Value Creation Index

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Summary

What is the Value Creation Index. Description

The Value Creation Index is a tool that was designed to quantify the link between an organization's non-financial performance and its valuation in the markets.

Traditional methods of assessing organizational performance are no longer adequate in today's economy. The price of a stock is less and less determined by earnings or its asset base. Value creation in today's companies is increasingly represented by the intangible drivers like innovation, people, ideas, and brand.

But these non-financial factors for creating value are difficult to quantify. Also they are rarely acknowledged in accounting methods. Finally they are not adequately measured, not adequately managed, and not adequately reported, by organizations.


The Cap Gemini Ernst & Young (CGE&Y) Center for Business Innovation (CBI) created a tool to quantify the link between an organization's non-financial performance, creating value and a firm's valuation in the markets. Their so called "Value Creation Index" not only quantifies the impact of non-financial performance on market value, but also identifies the specific intangibles that drive value for a given industry. Models have been created for a number of industries, including financial services, airlines, pharmaceuticals, telecommunications, and other sectors.


While the crucial non-financial value drivers vary for each industry, the value creation research team has settled upon some critical categories of intangible performance that determine corporate value creation.


Categories of intangible performance that determine corporate value creation

  • Innovation.

  • Customer relations.

  • Management capabilities.

  • Alliances.

  • Technology.

  • Brand value.

  • Employee relations.

  • Environmental and community issues.

As of 2002, the Center for Business Innovation (CBI) was discontinued unfortunately.


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Value Creation in Cross-Border Mergers and Acquisitions

International M&A, Value Creation
Cross-border M&As are subject to a set of factors that affect the value created by international M&As. These factors are (...)
Information Sources

Various sources of information regarding the Value Creation Index. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


Managing Intangible Assets in Higher Education

Intellectual Capital, Higher Education, Higher Education
1. Agenda 2. Growing Importance of Intangible Assets 3. Necessity to Actively Manage IPR 4. Research on Intangible As (...)

Value Framework

Multi-Dimensionality of Value
Achim Seisreiner and Sebastian Traeger argue that a multi-dimensional value framework will help Value Based Management ( (...)

Beyond Financials

Determinants of value creation
Research by Marcelo J. Rossi DBA concludes that 8 determinants (quality of management, quality of products and services, (...)

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