New management perspectives for enhancing organizational performance are countless, from TQM, to empowerment, constant improvement, flat organizations, kaizen, reengineering, team building or more. While many have been put into the limelight, few have lived up to it. This is where value-based management copes with issues head on. Value is the clear, stable metric on which any organization needs to be built in order to be successful. The process of understanding how value based management functions are effective forms the core of the IBID perspective for growth.
What Value Means
A company’s value is assessed on the basis of its discounted cash flows in the future up ahead. Value results when companies make investments in capital returns that exceed capital cost. The focus is on the manner in which companies make strategic as well as daily operating choices and decisions. Effectively executed, this perspective forms the main stay of the David Barzilay management approach. The aim is to align the company’s overall aspirations, management processes and analyses to focus on key value drivers.
Better Decision Making
As per the David Barzilay management mantras, management should not involve a top down approach. Instead, the focus should be on making decisions at different levels of the organization. Rather than command plus control structures, large investor groups and corporations need to use value oriented metrics of performance for skilled decision making. This entails management of the cash flow, balance sheet or even the income flow statement and a chance to balance perspectives in the long and short run.
Profits in Plenty
Value based management brings in tremendous benefits. It offers restructuring to attain optimal value on a continuous basis. It works well, has deep impact and yields enhanced economic performance. However, value based management requires strategy, precision and planning.
Moving Past Methods
The focus of value based management, according to the David Barzilay management team, is focused on not methodology, but the how and why of transitioning corporate culture. A value oriented manager gets deeper interest in organizational behavior as a decision making, performance measuring tool.
Right Information, Correct Incentives
As envisioned by the David Barzilay management team, an organization attains value based management when decision-makers at various levels are provided with the correct data and bonuses for decisions that create value. Value based management enables people to come up with strategies and incentives to enable value maximization. This incentive is crafted by financial targets set by upper management, assessment and reward systems that promote value creation. Review of strategy processes between managers and superiors and the own evaluation based on targets across short and longer terms measures progress towards objectives for value creation.
Value based management operates at the level of front end management as well. Value based management ensures that people are aware of the immense importance of their strategies and evaluate the merger, acquisition or divestitures in a bias-free manner.
Value oriented management is blend of management processes and systems and value creation mindset to convert this into action. When taken singularly, each element lacks sufficiency. Taken together, there is massive sustained impact.
Value creation mindsets mean managers are aware the ultimate objective is just that. Clear rules are in place for deciding how to go about value creation and other goals exceed this imperative. Solid analytical grounding of performance linked variables drive company value. Additional value is created by bolstering growth of revenue or enhancing margins. Strategy needs to focus resources and concentration on the right options. Management systems, procedures and processes permit employees and managers to work in ways that maximize company value. Planning, setting targets, measuring performance and incentive systems work efficiently when communication is deeply linked to creation of value.
Creating Value Mindsets
According to the David Barzilay management team, embracing maximization of value is the ultimate objective for companies that want to grow. Value creation goes beyond traditional performance measures like earnings growth or earnings. For focusing on creation of value, goals should be set as discounted flow of cash value. The direct metric of value creation is essential for consideration. These targets need to be translated into short term, objective performance targets for financial excellence.
Additionally, companies require non-financial goals, concerning product innovation, customer satisfaction and employee motivation to guide and inspire the complete organization. These objectives do not come in the way of value maximization. Prosperous companies need to excel in just these areas. Objectives need to be customized to different organizational levels. For business unit heads, the objective needs to be explicit creation of value in terms of finance. But for functional management, goals should be in terms of market share, quality of product or service, productivity and customer service. Manufacturing managers need to focus on cost for each unit, cycle-time or detection rate of defects. Fresh products need to be developed and their performance contrasted with competition. Members are confronted with various choices to measure performance. But the IBID Group believes that value creation is the best criterion to judge performance.
Taking a Long Term View
It is also essential to take a long term value and manage the wider picture. Discounted money flow valuations ahead of the game are important. Companies focusing on net income or sales returns are lacking in vision and overlook balance sheet add-ons and chances for growth such as working-capital’s enhancement or efficiency in capital expenditure. Changing to a value mindset can transform making of decisions.
A critical part of value based management is to understand the performance variables that contribute to the value of a business. These are key value drivers. Understanding is essential as the organization cannot act directly on value. Acting on things that can be influenced such as capital expenditure, cost and customer satisfaction come into play. Value drivers effect the growth of a company. They need to be organized to have great impact on value and assign responsibility for individuals to help organizations to meet their targets.
Most managers and companies need to think about business in value creation terms. Value based management can only succeed when it permeates the entire organization. Value based management for better decisions can lead to long term value maximization. That remains an enduring goal of the IBID Group.