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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. Agenda. What should

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Value Based Management

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Value based management l.jpg

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.


Agenda l.jpg

Agenda

What should

you do next?

How do you

implement

Value Based

Management?

Introduction /

Why and What

Is

Value Based

Management


The problem s l.jpg

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

    There are many complex and inter-related concerns. The combination is killing us!


Why vbm because organizations have to change constantly in order to meet expectations l.jpg

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


Benefits of vbm l.jpg

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


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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


Why value l.jpg

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


What values l.jpg

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


Value based management framework l.jpg

Step1

Step 2

CUSTOMER

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

HumanPerformance

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


Agenda11 l.jpg

Agenda

What should

you do next?

How do you

implement

Value Based

Management?

Introduction /

Why and What

Is

Value Based

Management


Two cycles in vbm l.jpg

Strategic Plan

T

I

M

E

  • Organization

  • Values

  • Goals

  • Results

Q

U

A

L

I

T

Y

Rapid

Prototype

VBM

Detailed

Analysis

Design

Implementation

F

I

N

A

N

C

I

A

L

  • Process

  • Goals

  • Results

Q

U

A

N

T

I

T

Y

  • Activities

  • Goals

  • Results

Two Cycles in VBM

Foundation / Planning Cycle

On-Going Management Cycle

Performance


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VBM Implementation Stages

Rapid

Prototype

VBM

Detailed

Analysis

Design

Implementation


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VBM Rapid Prototype Delivers

  • A complete status report

  • Gaps identified

  • Actions and plans agreed


Vbm rapid prototype involves l.jpg

  • What it is:

  • 3-4 week analysis

  • Situation analyzed

  • Values, directions and priorities agreed

  • VBM plan developed and agreed

  • What you have to do:

  • Executives provide 4 hours up front

  • Provide access to key staff

  • Provide access to data

  • Attend 2 executive workshops (4-6 hours)

VBM Rapid Prototype Involves

Rapid

Prototype

VBM

Detailed

Analysis

Design

Implementation


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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

Rapid

Prototype

VBM

Detailed

Analysis

Design

Implementation

  • 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)


Vbm design delivers l.jpg

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


Vbm design involves l.jpg

VBM Design Involves

Rapid

Prototype

VBM

Detailed

Analysis

Design

Implementation

  • 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)


Vbm implementation delivers l.jpg

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


Vbm implementation l.jpg

VBM Implementation

Rapid

Prototype

VBM

Detailed

Analysis

Design

Implementation

  • 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


Vbm information portals for communicating with all constituencies l.jpg

VBM Information Portals for Communicating with all Constituencies

Sample Measurement

Scorecard / Dashboard

  • 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


Agenda23 l.jpg

Agenda

What should

you do next?

How do you

implement

Value Based

Management?

Introduction /

Why and What

Is

Value Based

Management


Next steps l.jpg

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

[email protected]

Phone (905) 829-2658

[email protected]

Phone (613) 230-9379


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