Value Based Management

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)

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)

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 dont pay enough attention to our important customers Todays structure does not support the segmentation strategy Financial information gets attention, but it isnt enough Our employees understand the need to change, but they dont 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!
Focused Management Information Inc. August 1999 (Rev 4)

Why VBM? - Because organizations have to change constantly in order to meet expectations
Superior executive performance is defined by delivery of value - to investors, customers, employees and others who have material influence

Growth in market value is a key to executive survival and the winning organization
Executives need new skills, new tools and a responsive organization to deliver value

Possession of facts is critical when making high risk decisions

Information Portals provide consistent communication to employees and other stakeholders

Focused Management Information Inc. August 1999 (Rev 4)

Benefits of VBM
Focus the efforts of people in the organization on driving to achieve whats important in a holistic manner:
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

Focused Management Information Inc. August 1999 (Rev 4)

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
Focused Management Information Inc. August 1999 (Rev 4)

Why Value?
The creation of value is the primary goal of managers in leading companies
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
A new Manifesto for Management, Sumantra Ghoshal, Christopher A. Bartlett & Peter Moran. Sloan Management Review Spring 1999, Vol. 40, Number 3

Focused Management Information Inc. August 1999 (Rev 4)

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
Focused Management Information Inc. August 1999 (Rev 4)

Value Based Management Framework

Strategy
Stakeholder Needs / Values Customers Employees Regulators Owners Investors
T

Organization Values Goals Results

I M E

Activity Based Costing/ Budgeting

Q U A L F I I N TAQ N U YCA I AN LT I T Y

Step1

Step 2

CUSTOMER

Process Management
Objective

Process Goals Results

Performance Measurement / Scorecard

Behavior

Best Practices

Consequences Performer

Activities Goals Results

Feedback

Human Performance
PERFORMANCE
Focused Management Information Inc. August 1999 (Rev 4)

Organization Design & Compensation

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)

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Two Cycles in VBM

Foundation / Planning Cycle On-Going Management Cycle
Strategic Plan
T

Organization Values Goals Results

I M E

Q U

Rapid Prototype VBM

Detailed Analysis

A
L F I I N TA NQ U YC I A AN LT I T Y

Design

Implementation
Process Goals Results

Activities Goals Results

Performance
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VBM Implementation Stages

Rapid Prototype VBM

Detailed Analysis

Design

Implementation

Focused Management Information Inc. August 1999 (Rev 4)

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VBM Rapid Prototype Delivers

A complete status report Gaps identified Actions and plans agreed

Focused Management Information Inc. August 1999 (Rev 4)

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VBM Rapid Prototype Involves

Rapid Prototype VBM

Detailed Analysis

Design

Implementation

What it is: 3-4 week analysis Situation analyzed Values, directions and priorities agreed VBM plan developed and agreed

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)

Focused Management Information Inc. August 1999 (Rev 4)

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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 Design Implementation

What it is: 3-6 month analysis of performance of key aspects of the business Design assumptions established Design specifications created / approved

What you have to do: Provide teams of employees / data Set goals Participate in steering team meetings Attend 4 executive workshops (4-6 hours)

Focused Management Information Inc. August 1999 (Rev 4)

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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

Design

Implementation

What it is: 2 month design processes and organization Detailed design recommendations Implementation plan agreed

What you have to do: Provide teams of employees Participate in steering team meetings Attend 1 management workshop (2 days)

Focused Management Information Inc. August 1999 (Rev 4)

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VBM Implementation Delivers

A completely aligned organization, measurement and management system including some or all of the following:
Process owners assigned Change management implemented Process changes implemented Process Scorecards implemented Individual Scorecards implemented New computer and communications software implemented Organization design implemented New job descriptions developed Training requirements identified and conducted Incentive compensation changes implemented Activity and process budgets implemented

Focused Management Information Inc. August 1999 (Rev 4)

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VBM Implementation
Rapid Prototype VBM Detailed Analysis

Design

Implementation

What it is: 4+ month implementation of new measures / processes / organization New measures and goals accepted Employees in different jobs

What you have to do: Provide teams of employees Assign employees to new roles Participate in steering team meetings Drive implementation

Focused Management Information Inc. August 1999 (Rev 4)

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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 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)

Sample Measurement Scorecard / Dashboard

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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)

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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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