Value Based Management

Contemporary Managment

4th Assignement

AAGSB - MBA

Prepared By :
Hazem Saeed Ahmed
 Agenda

Introduction
Introduction/ /
Why How
Howdodoyou
WhyandandWhat
What you
IsIs implement
implement
Value Value
ValueBased
ValueBased
Based Based
Management Management?
Management?
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

Schneider Electric - Division - Name – Date 2

 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 don’t pay enough attention to our ‘important’ customers
Today’s structure does not support the segmentation strategy
Financial information gets attention, but it isn’t enough
Our employees understand the need to change, but they don’t
Customers want a single problem owner
We are not able to adapt quickly to new business opportunities

Schneider Electric - Division - Name – Date 3

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

Schneider Electric - Division - Name – Date 4

 Benefits of VBM

●Focus the efforts of people in the organization on

driving to achieve what’s 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

Schneider Electric - Division - Name – Date 5
 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
Schneider Electric - Division - Name – Date 6
 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

Schneider Electric - Division - Name – Date 7

 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

Schneider Electric - Division - Name – Date 8

Value Based Management
Framework
Strategy
Stakeholder Needs / Values Activity Based
T Costing/
Customers Organization
• Employees I Budgeting
• Values Q
• Regulators • Goals M
• Owners U
• Results E
• Investors A

L Performance
F
I I
Measurement
Process
• Goals
N / Scorecard
T AQ
Step1 Step 2 CUSTOMER

• Results N
Process Management YC
U
I A
AN
L T Best Practices
Objective Behavior I
T
Consequences Activities Y
Performer
• Goals
• Results
Feedback Organization
Human Performance Design &
Compensation
PERFORMANCE

Schneider Electric - Division - Name – Date 9

 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

Schneider Electric - Division - Name – Date 10

 Agenda

How
Howdodoyou
you
implement
implement
Value
ValueBased
Based
Management?
Management?

Introduction
Introduction/ /
Why
WhyandandWhat
What
IsIs
Value
ValueBased
Based
Management
Management

Schneider Electric - Division - Name – Date 11

 Two Cycles in VBM
Foundation / Planning Cycle On-Going Management Cycle

Strategic Plan

T
Organization
I
• Values Q
• Goals M
U
• Results
E
Rapid A
Detailed
Prototype Design Implementation
Analysis L
VBM F
Process I I
N
• Goals
T A
• Results NQ
U
YC
I A
AN
L T
I
T
Activities Y
• Goals
• Results

Performance

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 VBM Implementation
Stages

Rapid
Detailed
Prototype Design Implementation
Analysis
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

Rapid
Detailed
Prototype Design Implementation
Analysis
VBM

What it is: What you have to do:

• 3-4 week analysis • Executives provide 4 hours up front
• Situation analyzed • Provide access to key staff
• Values, directions and priorities agreed
• Provide access to data
• VBM plan developed and agreed • Attend 2 executive workshops (4-6 hours)

Schneider Electric - Division - Name – Date 15

 VBM Analysis
Delivers

Economic profile linking SVA to processes

Processes analyzed / disconnects identified
Profitability by segment / cost of processes
Design options defined and approved

Schneider Electric - Division - Name – Date 16

 VBM Analysis
Involves

Rapid
Detailed
Prototype Design Implementation
Analysis
VBM

What it is: What you have to do:

• 3-6 month analysis of performance • Provide teams of employees / data
of key aspects of the business • Set goals
• Design assumptions established • Participate in steering team meetings
• Design specifications created / approved • Attend 4 executive workshops (4-6 hours)

Schneider Electric - Division - Name – Date 17

 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

Schneider Electric - Division - Name – Date 18

 VBM Design
Involves

Rapid
Detailed
Prototype Design Implementation
Analysis
VBM

What it is: What you have to do:

• 2 month design processes and • Provide teams of employees
organization • Participate in steering team meetings
• Detailed design recommendations • Attend 1 management workshop (2 days)
• Implementation plan agreed

Schneider Electric - Division - Name – Date 19

 VBM Implementation
Delivers
A completely aligned organization, measurement
and management system including some or all
of the following:
• Process owners assigned • Organization design implemented
• Change management implemented • New job descriptions developed
• Process changes implemented • Training requirements identified and
• Process Scorecards implemented conducted
• Individual Scorecards implemented • Incentive compensation changes
• New computer and communications implemented
software implemented • Activity and process budgets implemented

Schneider Electric - Division - Name – Date 20

 VBM Implementation

Rapid
Detailed
Prototype Design Implementation
Analysis
VBM

What it is: What you have to do:

• 4+ month implementation of new • Provide teams of employees
measures / processes / organization • Assign employees to new roles
• New measures and goals accepted • Participate in steering team meetings
• Employees in different jobs • Drive implementation

Schneider Electric - Division - Name – Date 21

 VBM Information Portals for
Communicating with all
Constituencies
● Distribution of consistent and appropriate
measurement information to everyone in the Sample Measurement
organization is fundamental to execution of VBM Scorecard / Dashboard
● 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

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