WHAT IS VALUE MANAGEMENT?[1]

Value Management is a discipline dedicated to identifying the items that create value (i.e. shareholder wealth) in a company, in particular how some companies derive greater value than others via unique combinations of assets. These items (known as “value drivers”) are then isolated and analyzed, then analyzed again in combination. Some of these value drivers can be located outside the organization, such as for example a very special relationship with a given supplier, a licensing agreement that offers particular competitive advantage, or a Board member who consistently offers unique insight. By the same token, a company may have instances of value-destruction: the most common example comes from companies that emphasize market share more than profit margins, thus over time turning branded goods into commodities.

Professors Franco Modigliani (MIT) and Merton Miller (Univ. of Chicago) were awarded a Nobel prize for their proposition that the value of a business is a function of its future cash flows, discounted by a rate that reflects both the volatility of those cash flows and the opportunity cost of capital. But Value Management goes well beyond Finance. It is a mindset, a discipline, to be constantly pursued and perfected. Value Management impacts the whole organization, from how it relates to its suppliers to the way bonuses are calculated.

Value Management consultants aim to show their clients how to increase shareholder wealth by identifying the Value Drivers of that organization, in particular those that are unique to that company (what Michael Porter quite aptly calls “defensible niches”), enhance them while minimizing the impact of client activities that, although quite defensible at first glance, ultimately destroy value.

Value Drivers can be of five different types: Employee and Supplier, Physical, Financial, Customer, and Organizational.

How can these precepts and principles migrate to Executive Search, Assessment and Coaching?[2] :
• Every executive is, consciously or not, a very unique “brand”, and seeks to maximize the value of that brand throughout his/her professional life[3] .
• Most coachable issues can be expressed as Value Management problems
• Executives perform at their best when they are maximizing the value of their brand while simultaneously maximizing the value of the company they work for.
• These converging profiles can be analyzed and measured, in both Search and Assessment assignments,  bringing great transparency and efficacy to both.
• There is also significant evidence that Value Management tools can help in:
•• Designing and implementing changes to the company’s organizational structure that will best reflect a value-creation strategy
•• Designing and implementing new procedures for calculating bonuses that guarantees alignment with shareholder priorities
•• Design and implement Career plans, Succession plans, and Training & Designing and implementing management-development programs that guarantee that the Value Management mindset is carried into the future

[1] Most of thee concepts are described with great clarity in Cracking the Value Code, by Richard Boulton, Barry Libert and Steve Samek, Harper Business Books, 2000.
[2] Please refer to Copeland, Koller and Murrin Valuation: Measuring and Managing the Value of a Company
[3] Tom Peters has written two watershed articles on this, The Brand Called You and The Brand You Toolkit. The links to these articles are www.fastcompany.com/magazine/10/brandyou.html and www. fastcompany.com/magazine/83/playbook.html

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