Rule No. 3: Organize and Manage Capital for High Utilization and Return

Administration is one of the top ten 20^th century management problems

According to the Business Change Forum, administration is one of the top ten management problems in the 20^th century enterprise. Enterprises have large sums invested in the capital that is utilized in performance, but most do not even know the extent of this capital. There is no manageable organization of capital as specific capital items of worth to be managed and utilized to create value in the business. Much high-worth capital is labeled as “intangible assets”. Capital that is known is administered, rather managed for operation, development, and utilization. Many capital items requiring very different inherent capabilities and skills to support properly are mixed together in artificial knowledge categories like information technology and financial management.

Conventional administrative performance does not manage capital

Capital is created day in and day out without being recognized as something of worth that should be managed and made available to improve performance. Enterprises may have an assets register and think of managing capital as utilization of assets. Many think that managing capital means assigning it to a responsibility center, which actually removes capital from management for the benefit of the enterprise. Typical responsibility center managers do not take responsibility for managing capital and are unable to manage capital that they share with other responsibility centers.

Other capital is administered under an administrative function like accounting, IT, purchasing, HR, corporate planning, etc. These functions do not actually recognize a responsibility for managing capital, and most have no perception of helping the enterprise gain benefit from the utilization of capital, especially those “intangible assets”. They perform day-to-day functions that might help to operate or support capital.

Known capital is organized by function and knowledge area rather than the human capability to manage capital

We have well-known problems because administrative units manage capital that requires very different professional capabilities. IT and CIOs have problems managing technical facilities, business process capital, and strategic management capital that is categorized for IT knowledge. Accounting is expected to manage records and provide management intelligence. Business, human, equipment, and management capital are mixed together to be managed as a monolithic business process.

Many equate capital management with the financial management function. Financial management manages financial facility capital, some strategy capital, and some investment management results, based on financial knowledge. Much of the historic need for financial management has decreased through advanced methods and technology. The separate emphasis on financial management prompts neglect of higher-worth tangible facility capital.

We administer information and information systems as technology, rather than managing it as capital. We administer human resources as employees, rather than managing human capital. We administer assets. cash, and supplies, rather than managing utilization and consumption to create known value. Accounting records accrued and actual cash expenditures and receipts, but not financial records for result value, performance costs, or capital worth or non-financial records.

Administrative functions invest in new capital, but do not manage the return on investment

Administrative units make large investments in capital that are paid back only when the capital is employed to increase result value. Existing capital may be developed or improved, but the assessed capital worth can only be increased or substantiated, by knowing the increase in result value produced. However, administration does not manage capital utilization for measured benefit or measure the return on investment.

All enterprises utilize capital in performance to produce value in results. But, capital is not developed as specific capital items or solutions to be utilized to create value in results, so development costs are not captured and the needed knowledge and documentation is not created. The enterprise cannot manage the utilization of capital to increase the value of results, and thereby provide the return on the capital investment, and substantiate the capital worth.

Every enterprise has much benefit to gain by managing capital and optimizing the utilization of capital. Capital must be managed to understand result requirements and to carry through with capital improvement and development.

20^th century management is unable to manage information capital

20^th century management structures use different entity names and definitions to describe the same part of the enterprise. Information technology is used to computerize the various structures producing the information complexity problem as enormous amounts of information can be produced that is inconsistent and inaccurate.

Information capital management is not well organized. Accounting is responsible for financial records, information technology may perform data management and record retention, there may be a function for knowledge management, record management, or business or management intelligence. Even with this, there is little management of information for application to improve the business. There is no structure to relate information directly to the business and no data is collected on the actual business as a related set.

These problems are aggravated by the proliferation of IT use for email, Internet downloads, information exchanges, imaged documents, etc. Enterprises are now making enormous investments in various systems that lay subject, category, and workflow structures over the business for document, record, report, image, data, content, knowledge, etc management. These investments only aggravate the information management problem with additional structures and entities.

R-pM enables professional capital management

The administration problem is eliminated by Result-performance Management (R-pM). R-pM follows Rule No. 3 of the 10 rules of 21^st century management with R-pM: Organize and Manage Capital for High Utilization and Return.

R-pM organizes the enterprise business, which consists of only two entities: 1) results produced as outputs from performance and 2) performance solutions that provide the capital utilized in performance.

