Value Management is a Secret for all Leader’s Success

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Value Management is a Secret for all Leader’s Success

“Management is, above all, a practice where art, craft, and science meet” by Henry Mintzberg.

Value Management:

Value Management is the management philosophy that allows & supports maximum value creation in organizations, generally the maximization of shareholder value. Value management aims to improve & enduring a desirable balance between the needs and wants of stakeholders and the resources required to satisfy them. Stakeholder value judgments differ, and Value Management harmonizes various priorities to deliver optimum value for all stakeholders.

Value Management is all about: Organizational Improvement, define clear ambitions, improving productivity, creativity & return on investment. To maximize profit, Value Management is the key. It is an approach to management that aligns a company’s general desire, analytical techniques & management processes to focus management decision-making on the key drivers of value.

Value Management is a fundamental concept applied within existing management systems, focusing on functional drivers & objectives before finding solutions, particularly dedicated to encouraging people, developing skills, fostering teamwork & innovation, to maximize the complete performance of an organization.

Value Management principles can produce massive results if it is applied sharply. It is mainly bothered with the generation of feasible value, either at the product, project, process, organizational or social level.

Value Management has 4 principles: 

  1. Building up value orientation.
  2. Applying Function Thinking. 
  3. Applying a Structured Holistic Approach.
  4. Managing Risk, Complexity & Uncertainty.

        These principles are supported by four drivers which are; a collaborative style of managing; motivating positive human dynamics; considering both internal & external environments; and applying proven methods & tools.

        Value Management

        Value Management encloses the processes for creating, managing & measuring value. The value creation process needs an understanding of the charisma of the market or industry where one competes. Once this understanding is set up and is associated with key-value chain drivers for cash flow & profitability, competitive strategy can be initiated or transformed to maximize future returns.

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        Importance of Value Management

        1. It helps the organizations to market their products & services in an optimum and successful trend.
        2. It helps to attract investors for the organizations resulting in the achievement of the financial goals & objectives.
        3. It helps the organization to draw up the levels of corporate management & control that helps it reforming the hierarchy, and make it ready for the threat of takeover & buy-out.
        4. It helps the organization to build a likable image in the market that will attract top talent from the industry.

              Three elements of Value Management

              1. Creating Value-

              Value Management process focuses on helping organizations to generate & increase the future value of the company. It is like a business strategy.

              2. Managing for Value

              It includes aspects like organizational culture, leadership, governance, changes management & communication.

              3. Measuring Value-

              Value Management techniques are dependent on the corporate purpose & values. The corporate purpose can either be economic or can aim at Stakeholder Value.

              Benefits of Value Management

              Value management if applied sharply, offers the benefits like-

              1. Better business decisions, “right first time”, which can be supported by customers, users & other stakeholders by offering decision-makers with a sound, transparent basis for their decisions.
              2. Improving communication & efficiency through multi-disciplinary and multi-task teamwork & focused collaboration.
              3. Increased effectiveness by organizing & using funds, time, and resources to best effect, delivering better social, environmental, economic & financial outcomes.
              4. It helps organizations to deal with globalized & deregulated capital markets by facilitating technical & organizational innovation and resource efficiency.
              5. It helps to better manage increased complexity & greater uncertainty and risk.
              6. Tangible returns on investment of between 20 & 40 times the resource commitment is not untypical.
              7. Significant benefits in terms of improved working relationships & organizational learning.

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              Value Management Process

              1. Value Maximization-

              The first step is taking up value maximization as the final financial objective for a company. Managers should have a sound analytical understanding of which performance variables drive the value of the company. Objectives must be customized to the various levels within an organization such as into financial & non-financial types.

              The financial goals help the management to maintain focus whereas the non-financial goals work as a motivational factor for the complete workforce of the organization. Financial activities include amplifying earnings per share, maximizing the price ratio & increasing the return on assets. The non-financial activities involve customer satisfaction, product development & quality improvement procedures. The financial goals contain value maximization and are always prioritized over the non-financial ones.

              2. Identifying the Value Drivers

              Key-value drivers of the company are critical aspects of the organization that affect the value of the business in the market. This understanding is necessary because an organization can’t act directly on value. It has to act on things it can influence like capital expenditures, customer satisfaction, cost & so on. Through these value drivers, senior management learns to understand the rest of the organization. Value drivers should be organized so that managers can identify which have the greatest impact on value & assign responsibility for them to individuals who can help the organization meet its targets.

               The different levels at which the key drivers need to be identified are:

              The Generic Level– Generic value drivers can be sales growth, operating margins & capital turns. The variables here are directly identified that helps in the achievement or non-achievement of the value maximization objectives. 

              The Department Level- At this level, those variable factors which guide the several departments of the organization in the fulfillment of the objectives are identified. 

              The Grass-Root Level or Operational level- Here, the variables that expose the performance at the operational level are identified such as managing the cost of inventory, utilization of capital, and more.

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              3. Strategy Development-

              The step includes developing well-planned strategies at all levels of the company that is compatible with an objective of value maximization. All the strategies should have the maxim for the achievement of the desired level of the key value drivers of the company.

              At the corporate level, strategy is firstly about deciding what businesses to be in, how to utilize possible alliances across business units & how to allocate resources across businesses. At the business-unit level, strategy development generally needs identifying alternative strategies, valuing them & choosing the one with the highest value. The chosen strategy should clarify how the business unit will attain a competitive advantage that will permit it to create value.

              4. Target Setting

              If strategies for maximizing value are agreed upon, now frame the specific targets. Targets are the way management communicates what it expects to attain. Without targets, organizations don’t know where to move forward. All the targets should be in harmony with one another at all levels. Targets should include both financial & non-financial targets.

              5. Action Plans-

              The action plan modifies strategy into particular steps which an organization will take to attain the targets. The plans must identify the actions so that it can systematically chase its goals.

              6. Performance Measurement-

              The last step involves setting up a performance measurement system that is accurate & apparent. Combine financial & operating performance in the measurement. It should be associated with the targets set & has to present the goals and characteristics of each department.

              Final word

              As with any major program of organizational change, top management needs to understand and support the implementation of Value Management and value management techniques. Though active top management support is a necessary condition for the successful implementation of Value Management, it is not sufficient in itself. Value management must pervade the entire organization. It should be used regularly for making better decisions.

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