Management is, above all, a practice where art, craft, and science meet.
Henry Mintzberg
Value Management
Value Management is the management philosophy that allows & supports maximum value creation in organizations, generally the maximization of shareholder value. Further, It aims to improve & ensure a desirable balance between the needs and wants of stakeholders and the resources required to satisfy them. So, Stakeholder value judgments differ, and Value Management harmonizes various priorities to deliver optimum value for all stakeholders.
Value Management is all about Organizational Improvement, defining clear ambitions, improving productivity, creativity & return on investment. To maximize profit, Value Management is the key. Furthermore, 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 that applies within existing management systems, focusing on functional drivers & objectives before finding solutions, particularly dedicated to encouraging people, developing skills, and fostering teamwork & innovation, to maximize the complete performance of an organization.
Value Management principles can produce massive results if it is applied sharply. It mainly concerns the generation of feasible value, either at the product, project, process, organizational or social level.
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Value Management has 4 principles
- Building up value orientation.
- Applying Function Thinking.
- Applying a Structured Holistic Approach.
- Managing Risk, Complexity as well as 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 encloses the processes for creating, managing & measuring value. So, 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 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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Leader’s Tip
Concentrate on generating and providing value to customers, stakeholders, and the entire organisation.
Importance of Value Management
- It helps the organizations to market their products & services in an optimum as well as successful trend.
- It helps to attract investors for the organizations resulting in the achievement of the financial goals as well as objectives.
- 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.
- It helps the organization to build a likable image in the market that will attract top talent from the industry.
Three elements
1. Creating Value
Value Management process focuses on helping organizations to generate as well as increases the future value of the company. So, It is like a business strategy.
2. Managing for Value
It includes aspects like organizational culture, leadership, governance, changes management as well as 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
Value management if applied sharply, offers the benefits like-
- Better business decisions, “right first time”, which can support customers, users & other stakeholders by offering decision-makers a sound, transparent basis for their decisions.
- Improving communication as well as efficiency through multi-disciplinary and multi-task teamwork & focused collaboration.
- Increased effectiveness by organizing & using funds, time, and resources to best effect, delivering better social, environmental, economic & financial outcomes.
- It helps organizations to deal with globalized & deregulated capital markets by facilitating technical & organizational innovation and resource efficiency.
- It helps to better manage increased complexity & greater uncertainty as well as risk.
- Tangible returns on investment of between 20 & 40 times the resource commitment is not untypical.
- Significant benefits in terms of improved working relationships & organizational learning.
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Leader’s Tip
Assess and prioritise value opportunities on a continuous basis, aligning strategy and resources accordingly for optimum impact.
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 customize 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 prioritize 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 organize 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 that 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 identifies 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 agrees 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. So, It should be used regularly for making better decisions.
Frequently Asked Questions
What are the benefits of value management?
Value management if applied sharply, offers the benefits like-
- 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.
- Improving communication & efficiency through multi-disciplinary and multi-task teamwork & focused collaboration.
- Increased effectiveness by organizing & using funds, time, and resources to best effect, delivering better social, environmental, economic & financial outcomes.
What is value project management?
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.
Key Takeaways
- Understanding and optimising the value delivered by products, services, processes, and decisions is what value management entails.
- A customer-centric perspective, strategic thinking, and a proactive approach to value generation are required for effective value management.
- Leaders that embrace value management may promote innovation, improve customer happiness, and achieve long-term success in a volatile company environment.