Relevance of Value Based Management in Global Change

Value Based Management (VBM) is the management philosophy and approach that enables and supports maximum value creation in organizations, typically the maximization of shareholder value. VBM encompasses the processes for creating, managing, and measuring value.

The value creation process requires an understanding of the attractiveness of the market or industry where one competes, coupled with one’s competitive position relative to other players. Once this understanding is established and is linked with key value chain drivers for cash flow and profitability, competitive strategy can be established or modified to maximize future returns.

The three elements of Value Based Management:

• Creating Value. How the company can increase or generate maximum future value. More or less equal to strategy.
• Managing for Value. Governance, change management, organizational culture, communication, leadership.
• Measuring Value. Value Based Management is dependent on the corporate purpose and the corporate values. The corporate purpose can either be economic (Shareholder Value) or can also aim at other constituents directly (Stakeholder Value).

Benefits of Value Based Management

• Can maximize value creation consistently.
• It increases corporate transparency.
• It helps organizations to deal with globalized and deregulated capital markets.
• Aligns the interests of (top) managers with the interests of shareholders and stakeholders.
• Facilitates communication with investors, analysts and communication with stakeholders.
• Improves internal communication about the strategy.
• Prevents undervaluation of the stock.
• It sets clear management priorities.
• Facilitates to improve decision making.
• It helps to balance short-term, middle-term and long-term trade-offs.
• Encourages value-creating investments.
• Improves the allocation of resources.
• Streamlines planning and budgeting.
• It sets effective targets for compensation.
• Facilitates the use of stocks for mergers or acquisitions.
• Prevents takeovers.
• It helps to better manage increased complexity and greater uncertainty and risk.

Phases to developing a Value-based corporate culture:

1. Assessment:

Determine the company’s position on its values culture and figure out what the values need to be.

2. Improve initiatives:

To develop improvement initiatives that tightly align to the strategies developed means that they must contain measures and outcomes that link directly to the measures and outcomes stated in the strategy. To do this, management must look inward to its knowledge workers for solutions. This requires that management to communicate its strategies and objectives. It requires management to view the organization in terms of how its processes function and to pose challenges to cross functional groups that represent those processes.

Take the example of a car manufacturer who might have a strategy to improve customer satisfaction with its cars by building cars with low price, high mileage, good design, 5 years warranty etc. the management than organize a team of knowledge workers to purpose ways to achieve the goal. The team would comprise collectively and explore how to reduce material weight, streamline production, and develop engines that to achieve the goal.

All organizations have implicit values, yet few have taken the trouble to make them explicit. Aligning Values with the management practice is the essential component.

3. Program development:

Once the company determines where it stands on its selected values, it decides how to make progress towards them. Create a code of conduct that represents the ethical values established during assessment. Keep the code precise, based directly on the selected values. Establish a training plan for getting the required information to everyone working with the company.

Employees are not the only one’s to introduce to the new effort. Do not forget about vendors and contracted staff, though the company may introduce them to the program after its successful internal launch. Each of these other stakeholders needs training based on their role in the business.

4. Program Implementation:

Communicating the program effectively throughout the organization is an essential to a successful program. Communicating the program frequently is another important success factor. Distribute the “Code of Conduct” and train people so they understand it. Verify that all levels of staff are getting the desired message. Establish an anonymous reporting system to raise questions about the values and any suspected lapse. If the company is successful with investigations, several things can happen. First, giving each incident the appropriate investigation will establish the credibility of the program.

5. Re-assessment and Modification:

After the initial implementation of the program’s major elements, review if again. Find out the communications effective in getting the right message to all levels of staff.

6. Evaluation:

This process is more comprehensive than the re-assessment. It comes on a less frequent basis, usually annually. Consider adding questions about the ethic s program to your annual employee questionnaire. This will not only help the evacuation process but can also moderate the costs of gathering such information. Re-evaluating the program and keeping it relevant are essential to its continued health. Remember that ethics are about people and how they interact. The program is about building a culture that supports sound decision-making based on respect for all stakeholders. That asset is a way to draw concerned parties into the company culture and create an environment where they all can be productive.

Recent happenings about accounting practices, conflicts of interest, document shredding and retaliation against employees in companies heighten interest in spiritual values.