Professional Documents
Culture Documents
VBM has been developed to facilitate the realization of the objective Create value for share holders Institutional Investors have begun exerting influence on corp. mgmts. to create value. Business press emphasizes shareholder value creation in performance rating Top management compensation is linked to shareholder value creation
Marakon Approach
Specify the financial determinants of value. Understand strategic drivers of value. Formulate higher value strategies. Develop superior organizational capabilities.
Market Economics: Intensity of indirect competition, Threat of entry, Supplier Pressures, Regulatory Pressures, Intensity of direct competition, Customer Pressures. Possible sources of relative economic advantage are:
Access to cheaper raw materials, Efficient processes, Low cost distribution channels, Superior management, Economies of scale.
Participation strategy: Which business to enter which to exit? Competitive Strategy: Product differentiation, configure and manage business unit costs, pricing.
Competent and energetic CEO who is fully committed to the highest degree to shareholder wealth maximization. Corporate Governance that promotes the highest degree of accountability for creation and destruction of value. Top mgmt pay based on the philosophy Relative pay for Relative Performance
Zero based resource allocation Funding strategies and not projects. Principle of no capital rationing. Zero tolerance for bad growth.
Alcar Approach
Rate of Sales Growth Operating Profit Margin Income Tax Rate Investment in Working Capital Fixed Capital Investment Cost of Capital Length of the high growth period
Mckinsey Approach
Ensure the supremacy of value maximization Find the value drivers Establish appropriate managerial processes. Implement value-based management properly.
The focus of VBM should not be on methodology. It should be on the why and how of changing your corporate culture. A value-based manager is as interested in the subtleties of organizational behavior as in using valuation as a performance metric and decision-making tool.
Value-based management can best be understood as a marriage between a value creation mindset and the management processes and systems that are necessary to translate that mindset into action.
Why VBM? - Because organizations have to change constantly in order to meet expectations
Superior executive performance is defined by delivery of value - to investors, customers, employees and others who have material influence Growth in market value is a key to executive survival and the winning organization Executives need new skills, new tools and a responsive organization to deliver value Possession of facts is critical when making high risk decisions Information Portals provide consistent communication to employees and other stakeholders
Benefits of VBM
Focus the efforts of people in the organization on driving to achieve whats important in a holistic manner:
satisfied customers correctly assigned resources growing profits streamlined processes that deliver business facts to manage the business motivated and accountable people waste eliminated
Why Value?
The creation of value is the primary goal of managers in leading companies Organizations exist to create value for all constituencies / stakeholders
managers,
Organizations determine the degree to which they will prioritize the interests of each stakeholder group and will therefore balance performance goals accordingly
What Values?
Values depend on the stakeholder, however, examples might be:
Markets and owners expect that economic value be created Customers may expect to obtain desired goods and services on time and at competitive prices Employees may expect a substantive and meaningful job with commensurate compensation Suppliers may expect to be paid on time Society may expect that their environment will be improved
I M E
Step1
Step 2
CUSTOMER
Process Management
Objective
Behavior
Best Practices
Consequences Performer
Feedback
Human Performance
PERFORMANCE
Focused Management Information Inc. August 1999 (Rev 4)