Value-Based Management (GBV) can be defined as a comprehensive process designed to improve strategic and operational decisions made throughout the organization, through the emphasis on corporate value drivers
The fundamental objective of any company is to satisfy its satkeholders (shareholders, employees, managers, clients, suppliers, strategic allies, etc.), that is why value creation has become an imperative in all organizations. GBV is a total administrative process that requires connecting the setting of corporate objectives with the use of resources, with the development strategy, with the measurement of performance and remuneration according to it, and finally, with the creation of value. For the vast majority of companies, the above requires a dramatic change in organizational culture, which generates tensions within the companies that adopt it and the way to improve these internal problems is the commitment and support of managers and senior management. The change begins at the head of the organization, without this support and commitment, there is a risk of failing to implement the system.
The mentalization in the generation of value
A company only creates value when it is capable of making investments that rent more than the average cost of capital invested in the company. The first step of the GBV is to consider the maximization of value as the main financial objective for the company, traditional accounting measures are not always good approximations to the generation of value. But adopting value-oriented thinking and identifying key elements takes the company only half way. Managers must establish processes that involve all employees in the need to create value.
Four main processes govern GBV adoption: first, develop strategies to maximize value; second, translate the strategy into short and long-term goals that focus on the main value drivers; third, develop action plans and budgets focused on meeting short and medium-term goals; and fourth, to introduce results measurement systems and compensation schemes in order to monitor and incentivize employees to meet established goals. These four processes must be connected at the corporate, business unit and functional levels. Clearly, strategies and operating results must be consistent across organizations for the goal of value creation to be met.
How to assess the current status of the gbv in the organization?
There are six characteristics that measure the current state of GBV in organizations, even without starting to implement it, these are:
- Performance: to look at this characteristic, it is necessary to measure, through benchmarking, whether the overall performance of the company is improving or not. The mentality: it must be observed, objectively, how decisions are made, based on what parameters (operational, financial, short or long term, etc.) Understanding and commitment: how much commitment exists, at all levels of the company, with the well-being of the organization. In addition, how much management understands the operational part, to know if it will be able to later identify the value drivers. Communication: it must be evaluated if the plans and strategies, carried out at a certain level, are known to the entire organization, and if, at another level, there is the possibility of generating ideas that may favor results. Motivation: it must be analyzed whether the compensation plans and the objectives and goals set motivate staff to achieve higher productivity and better results, both at the operational and administrative levels. Cost: it has to be evaluated if the implementation of the system can cause high costs, which goes against the GBV, since this must be a low-cost process that benefits the organization.
These conditions must be evaluated before making the decision to get involved in the GBV, knowing what situation it is in, it will be possible to operationalize the system more easily.
A true GBV requires a change of mindset for decision makers at all levels, it is a long and complex process that usually takes two years to implement. During the first year, staff are trained to learn how to use their tools, especially value inducers. The second year, her knowledge becomes solid and, when there is confidence that it really works at all levels, one can speak of a compensation scheme based on the generation of value.
Keys to a successful implementation
Successfully operationalizing the GBV has four key steps:
- Hire the best available human resource Delegation decision-making to those with the best knowledge to make them Use value indicators to ensure that decision-making power is used well Align executive incentives through variable compensation plans
Value Inductor
A value inducer is simply any variable that affects the value of a company.
By complying with these four key elements and having a value-based mindset, the GBV can be kept in force over time.
