Philippe Haspeslagh
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
 |
