The Wealth Of Enterprises

Slide 2: The Wealth of Enterprises A New Foundation for Economics & Management AUTHOR: William T. Nolan PUBLISHER: AuthorHouse DATE OF PUBLICATION: January 2008 248 pages

Slide 3: THE BIG IDEA The Wealth of Enterprises by William T. Nolan  Global enterprises, both political and economic, are driven by the need for scarce resources to feed their economic growth and for political power to protect their borders, markets and sources of raw materials. Socialism and communism are 19th Century concepts that are dysfunctional and no longer apply in a 21st Century world.  A new foundation for economics and management is needed for the 21st century that is more broadly based than the Division of Labor. The explosion of the internet has made the world a smaller and more connected place. Division no longer rules; unity does.  The Enterprise is the way the real world works.

Slide 4: WHY YOU NEED THIS BOOK The Wealth of Enterprises by William T. Nolan • This book is ideal for managers, directors, students of economics and management and especially the individual Entrepreneur. • This will assist each and every one in better understanding the many Enterprises in which people live and work so that you will be more productive for yourself and the good of your fellow men and women.

Slide 5: WHAT THE ENTERPRISE IS AND HOW IT IS STRUCTURED The Wealth of Enterprises by William T. Nolan •The Enterprise is the basic form of organization which people use to accomplish certain tasks. This is the entity that business leaders truly manage. •It exists to produce goods and services in order to satisfy customer needs and to reward its owners, employees and stakeholders for risk and labor incurred. •It is the mechanism of efficiency to produce outputs greater than inputs. It is also the mitigating agent between self-interest and the common good.

Slide 6: WHAT THE ENTERPRISE IS AND HOW IT IS STRUCTURED The Wealth of Enterprises by William T. Nolan The genius of the Enterprise is the creation of value for all parties represented in the Enterprise Value Ring, which shows that it is reciprocal, reinforcing and eternal.

Slide 7: WHAT THE ENTERPRISE IS AND HOW IT IS STRUCTURED The Wealth of Enterprises by William T. Nolan THE STRUCTURE OF THE ENTERPRISE The Enterprise is composed of Form, Function and Forces.

Slide 8: WHAT THE ENTERPRISE IS AND HOW IT IS STRUCTURED The Wealth of Enterprises by William T. Nolan Form is the shape and structure of an entity which gives it both its outward appearance as well as its essential being. • The Shareholders are the owners of the company. • The Corporation is the form or legal entity of the Enterprise. • The Company are the people who manage the Enterprise. • The Business is the activity of the Enterprise. • The Product is the output of the Enterprise. • The Customer is the consumer of the goods and services produced.

Slide 9: WHAT THE ENTERPRISE IS AND HOW IT IS STRUCTURED The Wealth of Enterprises by William T. Nolan Function is the activity of an entity for which it is specifically designed and intended. •Governance and strategy are the principles and plans that guide the Enterprise. •Accounting, control and funding are the recording and measurement of all transactions. •Human resources is the management of the people who work for the Enterprise. •Business processes are the steps that convert inputs to outputs. •Information technology is the management of data and information. •Culture is the character and spirit of the firm.

Slide 10: WHAT THE ENTERPRISE IS AND HOW IT IS STRUCTURED The Wealth of Enterprises by William T. Nolan Force represents the markets in which an Enterprise lives and breathes and against which it exerts its power or effort. •Market regulators come up with rules and regulations for the markets. •Financial markets are the places where the sources of capital are accessed. •Technology markets are the market for ideas and know-how. •Vendor markets are sources for all products, services and personnel. •Product markets and competition are where buyers, sellers and competitors meet. •Public perception is the image of the Enterprise in the minds of the public.

Slide 11: WHAT THE ENTERPRISE IS AND HOW IT IS STRUCTURED The Wealth of Enterprises by William T. Nolan ENTERPRISE STRUCTURE vs. MANAGEMENT STRUCTURE Enterprise structure is the architecture of the organization, while management structure is how people are organized to manage the Enterprise and to fully employ all its resources. The word “structure” should be reserved for The Enterprise as a whole, i.e. Form, Function and Forces. The word “organization” should apply to management, i.e. how the people are organized to accomplish the tasks of The Enterprise.

