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Why Value Based Management? Benefits

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Organizations serve a purpose. They exist to deliver certain value(s). Organizations also use a tremendous amount of time, effort, investments, assets and resources.

So it makes perfect sense to ensure, manage, measure, monitor, encourage and support that maximum value is realized. This is what Value Based Management is all about.

 

Another way to explain why Value Based Management is important is to realize that your organization is operating and competing in four markets:

1. the market for its products and services

2. the market for corporate management and control (competition on determining who is in charge of an organization, threat of takeovers, restructuring and/or leveraged buyouts)

3. the capital markets (competition for investors' favor and savings)

4. the employee and managers market (competition for company imago and ability to attract top talent)

Value Based Management can help organizations to win in each of these 4 markets. Failure to be competitive on one or more of these markets will seriously jeopardize the survival chances of a corporation.

 

In recent years, accounting metrics have turned out to be very unreliable. This also supports the emergence of new value-based metrics such as Economic Value Added, CFROI, Market Value Added and other valuation mechanisms.

 

The following comprehensive list of benefits of Value Based Management clearly demonstrates why Value Based Management is by far the most powerful mechanism existing today to manage corporations:

Compare: Drawbacks of VBM  |  What is Value Based Management  |  History of VBM



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