Value Based Management

Drive value for key stakeholders

Focus your business on what counts - relentlessly
Facilitate deployment of strategy and management
philosophy
Establish accountability at all levels

Paul A. Sharman, President

Focused Management Information Inc.
Focused Management Information Inc. August 1999 (Rev 4)

Agenda

Introduction
Introduction//
Why
Whyand
andWhat
What
Is
Is
Value
ValueBased
Based
Management
Management
Focused Management Information Inc. August 1999 (Rev 4)

How
Howdo
doyou
you
implement
implement
Value
ValueBased
Based
Management?
Management?

What
Whatshould
should
you
youdo
donext?
next?

The Problem(s)
Shareholders want bigger returns
We are losing business to competitors on price and on performance
Customer expect high quality at low price
We are not easy to do business with
We dont pay enough attention to our important customers
Todays structure does not support the segmentation strategy
Financial information gets attention, but it isnt enough
Our employees understand the need to change, but they dont
Customers want a single problem owner
We are not able to adapt quickly to new business opportunities

There are many complex and inter-related

concerns. The combination is killing us!
Focused Management Information Inc. August 1999 (Rev 4)

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

Focused Management Information Inc. August 1999 (Rev 4)

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 / SVA/ CFROI, etc.
streamlined processes that deliver
business facts to manage the business
motivated and accountable people
waste eliminated

The bottom line: VBM = Performance

Focused Management Information Inc. August 1999 (Rev 4)

What is VBM?
Value-based management (VBM)
A discipline that focuses on the management of the
organization holistically
Emphasizes the creation of value as defined by its
stakeholders and priorities defined by management
Focuses on the deployment of strategy and value
creation by managing processes, activities, jobs,
compensation and organization structure
Uses analytical methods, facts, computing
/communications technology in an integrated
framework
Focused Management Information Inc. August 1999 (Rev 4)

Why Value?
The creation of value is the primary goal of managers
in leading companies

Organizations exist to create value for all

constituencies / stakeholders

Stakeholders include customers, owners, managers,

employees, suppliers and society in general
Organizations determine the degree to which they will
prioritize the interests of each stakeholder group and
will therefore balance performance goals accordingly

A new Manifesto for Management, Sumantra Ghoshal, Christopher A. Bartlett & Peter Moran. Sloan
Management Review Spring 1999, Vol. 40, Number 3

Focused Management Information Inc. August 1999 (Rev 4)

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
Focused Management Information Inc. August 1999 (Rev 4)

Value Based Management Framework

Strategy
Stakeholder Needs / Values
Customers
Employees
Regulators
Owners
Investors

Organization
Values
Goals
Results

I
M
E

Q
U
A
L

Step1

CUSTOMER

Step 2

Process Management
Objective

Process
Goals
Results

Behavior

Consequences
Performer

Activities
Goals
Results

Feedback

F
I I
N
TAQ
N
U
YCA
I
AN
LT
I
T
Y

Performance
Measurement
/ Scorecard

Best Practices

Organization
Design &
Compensation

Human Performance
PERFORMANCE
Focused Management Information Inc. August 1999 (Rev 4)

Activity Based
Costing/
Budgeting

VBM and Measurement

People behave as they are measured
The only purpose for measurement is to influence
human behavior
The emphasis in measurement must be
New Conditions, Future State and Desired
Performance

Therefore, disciplined application of defined

measurements and goals is critical to
accomplishment of the desired values / goals
Focused Management Information Inc. August 1999 (Rev 4)

Agenda

Introduction
Introduction//
Why
Whyand
andWhat
What
Is
Is
Value
ValueBased
Based
Management
Management
Focused Management Information Inc. August 1999 (Rev 4)

How
Howdo
doyou
you
implement
implement
Value
ValueBased
Based
Management?
Management?

What
Whatshould
should
you
youdo
donext?
next?

