the activity of providing” effectively, the full set of human and other capital utilized must be organized and managed. Therefore, capital utilized as performance solutions and the specific economic output results produced by utilizing specific performance solutions must be organized in order to organize and manage the business.
R-pM organizes the utilization of capital as performance solutions to produce value in results
Result-performance Management (R-pM) rewords the definition of the business to be used for business organization and management. When we analyze the business, we can see that the enterprise business is “the utilization of capital as specific performance solutions to produce value in specific results”, as described in a recent article “What is the definition of an Enterprise Business“. Now we have a definition of “business” that we can use to organize and manage the business. In order to organize the business, we must organize the capital utilized by the business as performance solutions, we must organize the economic outputs from the business as results, and we must organize the business by deploying specific performance solutions to produce specific results.
R-pM organizes the business for 21st Century Management
R-pM organizes the business to enable 21st Century Management. 21st Century Management is defined as “manage the current to strategic business in capital, organized as measured performance solutions, to incur costs and create value in economic outputs, organized as counted and measured results; and manage capital investments in performance solutions to add value to specific results, for measured return”.
Result-performance Management (R-pM) organizes the enterprise business by defining and organizing the only two entities that comprise the business:
- Results: The specific economic outputs that embody the value in the business
- Performance Solutions: The specific capital employed by the business to produce specific results
In order to organize your business, you must organize the utilization of capital, or business activity, and you must organize the results produced, including the goods and services provided.
Today, definitions of “performance” include both “the act of performing” or performance and “something performed, an accomplishment”, or the result produced. Today’s flawed definition of performance prevents to business from being organized and managed. Performance management methods like dashboards and scorecards and Key Performance Indicators (KPI) mix results with performance and define both as performance. We must separate results from performance in order to organize and manage the business.
Results must be managed as a set with its own attributes
Each result is defined with its own set of attributes, which are the descriptors that describe the results and the metrics that measure the result. Result attributes include:
- Value: The value in terms of external and internal customer willingness to pay for input for his value-quality chain
- Quality: The quality in meeting standards and producing customer satisfaction
- Volume: The count or quantity of results produced to fulfill a plan or meet demand
- Goal: The volume of results to be produced within a specific time period
- Risk: The potential for a delayed or incomplete result, that affects results in the chain and actual against results planned
- Result cost: The total performance cost of solutions utilized to produce the result
- Value-added: The result value less the result cost to show the contribution to the business
Results must be managed as a complete set of economic output results produced by the business in order to manage the value created by the business.
Performance Solutions must be managed as a set with its own attributes
The utilization of capital is the business performance. Performance is described related to the solution utilized. Each performance solution is defined with its own set of attributes in descriptors that describe the solution and performance indicators that measure the performance of the solution. Performance solution attributes include:
- Cost: The consumption of capital or the portion of the investment and operating costs for each solution attributable to the result
- Effectiveness: The contribution of each individual performance solution to the quality of the result. One ineffective solution can produce a defective or low-quality result
- Capacity: The ability of the solution to produce a count of results over a particular period of time, such as results per day or days per result. The result volume cannot exceed the capacity of the lowest-capacity solution
- Expectations: The planned level of performance for a specific indicator to be maintained over time periods
- Uncertainty: The chance that each performance solution, particularly human personnel or capability solutions, will not perform as required to produce planned results
- Improvement: The changes made to a performance solution that changes the performance cost or the result value to impact the result value-added
Capital must be managed as a complete set of performance solutions utilized in order to manage the costs incurred by the business.
R-pM organizes the business through one professionally-managed business structure
R-pM includes all of these attributes of results and performance in an enterprise business structure. All attributes of the result and all of the attributes of performance must be managed properly to produce a high-value and high-quality final result.
The business organization structure is not a management prerogative or a political football. The business organization structure is capital in the business organization performance solutions that must be professionally maintained to show the actual current and planned business. The business organization enables the capture of actual business data in result value and other attributes of results and performance costs and other attributes of performance for management reporting of cost-effective performance producing value-quality results. Result value-added is the primary management metric utilized in 21st Century Management.
R-pM utilizes one integrated business structure for all business management
With R-pM you organize your business through the current business structure, you plan your business strategy and goals through the strategic business structure, you direct your business to move from the current business structure to the strategic business structure, you control your business against the goals and expectations in the current business structure, you report your business against the current and strategic business structures, and you govern your business through the transition as the current business structure converges on the strategic business structure.
Learn more about R-pM, download “How to Organize the Business Enterprise”, and obtain The R-pM Toolkit, your 21st Century Management Manual at Result-performance-Management.com.
