Rule no. 2: Generate profits from a chain of managed value and quality

Rule no. 2 of 21^st century business management: Generate profits from a chain of managed value and quality

21^st century business management manages economic outputs from the business as results, manages investments in the business as specific capital solutions, and separately manages performance in the utilization of specific capital solutions to produce specific results. Separating results and capital from performance enables the enterprise business “the activity of providing goods and services” to be managed directly.

Goods and services are final results that go to the customer and have value in the customer willingness to pay and must be of the quality to satisfy the customer. The final goods and services results are produced by a chain of results of value starting from input results from the supplier. Business activity is the utilization of human and other capital in performance to produce a given result. So the business in “the activity of providing goods and services” must be managed by managing the performance producing each result of managed value and quality in a chain of results from supplier input results, through internal result transformation, to the final customer results. The result value-added in excess of performance costs across the chain contributes to the profit result.

20^th century enterprise management manages performance across processes and information systems

20^th century enterprise management, used by all enterprises today, does not recognize or manage output results from the business as a business entity. Results or accomplishments are managed as a component of “performance” along with the business activity in utilizing capital in performance to produce the result. This definition prevents the business from being managed, since not only business performance in the execution of actions but also the goods and services and other results accomplished are defined as “performance”.

20^th century enterprise management manages performance across business processes and information systems. The process or system is implemented to achieve some eventual business result such as a product produced or a fulfilled order, but the results produced and performance solutions utilized are lost within the monolithic process or system and are not managed.

20^th century enterprise management defines results and value as outputs from the corporation

20^th century enterprise management lays organization structures, monolithic business processes, separately-defined information systems, account charts, and other structures over the business. Business processes lump capital solutions, results, and performance together in a process. Business process management is not able to manage value, so we contrive formulas to calculate numbers called “value”.

Business process management and “Managing for Results” manage results as outputs from the corporation in final goods and services results that earn economic value and generate revenues. Value is determined from outside the corporation in the customer willingness to pay for final results in goods and services. Results within the business process are defined as performance. So, value within the corporation business process to produce the final result value can not be organized or managed.

Manage value and quality as attributes of economic output results for 21^st century business management

We have spent years in business schools, reading management books, and on-the-job learning and experience that have instilled 20^th century enterprise management as proper business management. This makes it difficult for us to go back to the natural method of business management that we all use in our personal business every day. We utilize our time, capability, money, possessions, space, tactics, etc as capital solutions in our performance to produce personal results be it a prepared meal, a purchased product, arrived at a destination, or an enjoyed night out. We produce one result after another in a chain of results to reach a final result. The value of the result must exceed the cost of performance in order for us to be happy with the result. We recognize the need to utilize qualified capital solutions and to provide our own effective performance in order to produce a high-quality result. We do not lay organization and management structures over our personal business.

We need to forget the artificial contrived 20^th century structures and learn to apply natural 21^st century management to the business. Our business management and decisions must boil down to the results to produce and capital investments needed in solutions to utilize in performance to produce the result. We must learn to define specific results that can be counted and measured as outputs from the business and to manage the value and quality of the result.

Redefine business processes and information systems by the chain of output results produced

Existing business processes and information systems can be redefined as result chains. Each output result produced by the process or system that contributes to the final result is identified and described. Each result has a responsible manager and a customer that uses the result as input to produce his results. Each result has a value that the customer must pay to receive the result that should exceed the cost of producing the result. Each result has quality that makes the result acceptable to the customer that infers value on the result. A defective result is produced by a defective input result, an unqualified capital solution utilized, or ineffective performance in the utilization of solutions to produce the result. If a defective result is identified, the chain is traced back to identify the result with the unqualified capital solution, or ineffective performance in utilization of solutions that must be corrected.

The result value-quality chain manages the capital utilized in performance to produce each result to know full performance costs for each solution and the total cost of producing a volume of results. Result value less the result cost is the result value-added, which is managed to be positive across the chain to provide a contribution to the profit result.

Integrate result chains with suppliers, partners, and customers

The result chain begins within each supplier that must provide value-quality results to the enterprise business either to be implemented as a capital solution or to be input results to the value-quality chain. The supplier and business can collaborate to produce the highest-value input result at the lowest cost. The result chain continues within the business, where business partners may take an output result and utilize their own performance to produce higher-value results as input results to continue the result chain. The partner and the business can also collaborate to produce the highest value for the lowest cost. The result chain continues to the final result which is an input result for the customer either to implement as a capital solution or to be material to be inputs to his value-quality chain. The business and the customer can also collaborate to produce the highest value for the lowest cost. Results along the chain should be produced by the business that can provide the highest value-quality results from the most cost-effective performance.

Manage result value-added across the chain to produce the profit result

The value of each result is in the customer willingness to pay between what the enterprise pays for input results to what the customer pays for the final result. Total value of all input and internal results in the chain cannot exceed the final result value. Each capital solution utilized in performance to produce a result incurs a cost. The total performance cost for all solutions utilized to produce a result is the result cost. The result value less the result cost is the result value-added, the most important management metric in 21^st century business management. Each result in the chain should have a zero or positive value-added. If the value-added is negative, the result should not be produced. If the result is essential, the result cost must be reduced or the result value must be increased and the value of another result in the chain decreased. The result value-added is managed to provide direct input to the profit result.

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