Managing for Value: It's not Just About the Numbers

Managing for Value: It's not Just About the Numbers

Article Summary

Philippe Haspeslagh, Tomo Noda and Fares Boulos explain how it is possible that for many companies, value based management has brought only mediocre results, but for a select few, VBM has led to sustained increases in profits and stock prices.

In this superb article 'Managing for Value: It's not Just About the Numbers' in the Harvard Business review of July-August 2001 they explain that Value Based Management works only if you understand that VBM is about cultural more than financial change.

Overcoming resistance to change is perhaps the most difficult management challenge.

Backed by statistical results of a survey under 271 responding companies, 5 VBM- approaches have turned out to be highly correlated with success:

1. Explicit commitment to Shareholder Value

2. Use extensive training for all employees

3. Use broadly shared incentive compensation to build ownership

4. Empower Business Units to make value-creating decisions

5. Make broad - not deep - changes to processes and systems and keep VBM measurements relatively simple

The writers finish by saying that Managing for Value is not capable to solve every problem. According to their survey, the top-10 contributions of Value Based Management to long-term changes are the following:

1. determine where value is created or destroyed in the company

2. make employees appreciate that capital has a cost

3. make managers focus on the balance sheet

4. allocate resources towards the most productive uses

5. make sure business units make profits that cover the costs of capital

6. make managers act like the owners of the company

7. improve communications between business units and the corporate center

8. ground important decisions in factual analysis

9. improve stock price compared to peer group

10. make strategic planning less of a paper exercis

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