Slide 12: WHAT THE ENTERPRISE METHOD IS AND HOW IT WORKS The Wealth of Enterprises by William T. Nolan The Enterprise Method is the steering mechanism by which the Enterprise is guided and managed. The major part of the steering mechanism, other than the driver, is the Business Plan which management uses to guide the Enterprise to its destination. The Business Plan is also the road map which management can use to navigate the Enterprise to its destination.

Slide 13: WHAT THE ENTERPRISE METHOD IS AND HOW IT WORKS The Wealth of Enterprises by William T. Nolan CONSTRUCTION OF THE ENTERPRISE METHOD The Enterprise Method is constructed similar to the scientific method, as follows:

Slide 14: WHAT THE ENTERPRISE METHOD® IS AND HOW IT WORKS The Wealth of Enterprises by William T. Nolan RULES OF THE ROAD FOR THE ENTERPRISE Below is a set of simple rules which will help its leader steer the Enterprise effectively and, hopefully, without accident to its destination. 5. The Enterprise exists to meet customer demand with competitive products and services. 2. The Enterprise must make a profit. Its output must be greater than its input. 3. The six Elements of Form are essential to the nature of the Enterprise and all must be successful for the Enterprise to be successful. 4. The six Functions are essential to the operation of the Enterprise, but some can be outsourced, with the exception of governance, strategy and culture.

Slide 15: WHAT THE ENTERPRISE METHOD® IS AND HOW IT WORKS The Wealth of Enterprises by William T. Nolan RULES OF THE ROAD (PART 2) 5. The Enterprise must have free access to its markets with minimal regulation. 6. Enterprises relate to other Enterprises only through markets or market forces. 7. All financing takes place at the corporate level. 8. Cash can only come into the Enterprise through the corporation from investors, lenders and customers.

Slide 16: HOW TO ANALYZE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan There are three new analytical tools developed in order to help analyze and manage the Enterprise. These tools are designed to fit the Enterprise structure, Form, Function and Forces, so that the whole Enterprise can be addressed. The person helming the Enterprise is not just responsible for the vessel, the crew or the cargo separately, but is also responsible for assuring that the whole entity arrives at port safely. These three tools are:

Slide 17: HOW TO ANALYZE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan Model One: Enterprise Scoring System for strategic analysis, which is primarily an analytical tool to evaluate Enterprise Strategy. Model Two: Enterprise Rating System, developed jointly with ThinkSheet, Inc., is used by analysts to rate and rank Enterprises against their competition for valuation and analytical purposes. It is used by managers to identify opportunities and problems and act on them. Model Three: Issues Analysis, which is used by senior management and directors for corporate governance, resource allocation, problem identification, recommendations and solutions. These analytics are simple yet very powerful, and can be employed by Analysts, Managers and Directors in the normal course of their business day.

Slide 18: HOW TO MANAGE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan The strategy of the Enterprise is different from the strategies for the individual elements of the Enterprise, specifically the business strategy or the product strategy. The Enterprise strategy must be comprehensive and must also apply to the whole Enterprise and all its elements, and not just to individual elements or businesses. Below follows a table which compares the Basic Business Plan to the Enterprise Plan:

Slide 19: HOW TO MANAGE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan BUSINESS PLAN VS. ENTERPRISE PLAN TABLE Basic Business Plan Enterprise Plan Goals Goals •Specific Goals for each Strategic •Overall Goal: Satisfy the customer at a Business Unit (SBU) profit to the shareholder •How best to serve customer and •Value Proposition, for the customer: integrate with the rest of the Enterprise “Low prices every day.” (Slogan, Battle •If independent, how would this SBU be Cry) managed and governed •Vision or Mission Statement •5 year growth plan •Governance – Responsibility •Culture – Performance & Accountability •Integration of all Enterprise Activities – (Unity of Labor) Objectives Objectives •Revenue and profit targets – annual •Targets for Revenue & Profit Growth and quarterly •Organic vs. inorganic growth - % •Directives from “Corporate” •Industry Position - #1 or #2 •Market share targets •New Product Development •Contributions to the Enterprise and to •Validate Business Model annually other SBU’s such as profits, cash, R&D sharing, product synergies, personnel, etc.

