Value-Based Management

Submitted by,Abin M.PMBA 14

Value-Based Management

Definition for Value based management VBM is a managerial process which effectively links strategy, measurement and operational processes to the end of creating shareholder value (CIMA, 2004) .

What is 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.

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.

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.

Behavioural -such as getting managers to understand the new measures and avoiding complexity.

Technical - getting the right data, volatility in WACC, the reliability of assumptions .

Organisational - overcoming internal resistance, the significant effort and time required for implementation.

Managerial support from Top Management.

VBM The Challenges

ConclusionImplementation of VBM by various Fortune 100 companies has proven the effectiveness of VBM in creating and increasing firms value.

Companies need to adopt VBM with performance measures that is relevant and suitable to their organisations.

Top management support and commitment will ensure smooth implementation of VBM.

To maintain the competitive edge and continue to create value performance metrics adopted need to be constantly monitored and assessed.

Thank You