In order to manage the business, capital must be managed as specific performance solutions utilized by the business to incur costs and create value in output results produced. R-pM replaces administration with two important responsibilities for capital management and performance management.

• Capital Management: Manage and support capital by producing capital results, so that capital continues to operate and function properly; so that capital is regularly improved, reassigned, or replaced; so that new capital is developed as needed; and so that capital utilization for benefit is managed from the capital point of view
• Performance Management: Organize and manage the performance of capital provided for the benefit of the enterprise at the point capital is utilized to produce results

Performance management is a sub-set of capital management to ensure that qualified solutions are provided to produce results and that the solutions add value added to know the return on investment and assess the capital worth.

Capital is organized by the professional capability required to support the capital

R-pM organizes capital for 21^st Century Management by the four basic human capabilities needed to manage capital.

• Business knowledge and analysis capabilities to organize the business, manage business and information processing, and to define and manage business data
• Human development and handling capabilities to manage personnel, develop specific capabilities needed by the business and manage the creation and application of human knowledge
• Facility expertise and administration capability to manage reusable equipment facilities, provide consumable supplies, and maintain financial and non-financial records
• Management judgment, analysis, and research capability to define the strategic business, provide competitive tactics, and derive internal and gain external intelligence for management decisions

Capital organized in these four business, human, facility, and management categories can be properly supported in capital development and operations.

Capital is organized by the way it is organized and utilized to produce results

Capital within each category is organized so that it can be utilized and managed to produce results in three classes:

• Readiness capital provides the business organization, human personnel, facility equipment, and management strategy capital that is integrated by an organization unit to be ready to produce the results that define the organization
• Production capital provides the business process, human capability, facility supply, and management tactics capital needed on an on-going basis and utilized directly to produce a specific result
• Information capital provides the business data, human knowledge, facility records, and management intelligence that must be integrated and accessed to utilize solutions, produce results, and document the results produced

Capital organized by class can be integrated with other capital of the same class and utilized effectively to produce specific results under result management.

Information capital management is an emerging 21^st Century Management need

R-pM organizes all information capital to be supported by those with the capability and to be integrated for application to the business. R-pM provides the following rules for 21^st Century Information Capital Management:

• Manage all information capital in the specific capital management units to provide information solutions for the business by result and performance solution identifier
• Maintain the current business structure as business organization capital to document and update all business results produced and performance solutions used in the current business
• Maintain the strategic business structure as management strategy capital to plan and document approved strategic results and performance solutions for development
• Maintain business data to update the business entities for results and performance solutions and manage references to knowledge, records, and intelligence
• Reference and manage all information capital solutions utilized within the business and all business transactions, correspondence, reports, documents, etc entering or leaving the business by the specific result or performance solution identifier
• Manage emails, correspondence, documents, reports, images, etc produced or received anywhere in the business, related to business initiatives, decisions, transactions and follow-ups as facility records capital. referenced to specific results or performance solutions, for solutions, retention, and archiving
• Manage Internet downloads or transmitted information files related to knowledge about the business, industry, etc produced or received anywhere within the business as knowledge referenced to current or strategic results and performance solutions
• Manage Internet downloads or transmitted information files related to competitive information and management decision information produced or received anywhere in the business as intelligence referenced to current or strategic results or performance solutions
• Apply standardized 21^st Century Management definitions and conventions across business enterprises for data and information consistency and understanding

R-pM is the only solution to the increasingly important need to manage business information capital professionally and reduce the exploding IT overheads that can never solve the information complexity and management problem.

Professional 21^st century capital management improves capital worth and enterprise profit margins

The business is managed for results to produce results by utilizing specific performance solutions, and for performance by providing and maintaining high worth capital as performance solutions. Capital is managed to be of high-worth, by being utilized for a managed performance cost to create greater value in the results produced. New capital is developed to meet result requirements for specific solutions to increase result value and be of managed worth.

All enterprises can improve profit margins by using R-pM to organize and manage capital for high utilization and return. But, enterprises can never manage capital while it lies in centers hidden from view, while it is classified as “intangible assets”, and while those who should be managing it are performing administrative functions.

Capital and performance management is explained and supported by the R-pM Toolkit, available at Result-performance-Management.com.