Value Based Management
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1©Focused Management Information Inc. August 1999 (Rev 4)
Value Based ManagementValue 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, PresidentFocused Management Information Inc.
2©Focused Management Information Inc. August 1999 (Rev 4)
Agenda
Introduction /Why and What
IsValue Based Management
Introduction /Why and What
IsValue Based Management
How do youimplement
Value Based Management?
How do youimplement
Value Based Management?
What should you do next?
What should you do next?
3©Focused Management Information Inc. August 1999 (Rev 4)
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!
4©Focused Management Information Inc. August 1999 (Rev 4)
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
5©Focused Management Information Inc. August 1999 (Rev 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: The bottom line: VBM = PerformanceVBM = Performance
6©Focused Management Information Inc. August 1999 (Rev 4)
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
7©Focused Management Information Inc. August 1999 (Rev 4)
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
8©Focused Management Information Inc. August 1999 (Rev 4)
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
©Focused Management Information Inc. August 1999 (Rev 4)
PERFORMANCE
Stakeholder Needs / ValuesCustomers• Employees• Regulators• Owners• Investors
Objective Behavior
Consequences
Feedback
Performer
CUSTOMERStep1 Step 2
Best Practices
Activity BasedCosting/
Budgeting
Performance Measurement
/ Scorecard
T
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Q
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FINANCIAL
Strategy
Process• Goals• Results
Organization• Values• Goals• Results
Activities• Goals• Results
QUANTITY
Value Based Management Framework
Process Management
Human PerformanceOrganization
Design &Compensation
10©Focused Management Information Inc. August 1999 (Rev 4)
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 definedmeasurements and goals is critical to
accomplishment of the desired values / goals
11©Focused Management Information Inc. August 1999 (Rev 4)
Agenda
Introduction /Why and What
IsValue Based Management
Introduction /Why and What
IsValue Based Management
How do youimplement
Value Based Management?
How do youimplement
Value Based Management?
What should you do next?
What should you do next?
12©Focused Management Information Inc. August 1999 (Rev 4)
Two Cycles in VBM
Implementation Design DetailedAnalysis
Rapid Prototype
VBM
T
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Q
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L
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FINANCIAL
Strategic Plan
Process• Goals• Results
Organization• Values• Goals• Results
Activities• Goals• Results
QUANTITY
Foundation / Planning Cycle On-Going Management Cycle
Performance
13©Focused Management Information Inc. August 1999 (Rev 4)
VBM Implementation Stages
Implementation Design DetailedAnalysis
Rapid Prototype
VBM
14©Focused Management Information Inc. August 1999 (Rev 4)
VBM Rapid Prototype Delivers
• A complete status report • Gaps identified • Actions and plans agreed
15©Focused Management Information Inc. August 1999 (Rev 4)
VBM Rapid Prototype Involves
Implementation Design Rapid
PrototypeVBM
DetailedAnalysis
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)
16©Focused Management Information Inc. August 1999 (Rev 4)
VBM AnalysisDelivers
• Economic profile linking SVA to processes• Processes analyzed / disconnects identified • Profitability by segment / cost of processes• Design options defined and approved
17©Focused Management Information Inc. August 1999 (Rev 4)
VBM Analysis
Involves
Implementation Design DetailedAnalysis
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)
18©Focused Management Information Inc. August 1999 (Rev 4)
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
19©Focused Management Information Inc. August 1999 (Rev 4)
VBM Design Involves
Implementation Design DetailedAnalysis
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)
20©Focused Management Information Inc. August 1999 (Rev 4)
VBM ImplementationDelivers
• 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
A completely aligned organization, measurementand management system including some or all of the following:
21©Focused Management Information Inc. August 1999 (Rev 4)
VBM Implementation
Implementation Design DetailedAnalysis
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
22©Focused Management Information Inc. August 1999 (Rev 4)
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
23©Focused Management Information Inc. August 1999 (Rev 4)
Agenda
Introduction /Why and What
IsValue Based Management
Introduction /Why and What
IsValue Based Management
How do youimplement
Value Based Management?
How do youimplement
Value Based Management?
What should you do next?
What should you do next?
24©Focused Management Information Inc. August 1999 (Rev 4)
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
Phone (905) 829-2658
Phone (613) 230-9379