Value%20Based%20Management

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Value Based Management

• Drive value for key stakeholders
• Focus your business on what counts - relentlessly
• Facilitate deployment of strategy and management
  philosophy
• Establish accountability at all levels

Paul A. Sharman, President Focused Management
Information Inc.
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Agenda
What should you do next?
How do you implement Value Based Management?
Introduction / Why and What Is Value Based
Management
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The Problem(s)

• Shareholders want bigger returns
• We are losing business to competitors on price
  and on performance
• Customer expect high quality at low price
• We are not easy to do business with
• We dont pay enough attention to our important
  customers
• Todays structure does not support the
  segmentation strategy
• Financial information gets attention, but it
  isnt enough
• Our employees understand the need to change, but
  they dont
• Customers want a single problem owner
• We are not able to adapt quickly to new business
  opportunities
• There are many complex and inter-related
  concerns. The combination is killing us!

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Why VBM? - Because organizations have to change
constantly in order to meet expectations

• Superior executive performance is defined by
  delivery of value - to investors, customers,
  employees and others who have material influence
• Growth in market value is a key to executive
  survival and the winning organization
• Executives need new skills, new tools and a
  responsive organization to deliver value
• Possession of facts is critical when making high
  risk decisions
• Information Portals provide consistent
  communication to employees and other stakeholders

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Benefits of VBM

• Focus the efforts of people in the organization
  on driving to achieve whats important in a
  holistic manner
• satisfied customers
• correctly assigned resources
• growing profits / SVA/ CFROI, etc.
• streamlined processes that deliver
• business facts to manage the business
• motivated and accountable people
• waste eliminated
• The bottom line VBM Performance

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What is VBM?

• Value-based management (VBM)
• A discipline that focuses on the management of
  the organization holistically
• Emphasizes the creation of value as defined by
  its stakeholders and priorities defined by
  management
• Focuses on the deployment of strategy and value
  creation by managing processes, activities, jobs,
  compensation and organization structure
• Uses analytical methods, facts, computing
  /communications technology in an integrated
  framework

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Why Value?

• The creation of value is the primary goal of
  managers in leading companies
• Organizations exist to create value for all
  constituencies / stakeholders
• Stakeholders include customers, owners, managers,
  employees, suppliers and society in general
• Organizations determine the degree to which they
  will prioritize the interests of each stakeholder
  group and will therefore balance performance
  goals accordingly
• A new Manifesto for Management, Sumantra Ghoshal,
  Christopher A. Bartlett Peter Moran. Sloan
  Management Review Spring 1999, Vol. 40, Number 3

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What Values?

• Values depend on the stakeholder, however,
  examples
• might be
• Markets and owners expect that economic value be
  created
• Customers may expect to obtain desired goods and
  services on time and at competitive prices
• Employees may expect a substantive and meaningful
  job with commensurate compensation
• Suppliers may expect to be paid on time
• Society may expect that their environment will be
  improved

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Value Based Management Framework
Strategy
Activity Based Costing/ Budgeting

• Stakeholder Needs / Values
• Customers
• Employees
• Regulators
• Owners
• Investors

T I M E

• Organization
• Values
• Goals
• Results

Q U A L I T Y
Performance Measurement / Scorecard
F I N A N C I A L

• Process
• Goals
• Results

Q U A N T I T Y
Process Management
Best Practices
Objective
Behavior

• Activities
• Goals
• Results

Consequences
Performer
Organization Design Compensation
Feedback
Human Performance
PERFORMANCE
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VBM and Measurement

• People behave as they are measured
• The only purpose for measurement is to influence
  human behavior
• The emphasis in measurement must be New
  Conditions, Future State and Desired Performance

Therefore, disciplined application of
defined measurements and goals is critical to
accomplishment of the desired values / goals
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Agenda
What should you do next?
How do you implement Value Based Management?
Introduction / Why and What Is Value Based
Management
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Two Cycles in VBM
Foundation / Planning Cycle
On-Going Management Cycle
Performance
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VBM Implementation Stages
Implementation
Design
Detailed Analysis
Rapid Prototype VBM
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VBM Rapid Prototype Delivers

• A complete status report
• Gaps identified
• Actions and plans agreed

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VBM Rapid Prototype Involves
Implementation
Design
Rapid Prototype VBM
Detailed Analysis
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VBM AnalysisDelivers

• Economic profile linking SVA to processes
• Processes analyzed / disconnects identified
• Profitability by segment / cost of processes
• Design options defined and approved

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VBM Analysis Involves
Implementation
Design
Detailed Analysis
Rapid Prototype VBM

• What it is
• 3-6 month analysis of performance of key
  aspects of the business
• Design assumptions established
• Design specifications created / approved

• What you have to do
• Provide teams of employees / data
• Set goals
• Participate in steering team meetings
• Attend 4 executive workshops (4-6 hours)

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VBM Design Delivers

• Detailed process organization specifications
• Scorecards developed at all 3 levels Org,
  Proc, Job
• Change management planned
• Detailed specifications for data
• Information Portal specifications
• Activity process budgets developed

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VBM Design Involves
Implementation
Design
Detailed Analysis
Rapid Prototype VBM

• What it is
• 2 month design processes and
• organization
• Detailed design recommendations
• Implementation plan agreed

• What you have to do
• Provide teams of employees
• Participate in steering team meetings
• Attend 1 management workshop (2 days)

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VBM ImplementationDelivers
A completely aligned organization,
measurement and management system including some
or all of the following

• Process owners assigned
• Change management implemented
• Process changes implemented
• Process Scorecards implemented
• Individual Scorecards implemented
• New computer and communications
• software implemented

• Organization design implemented
• New job descriptions developed
• Training requirements identified and
• conducted
• Incentive compensation changes
• implemented
• Activity and process budgets implemented

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VBM Implementation
Implementation
Design
Detailed Analysis
Rapid Prototype VBM

• What it is
• 4 month implementation of new
• measures / processes / organization
• New measures and goals accepted
• Employees in different jobs

• What you have to do
• Provide teams of employees
• Assign employees to new roles
• Participate in steering team meetings
• Drive implementation

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VBM Information Portals for Communicating with
all Constituencies

• Distribution of consistent and appropriate
  measurement information to everyone in the
  organization is fundamental to execution of VBM
  
• Use of computer technologies - data warehouse,
  OLAP and presentation layer software provide
  the media of distribution
• It is the media that facilitates organization
  change. The marriage of management philosophy
  with technology and the imperative to create
  value
• The media is represented by the presentation of
  current measures and performance information on
  computer screens to all accountable parties
• The suite of tools includes software to perform
  simulation modeling of processes and economic
  performance

Sample Measurement Scorecard / Dashboard
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Agenda
What should you do next?
How do you implement Value Based Management?
Introduction / Why and What Is Value Based
Management
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Next Steps

• Complete a simple series of self assessment
  questions
• Review results with an FMI representative
• Undertake initial review of VBM with sponsor
  executives
• Launch Fast Track VBM

Visit our WEB SITE or contact us
at www.FocusedManagement.com psharman_at_focusedmana
gement.com Phone [phone] dmoorcroft_at_focused
management.com Phone [phone]