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.
Lucintel assists clients in understanding the dynamics and underlying forces in the materials and manufacturing industries, including specific product, application or geographic markets, as well as their company’s strengths and weaknesses compared to others.
Building on our industry and market knowledge, extensive industry database, and familiarity with key industry players, we employ rigorous analytical techniques, such as Porter’s five forces and GE/McKinsey matrix models, to provide business intelligence that allows clients to accurately assess their competitive position and formulate strategic options that will create increased value.
Based on our specialization in the materials and manufacturing industry, we are able to uniquely offer benchmarked analysis that provides clients with clear insights and support in the development of their value maximizing strategy for this industry.
Value Based Management aligns a company’s overall aspirations, analytical techniques, and management processes with the key drivers of value.
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).
Importance of Value Based Management
Any (large) company operates and is competing in multiple markets:
- The market for its products and services.
- The market for corporate management and control (competition on determining who is in charge of an organization, threat of takeover, restructuring and/or a Leveraged Buy-out).
- The capital markets (competing for investors’ favor and money).
- The employees and managers market (competition for company image and ability to attract top talent).
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.