Slide 20: HOW TO MANAGE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan BUSINESS PLAN VS. ENTERPRISE PLAN TABLE (PART 2) Strategy Strategy •Business Model for the SBU •Verification of goals and objectives •Specific plans to achieve annual •Inventory of Enterprise resources objectives •Match goals and objectives with •What is the strategy of the SBU and resources how does it integrate with the •Allocation of resources Enterprise Strategy? •Differentiation – Divide tasks (Division of Labor) •Clearly stated and forcefully communicated •Customer oriented Structure Structure •Determined by strategy and tasks, •Flat, flexible, dynamic, responsive such as manufacturing, service, •Reduce layers of management and production (films), etc. bureaucracy •Specific marketing and sales plans for •Minimum of rules and regulations each product •Delegate authority and responsibility to Point of Impact •Use management structure that works: -Formal vs. Informal -Centralized vs. Decentralized -Production vs. Service -Hierarchy vs. Flat -Authoritarian vs. Democratic •Restructure as per Strategy

Slide 21: HOW TO MANAGE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan BUSINESS PLAN VS. ENTERPRISE PLAN TABLE (PART 3) Plans & Budgets Plans & Budgets •Specific for each division and product •Marketing & Sales •Specific marketing and sales plans for •Public Relations each product •Business Processes •Product Development •Finance, Accounting & Control •Human Resources •Information Technology Projections Projections 1. SBU Pro Forma •Pro Forma & Consolidated •How do all the numbers fit together? •Economic Synergy

Slide 22: HOW TO MANAGE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan WARNING SIGNS Here are some warning signs that an Enterprise is weak (note that this list is not comprehensive):  Aging leadership  Concentration of power and authority at the top  Ill-defined strategy and plan  Extreme autocracy  Rigidness and inflexibility  Inward-looking culture  Old technology and stale products  Insensitive and unresponsive to customers and changing market conditions  Failed strategies  Excessive perks

Slide 23: HOW TO MANAGE THE ENTERPRISE The Wealth of Enterprises by William T. Nolan POSITIVE SIGNS  A healthy and growing Enterprise will be open and outward looking. It will have new technology and fresh products, which represent a high percentage of revenue. It will be responsive to customers and changing market conditions. It will have a flexible management structure and a clearly defined strategy. A successful Enterprise will welcome full disclosure.  With a real and complete view of an Enterprise, directors and managers should now be equipped to set priorities, make decisions and implement them with successful results. Management is both art and science, becoming more specific everyday.

Slide 24: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan CHECKS AND BALANCES Checks and balances are the self-regulating systems embedded in the Enterprise to assure compliance with internal as well as external rules and regulations. They are the self-adjusting mechanisms, like the wheels and springs of a clock that keep the Enterprise working smoothly. The checks and balances, for the purpose of governance of the Enterprise, can be divided into seven distinct areas:

Slide 25: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan 1. Reporting. The first and primary set of checks and balances because every officer or manager must report to a senior officer, to the Board of Directors, to the Shareholders or to regulatory authorities. 3. Authority. It is imperative that authority at each level of the Enterprise be defined very clearly and be sufficient to carry out the tasks at hand. 5. Control. A system of rewards and punishments whereby which checks and balances become effective. 7. Responsibility. Each person of the Enterprise is responsible for his or her own actions, and also for the consequences of these actions. 9. Accountability. The process by which people of the Enterprise, especially senior management is held responsible for their actions. 11. Business Plans, budgets and the Enterprise Plan are the bases for comparing forecasts versus actual results. 13. Employment contracts, especially with senior management, should reflect this proper set of rewards and punishments based on results achieved during the tenure.

