Value Based Management
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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.
©Focused Management Information Inc. August 1999 (Rev 4)
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Agenda
How do you
implement
Value Based
Management?
What should
you do next?
Introduction /
Why and What
Is
Value Based
Management
©Focused Management Information Inc. August 1999 (Rev 4)
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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 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!
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Why VBM? - Because organizations have to
change constantly in order to meet expectations
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Superior executive performance is defined by delivery of value - to
investors, customers, employees and others who have material influence
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Growth in market value is a key to executive survival and the winning
organization
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Executives need new skills, new tools and a responsive organization to
deliver value
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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 what’s important in a holistic
manner:
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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
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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
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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
Stakeholder Needs / Values
Customers
• Employees
• Regulators
• Owners
• Investors
Activity Based
Costing/
Budgeting
T
Organization
• Values
• Goals
• Results
I
M
E
Q
U
A
L
Step1
CUSTOMER
Step 2
Process Management
Objective
Process
• Goals
• Results
Behavior
Consequences
Performer
Activities
• Goals
• Results
Feedback
Performance
Measurement
/ Scorecard
Best Practices
Organization
Design &
Compensation
Human Performance
PERFORMANCE
©Focused Management Information Inc. August 1999 (Rev 4)
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YCA
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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
©Focused Management Information Inc. August 1999 (Rev 4)
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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
©Focused Management Information Inc. August 1999 (Rev 4)
11
Two Cycles in VBM
Foundation / Planning Cycle
On-Going Management Cycle
Strategic Plan
T
Organization
• Values
• Goals
• Results
Rapid
Prototype
VBM
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M
E
Detailed
Analysis
Design
Implementation
Q
U
A
L
Process
• Goals
• Results
Activities
• Goals
• Results
F
I I
N
TA
NQ
U
YC
I A
AN
LT
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T
Y
Performance
©Focused Management Information Inc. August 1999 (Rev 4)
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VBM Implementation
Stages
Rapid
Prototype
VBM
Detailed
Analysis
©Focused Management Information Inc. August 1999 (Rev 4)
Design
Implementation
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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
Prototype
VBM
Detailed
Analysis
What it is:
• 3-4 week analysis
• Situation analyzed
• Values, directions and priorities agreed
• VBM plan developed and agreed
©Focused Management Information Inc. August 1999 (Rev 4)
Design
Implementation
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)
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VBM Analysis
Delivers
• 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
What it is:
• 3-6 month analysis of performance
of key aspects of the business
• Design assumptions established
• Design specifications created / approved
©Focused Management Information Inc. August 1999 (Rev 4)
Design
Implementation
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
©Focused Management Information Inc. August 1999 (Rev 4)
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VBM Design
Involves
Rapid
Prototype
VBM
Detailed
Analysis
What it is:
• 2 month design processes and
organization
• Detailed design recommendations
• Implementation plan agreed
©Focused Management Information Inc. August 1999 (Rev 4)
Design
Implementation
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 Implementation
Delivers
A completely aligned organization, measurement
and management system including some or all
of the following:
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Process owners assigned
Change management implemented
Process changes implemented
Process Scorecards implemented
Individual Scorecards implemented
New computer and communications
software implemented
©Focused Management Information Inc. August 1999 (Rev 4)
• 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
Rapid
Prototype
VBM
Detailed
Analysis
What it is:
• 4+ month implementation of new
measures / processes / organization
• New measures and goals accepted
• Employees in different jobs
©Focused Management Information Inc. August 1999 (Rev 4)
Design
Implementation
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
Sample Measurement
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
©Focused Management Information Inc. August 1999 (Rev 4)
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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
©Focused Management Information Inc. August 1999 (Rev 4)
23
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@focusedmanagement.com
Phone (905) 829-2658
dmoorcroft@focusedmanagement.com
Phone (613) 230-9379
©Focused Management Information Inc. August 1999 (Rev 4)
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