Values Based Management

Value Based Management
Farman Islamli, Member
VBM is the need for the companies to be successful. By this way every manager can know his/her role and status to create value.
This helps them to see the future of the company and their future in the company. A reasonable manager believes much more and tries to improve his/her results and naturally the results of the company.

Value Based Management
Henry Steyn, Member
The definition and application of value based management is clear cut. For further reading and understanding of the subject I would recommend the following text book: 'Valuation: Measuring and Managing the Value of Companies'.
Measurement is based on discounted cash flow analysis emphasising the primary reason for a company's existence - its ability to generate positive cash flow over the long term.
Corporate responsibility should not be confused with this clearly defined and applied business management approach.

Value Based Management: Client Orientation
H. Bosman, Member
Value based management has nothing to do with shareholders or stakeholders. It's a client orientation.
What matters is the valuation of the client regarding the services and products of the company. A valuable campany means valuable business.

To Evaluate the Value
Erika Bellander, Member
In order to evaluate what is value you need philosophies and tools to do so. Everything from assets, people, systems, facilities, to relational things as a built up organization, communication profiles, culture can be regarded as value.
The culture for example is then the result of many things, like leadership styles, customer acceptance, knowledge and skills, people in the actual group etc.
Last is the value as seen by investors, society etc, to have this business and its outcome.
So total value management must deal with how to understand, visualize and work with the value, before you can have any VBM at all?! Am I right?

Don't Kill the Goose That Delivers the Golden Egg
Ted Garrison, Member
Harban's comments are valid - however - true value based management adds value to all stakeholders.
Unfortunately, it's virtually impossible to give everyone equal value. A company must provide value to its stockholders or they will not invest their capital.
No business should destroy the environment. A company must fairly compensate its workers or it will not keep qualified people and will decline.
The social responsibility is the hard one. People that expect too much social responsibility from a company (in essence something for free) can kill the goose that delivers the golden egg. If the company stays profitable it will hire people thus providing jobs - that is probably the biggest social benefit of a business assuming you don't place not destroying the environment as #1.
Of course, a business is like any other citizen - it needs to be socially responsible - and should contribute what it can legitimately afford, just like individuals. The problem is when society wants to bleed them dry which costs jobs.

German Legal Definition of an Enterprise Is: a Business Activity with to Goal to Achieve Profit
Peter Jetter, Member
The German legal definition of an enterprise (simplified) is: a business activity with the goal to achieve profit.
Most companies implement this as: "goal = maximize profit"
And profit is used here in the sense: measurable in monetary units.
I believe the above is largely true for the whole global economy.
Consequently social responsibility, work/life balance, environmental consciousness are only means to maximise profit. If these tools improve profit, companies use them. If not, then using them is not a profitable activity. Consequently efforts (budget) will be spend in more profitable means.
There are no intrinsic ethics in economics. Ignoring or denying doesn't change that fact. While I personally believe, continuing this way will ultimately worsen the well being of most humans, I see little scientific efforts to find solutions to that problem. What are effective actions to change the global economy in such a way, that long-term, sustainable improved well being of most humans will be achieved?

True Value Based Management..
Jaap de Jonge, Editor
@Peter Jetter : Indeed in the past there have been companies that implemented VBM as "maximize profit" or - even worse - "maximize short term profit".
While the VBM concept aims at generating LONG term (shareholder) VALUE.
Ted is also right to say true value based management adds value to ALL STAKEHOLDERS, although that happens typically indirectly.

VBM is Different Than Profit
Jose Luis Roces, Premium Member
@Jaap de Jonge: an interesting discussion about VBM; there is also a great confusion between value and profit. Value is a relation between function (or benefits) and costs. Profit is income less costs. Not always something or somebody valuable is also profitable.
In my opinion the only scorecard of business is profit... But people take decisions around value. The stockholders, the customers and the employees. How to develop an equitable sense of value for each stakeholder is the big question...
Capitalism is risky when we speak only of profit and worst with recognition only of short term profit...

Value are More Than Profit!
Erika Bellander, Member
I think too that profit is not all there is too a value, the value is comprised of what all stakeholders expect from their participation or engagement, from investor st to customers, products or service at a certain price or quality, profit, reputation, fringes, knowledge, social community participation, proudness etc. The list may be long and differs from one branch to another. So this makes the VBM pretty hard, and that is why I prefer to talk about the business stream management. What is the inlet and what is the outlet and what happens inside that is the real value turnover, and yes, this is a tricky issue that a good manager know how to handle. The business cannot be understood only by the profit, or some other monetarian figures, you have also to include non-monetarian values to understand what is really to manage. This is at least my perception.

Profit is not what Matters!
Jaap de Jonge, Editor
@Jose Luis Roces: I certainly agree value and profit are two different things. In VBM terminology and philosophy, what matters is not profit. Because how much profit is earned, is determined by accounting conventions, which can be manipulated - see earnings management). What matters instead is true, long term economic value that is created by the firm (which can be calculated via methods such as Economic Value Added). Some people including myself proposed to also include other forms of value for other constituents as well.

Profit to Whom is a Value Question for the Business?
Erika Bellander, Member
It's depends on your financial calculations if you use net profit, profit margin, turnover/employee or volume sold or what.
The accounting issues as you say Jaap, accounting numbers are never a pure figure. Some like to use EBIT or similar internally in the business, but still these numbers are not all..
That´s why we nowadays use the full scorecard, BSC or another like my Turbine, to determine what the gains are. By doing that you can gain in knowledge, culture, improved communication or quality etc. All these cost money but still there is a value when they are achieved, because these will stabilize and/or improve your income.

VBM is Different Than Profit
Jose Luis Roces, Premium Member
I am on the same frequency with Erika and Jaap. After working as a manager during 35 years and as management professor in the last ten, I couldn´t find this type of concepts in the theories and models which are considered in the management methods.
I put my ideas and experience in a book, "Lasting value", but it is in Spanish. I believe we must revise our traditional paradigm around profit as the only and final score. Crisis and corruption all around the world explain this better than my words.

Comparing Apples and Oranges: Cost in €, Value In???
Peter Jetter, Member
@Erika Bellander: That was my dilemma in 14 years of competence development.
You can easily show it costs money. How can you proof it was reasonable to spend that money instead of putting the money on the bank or pay another sales guy? Worthiness is expressed as an equation: cost < benefit. Equations only work on identical units of measurement.
in the fight for budgets it is not sufficient to have a positive business case. You have to proof, your case is more profitable than all the other cases competing for the budget. I found that near impossible with intangible benefits.

Manage Value(s) for Whom?
Olaf de Hemmer, Member
If you take the value of something for somebody as the balance between what he take from it and what he gives to have it (in/out, or functions/costs...) then you discover value cannot be dimensioned in $€ only!
Even value for shareholders: they typically provide the company $€ at a certain time and are expecting $€ later (more, in a ratio linked to the risk of having less...). But different shareholders will have different levels of expectations: expected rate, timing, risk sensitivity... And many expect different things: image, security, synergies with other businesses... You'll need to dimension all this is something else than $€!?
If you take value for customers: they provide $€ to the company, against needs satisfaction, image... Even emotions! How do you measure this in $€? Of course you need 'customer satisfaction' measures.
The same for each stakeholders needs and costs: these values have to be managed in a BSC + CSR approach, in a 'system' view.