Two Cycles in VBM

Foundation / Planning Cycle

On-Going Management Cycle

Strategic Plan
T

Rapid
Prototype
VBM

Organization
Values
Goals
Results

Detailed
Analysis

Design

I
M
E

Implementation

U
A
L

Process
Goals
Results

Activities
Goals
Results

Performance
Focused Management Information Inc. August 1999 (Rev 4)

F
I I
N
TA
NQ
U
YC
I A
AN
LT
I
T
Y

VBM Implementation
Stages
Rapid
Prototype
VBM

Focused Management Information Inc. August 1999 (Rev 4)

Detailed
Analysis

Design

Implementation

VBM Rapid Prototype

Delivers
A complete status report
Gaps identified
Actions and plans agreed

Focused Management Information Inc. August 1999 (Rev 4)

VBM Rapid Prototype

Involves
Rapid
Prototype
VBM

Detailed
Analysis

What it is:
3-4 week analysis
Situation analyzed
Values, directions and priorities agreed
VBM plan developed and agreed

Focused Management Information Inc. August 1999 (Rev 4)

Design

Implementation

What you have to do:

Executives provide 4 hours up front
Provide access to key staff
Provide access to data
Attend 2 executive workshops (4-6 hours)

VBM Analysis
Delivers
Economic profile linking SVA to processes
Processes analyzed / disconnects identified
Profitability by segment / cost of processes
Design options defined and approved

Focused Management Information Inc. August 1999 (Rev 4)

VBM Analysis
Involves
Rapid
Prototype
VBM

Detailed
Analysis

What it is:
3-6 month analysis of performance
of key aspects of the business
Design assumptions established
Design specifications created / approved

Focused Management Information Inc. August 1999 (Rev 4)

Design

Implementation

What you have to do:

Provide teams of employees / data
Set goals
Participate in steering team meetings
Attend 4 executive workshops (4-6 hours)

VBM Design
Delivers
Detailed process & organization specifications
Scorecards developed at all 3 levels:
Org, Proc, Job
Change management planned
Detailed specifications for data
Information Portal specifications
Activity & process budgets developed

Focused Management Information Inc. August 1999 (Rev 4)

VBM Design
Involves
Rapid
Prototype
VBM

Detailed
Analysis

What it is:
2 month design processes and
organization
Detailed design recommendations
Implementation plan agreed

Focused Management Information Inc. August 1999 (Rev 4)

Design

Implementation

What you have to do:

Provide teams of employees
Participate in steering team meetings
Attend 1 management workshop (2 days)

VBM Implementation
Delivers
A completely aligned organization, measurement
and management system including some or all
of the following:

Process owners assigned

Change management implemented
Process changes implemented
Process Scorecards implemented
Individual Scorecards implemented
New computer and communications
software implemented

Focused Management Information Inc. August 1999 (Rev 4)

Organization design implemented

New job descriptions developed
Training requirements identified and
conducted
Incentive compensation changes
implemented
Activity and process budgets implemented

VBM
Implementation
Rapid
Prototype
VBM

Detailed
Analysis

What it is:
4+ month implementation of new
measures / processes / organization
New measures and goals accepted
Employees in different jobs

Focused Management Information Inc. August 1999 (Rev 4)

Design

Implementation

What you have to do:

Provide teams of employees
Assign employees to new roles
Participate in steering team meetings
Drive implementation

VBM Information Portals for

Communicating with all Constituencies
Distribution of consistent and appropriate
measurement information to everyone in the
organization is fundamental to execution of VBM
Use of computer technologies - data warehouse,
OLAP and presentation layer software provide
the media of distribution
It is the media that facilitates organization change.
The marriage of management philosophy with
technology and the imperative to create value
The media is represented by the presentation of
current measures and performance information on
computer screens to all accountable parties
The suite of tools includes software to perform
simulation modeling of processes and economic performance

Focused Management Information Inc. August 1999 (Rev 4)

Sample Measurement
Scorecard / Dashboard

Agenda

Introduction
Introduction//
Why
Whyand
andWhat
What
Is
Is
Value
ValueBased
Based
Management
Management
Focused Management Information Inc. August 1999 (Rev 4)

How
Howdo
doyou
you
implement
implement
Value
ValueBased
Based
Management?
Management?

What
Whatshould
should
you
youdo
donext?
next?

Next Steps
Complete a simple series of self assessment questions
Review results with an FMI representative
Undertake initial review of VBM with sponsor executives
Launch Fast Track VBM
Visit our WEB SITE or contact us at:
www.FocusedManagement.com
psharman@focusedmanagement.com
Phone (905) 829-2658
dmoorcroft@focusedmanagement.com
Phone (613) 230-9379
Focused Management Information Inc. August 1999 (Rev 4)