Slide 26: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan While it is a primary responsibility of governance to set priorities, it is equally important to assure their communication and implementation throughout the Enterprise. THE ENTERPRISE METHOD® FOR GOVERNANCE Governance is the directed exercise of authority and control. Traditionally, this has been applied to the Board of Directors with the idea being that members of the Board were given governance authority by the shareholders to control and direct the corporation.

Slide 27: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan Specifically, there are seven responsibilities, or functions, that are incumbent upon any Board hoping to fulfill its mandate. They are as follows: 3. To execute the mandate of the shareholders. 4. To establish and enforce governance policies. 5. To review and approve the business plan and strategy. 6. To allocate financial resources throughout the Enterprise. 7. To select and supervise senior management, especially the Chief Executive Officer and the Chief Financial Officer. 8. To ensure compliance with all applicable laws and regulations. 9. To ensure the survival of the corporation. It is clear from the list above that the concept of governance is best seen in this context as the very “to govern”. Governance is the active pursuit of the best interests of the Enterprise, not mere compliance with the wishes of the CEO.

Slide 28: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan GOVERNANCE SYLLOGISM There is a causal relationship between governance and the results of the Enterprise which can best be seen in the Governance Syllogism: Unity of Labor Unity of Labor is the unifying force which binds the Enterprise together. It is the collective will of all parties involved to work together to accomplish the common goal of the Enterprise. The theory of the Unity of Labor is the collective decision of individuals to organize themselves to satisfy their mutual self-interest and, thereby to accomplish the common good. It is the summation of the Corporate Contracts. ↓

Slide 29: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan GOVERNANCE SYLLOGISM (PART 2) Principles 1. To execute the mandate of the shareholders. 2. To establish and enforce governance policies. 3. To review and approve the business plan and strategy. 4. To allocate financial resources throughout the Enterprise. 5. To select and supervise senior management, especially the Chief Executive Officer and the Chief Financial Officer. 6. To ensure compliance with all applicable laws and regulations. 7. To ensure the survival of the corporation. ↓

Slide 30: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan GOVERNANCE SYLLOGISM (PART3) Culture Culture is the character and spirit of the firm which is unique to each and every Enterprise. It is the collective conscience of the Enterprise. The soul of the Enterprise is its culture, its spirit, and its esprit des corps. ↓ Standards The measure of behavior and the criteria for success. A code of conduct. Management sets the targets to be met and the strategy to accomplish them. Business Plans. ↓

Slide 31: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan GOVERNANCE SYLLOGISM (PART 4) Behavior Desired activity and plans. Operating budgets. ↓ Results Customer satisfaction as represented by sales and profits. ↓ Wealth The accumulation of profits. Wealth is revenue one pence greater than costs. –Charles Dickens

Slide 32: HOW TO GOVERN THE ENTERPRISE The Wealth of Enterprises by William T. Nolan RESPONSIBILITY OF THE BOARD OF DIRECTORS There are seven specific responsibilities that are incumbent upon any Board hoping to fulfill its mandate. They are: 4. To ensure the survival of the corporation. 5. To allocate financial resources throughout the Enterprise. 6. To establish and enforce governance policies. 7. To select and supervise senior management, especially the Chief Executive Officer and the Chief Financial Officer. 8. To ensure compliance with all applicable laws and regulations. 9. To execute the mandate of the shareholders. 10. To review and approve the business plan and strategy. Governance is not the law; it is the 10 Commandments or their equivalent for organizational behavior.

Slide 33: CONCLUSION The Wealth of Enterprises by William T. Nolan This new and holistic understanding of the Enterprise will promote greater cooperation among all stakeholders to work together to create value for customers and wealth for all. It will also allow you to move beyond the concept of stakeholder which is passive and implies ownership without responsibility and risk. Be a partner in progress, in prosperity, and in peace, if and when all Enterprises are allowed to compete freely and fairly without coercion.

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