Organize the Capital Structure for Capital Management

Rule No. 3, for 21^st Century Management is organize and manage capital for high utilization and return. In an article on August 25, 2008 “Replace Administration with Capital and Performance Management”, we discussed the problems with the way that enterprises today identify and manage capital. Several recent articles pointed out that we must organize and manage the enterprise through one integrated business structure. The business structure includes a result structure for the results produced and a capital structure that organizes capital acquired and developed as solutions to be improved and supported, and a performance structure to implement specific capital solutions to be utilized to produce specific results. This article discusses creating the capital structure to organize capital for capital management.

20^th century management today does not manage capital or the performance of capital

The enterprise today does not identify and manage its capital investments as solutions to be utilized in performance to produce the value-added in results that provide solution worth and the return on the solution investment. Much capital is not identified. The problem is ignored by labeling the capital as “intangible assets”. Much tangible capital is simply assigned to a responsibility center and neglected by the enterprise. Most other capital is administered by administration functions that rarely view their role as managing and maximizing the worth of capital as specific solutions. For the most part their capital is not identified as solutions utilized in performance.

Manage capital acquisition, creation, development, and utilization to support result management

We need to take a different view of the way capital is organized and managed using the following principles.

• All capital in the enterprise must be identified and managed to maximize its worth. There are no such things as “intangible assets”
• Costs are incurred through the consumption and utilization of capital that reduces the remaining solution worth. We cannot know our costs until we know all the capital we are utilizing. We cannot manage our costs until we manage all the capital we are utilizing
• Capital must be broken down into specifically-identified solutions that can be utilized to produce value in specifically-identified results
• Capital solutions must be implemented to be utilized in performance to produce specific results
• Capital must be managed to know the investment costs in development and some operating costs, to continually support and improve solutions, and to implement qualified cost-effective solutions needed to produce specific results
• Capital that requires the same basic human aptitude and capabilities to manage and support must be organized together
• Capital must be organized so that it can be effectively integrated with related solutions as part of implementation and utilized effectively to produce the result
• Capital must be developed to increase in worth by more cost-effectively producing higher value-quality results

This requires that all corporate capital is defined as specific solutions in order to know specific costs of capital consumption and utilization, the specific result that utilizes the solution to absorb the cost, and the category of solution in order to manage it properly.

Capital management requires the proper capabilities and aptitude

There are four basic human aptitudes needed to manage and support capital

• Analytical aptitude and business knowledge to be able to understand the business and analyze and solve problems
• Human handling aptitude to be able to administer, develop, and motivate people
• Learning aptitude to gain expertise to administer and maintain facilities that requires expertise
• Research aptitude and management judgment to understand the competitive environment, examine options, and plan and direct the business

When we organize capital according to the four basic human aptitudes, we put the capital into four categories.

• Business Capital that is utilized directly to produce specific results, that cannot be used to produce other results, and that updates business data entities
• Human Capital that provides qualified and supported in-house employees, outsourced personnel, contractors, developed capabilities, and knowledge that produce results
• Facility Capital that provides the infrastructure, technology, tangible assets, and records utilized
• Management Capital that provides the management strategy, information, and direction

These four categories provide the first cut by capital category to structure solutions for capital management.

Organize capital to be integrated and utilized to create result value

We organize solutions within each category of capital into three classes, so that solutions can be integrated with related solutions and effectively utilized to produce the result.

• Readiness Capital that must be in place to be ready to produce the first result
• Production Capital that is utilized only when actually producing results
• Information Capital that provides information as needed and documents results produced

Organizing capital by four categories and three classes gives us twelve types of solutions in the capital structure. All the capital utilized in any enterprise is in one of the twelve solution types.

Capital management replaces asset, human resource, and other administration

The corporation benefits significantly from proper capital support, development, and implementation, integration, and utilization to create value. Existing capital and administrative functions must be organized by the aptitude required for each category in the capital structure with the responsibility to manage the capital:

• Business Capital includes organization, processes, and data that is specifically tailored to each result produced
• Human Capital includes personnel, capabilities, and knowledge. Human resource administration can become human capital management to manage individual human result value created, performance costs, and capital worth; and provide the knowledge needed to utilize solutions, produce results, and increase human worth
• Facility Capital includes equipment, supply, and records. Financial investments and reusable assets are facility equipment. Working capital and consumable supplies are facility supply. Accounting is included in financial, statistical, qualitative, image, and document facility record capital
• Management Capital includes strategy, tactics, and intelligence. Corporate planning, internal audit, management accounting, and other management functions are part of management capital

Capital is organized and managed as twelve solution types in the capital structure to support result managers, who integrate and utilize the solutions by capital class to create result value.

Solutions supported in the capital structure are implemented in specific domains in the performance structure to produce results in the result structure as part of one business structure used for all business planning, direction, control, and reporting.

Replace unmanaged capital and intangible assets with capital organized in the capital structure for capital management

When capital is defined and organized into specific solutions that can be effectively utilized to produce value in results, the enterprise replaces unmanaged capital and intangible assets with comprehensive capital management. Capital of worth organized in the capital structure is implemented in the performance structure to incur costs as worth declines when be utilized to produce results of value. Results absorb performance costs to give a value added. The contribution of each solution to value added provides the return on the solution investment and shows the continuing worth and remaining life of the solution.

The means to organize the performance structure for capital management is Result-performance Management (R-pM)

Result-performance Management provides all the details, learning, and support needed to organize enterprise capital in a capital structure to organize the business for 21^st Century Management. Visit result-performance-management.com and read the site information and downloads carefully to understand how your enterprise can organize and manage the business for cost-effective performance to produce value-quality results. Download the instructions and procedures needed in the R-pM Toolkit, your 21^st Century Management Manual.