IFFM Blog #1: International Value Management

The Concept of Value Based Management (VBM)

VBM is a management level concept which focuses on shareholder wealth creation. When examining VBM of a company, some questions need to be asked: "What is the investment that has been made or will be made?", "What rate of return will be generated for the investment?", "Is the value sufficient when compared to the cost of capital?" When value management is executed correctly, it allows critical decision making to be aligned with the company's aspirations for creating value. (Koller, 1994)

Creating value would mean setting a high-performance culture, this can be done by opening communication and feedback channels which would allow a greater space for brainstorming, creativity, and investments of resources to better improve the company. 

Importance of Value Creation

It is imperative that companies arrive at the stage of value creation as this would allow a transformation their growth strategies to assist in their survivability and maximisation of growth. (Cityhub.com.sg, 2016) Value can be created by maximising long-term free flow, such strategies require careful structuring of the company to have a balance of resource and capital allocation for the long term.

Value Creation Through Stakeholder

Stakeholders are key elements of the strategy. In order to maximise long-term free cash flow and generate value creation for shareholders, the company has to maintain a good and healthy relationship with its stakeholders. (Mauboussin, 2011)

For example, should the company charge customers absurd prices for their goods or services, it would inevitably lose customers to competitors. On the flip side, charging too little would keep customers happy but adversely causing the company to be unable to meet its financial KPIs. Finding the right price to balance customer satisfaction and good financial performance is important. Similarly, providing low wage for the workforce would create substandard performance. Whereas, paying employees too much would hamper the company's ability to stay competitive

References

Koller, T. (1994). What is value-based management?. [online] McKinsey & Company. Available at: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/what-is-value-based-management [Accessed 23 Dec. 2017].

 Cityhub.com.sg. (2016). The Importance of Value Creation. [online] Available at: https://www.cityhub.com.sg/the-importance-of-value-creation/ [Accessed 24 Dec. 2017].

 Mauboussin, M. (2011). What Shareholder Value is Really About. [online] Harvard Business Review. Available at: https://hbr.org/2011/10/ceos-must-understand-what-crea [Accessed 24 Dec. 2017].

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