AN ANALYSIS OF VALUE BASED MANAGEMENT

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They therefore appear far simpler and more appealing. There is, however, more to the VBM approach to managing an organisation than mere simplicity. Although There seems to have been a move away from the concerns of shareholders of the organisation and away from the economic rationale for accounting and towards a consideration of the wider stakeholder environment. Though, this has not been universal (Eharhardt 1995). At the same time there has been recognition that the concerns of shareholders cannot be ignored and another argument has seen a return to economic values in assessing the performance of the organisation (Copeland, Weston and Shastr 2000). Broadly speaking this approach is known as VBM or alternatively shareholder value management. This approach is based upon a simple premise that the ultimate test of a corporate plan is whether it creates value for shareholders, and that this is the sole method of evaluating performance.

This approach to managing an organisation is based upon the assumption that maximising the value of an organisation to its shareholders also maximises that value of that organisation to society at large (John and William 2000). The concept of shareholder value as an objective appears to be widely accepted within the accounting community but its use as a quantified evaluation is less found in practice. VBM refers to management adopting a corporate strategy of maximising shareholders value.

VBM is in theory, all encompassing and includes corporate strategy; management compensation issues; and detailed internal control and reward systems, all designed to link employee performance to shareholder value. A comprehensive value based management system can span all levels of the organisation and have an impact on all employees (Ramirez, Waldman and Lasser 1991).

VBM is a means of making an explicit link between an organisation's strategic and operating decisions and their effect on shareholder returns (Dawn 2008). As such it should be the natural framework for aligning executive incentives with the interests of stock market investors. VBM is also an integrated management control system that measures, encourages and supports the creation of net worth. VBM is a customer focused system built upon shared principles and core values, which is designed to instill an ownership culture within an organisation. According to Taylor (2009) value based management delves dynamics, high performance organisation results, it builds on the strengths of financially focused tools, such as Economic Value and its derivatives, by adding the perspectives of customers and other stakeholders who makes our organisations succeed or fail.

VBM offers a strategic performance framework in which mechanisms of the most successful organisations in the world are integrated into a holistic yet flexible methodology designed to differentiate rather than copy. VBM offers more than any individual methodology previously deployed. VBM offers a complete solution that combines the best proven management methods with the latest in computing and communications technologies to drive results. (Stein 1997) pointed out that value based management is a comprehensive approach to managing the activities of an organisation to ensure that stakeholder return is maximised. Stakeholder return is represented by profits, return on investment, loyal customers and satisfied employees or in the case of government departments, satisfied taxpayers and services users.

Shareholder or economic value appears to be accepted as the correct measurement of performance for profit oriented organisations. The supporters of shareholders and economic value sell the concept with the proposition that measurement and promoters of the mechanism of value enhancement are the ultimate solution for driving business performance, money and financial performance are central to the performance of almost every organisation and as such must be ranked as the highest priority in the long run [Henry 1996], meanwhile, other aspects of the business, such as customer satisfaction must be managed in an overt fashion, in exactly the same way as shareholder and economic value. Furthermore, value creation as an organisational motive applies equally to government and not for profit organisations as it does to profit organisations, just that the perspective from which value assessment is slightly different values combined with strategy defines what is desired and how it will be measured, and it prescribes performance imperative in terms of beliefs and perspectives. This, in turn should provide a set of measurements and action oriented goals for the organiasation, in order to achieve a desired future state (Guillen 200).

Having established beliefs, values and goals, management must should create mechanisms with which people may accomplish the desired future state. These mechanisms may incorporate traditional thinking or existing ways of performing work. Typically, it requires managers to be willing to examine all existing methods and philosophies and ask whether they are adequate to carry the organisation forward. Furthermore, recognising that organisations are basically human organisations, defined by the politics and infrastructure associated with the organisastion chart, managers should be prepared to redesign the roles, responsibilities and reporting lines of employees. Hart (2008) postulated that by providing a consistent strategic focus, value based management is a tool to enhance the techniques through which corporate value is improved every day, people at all organisational levels makes decisions that affect their organisation's value, yet the link between these decisions and change in organisational value is often not made. Without this link, how can organisations be sure the decisions being made are increasing the value of the organisation? The single most important measure of an organisations success ?

Value based management can foster this link by proving the following things:

a philosophy that increases plus value creation at the centre of operational decision making,

a process that links day to day management with strategic objectives,

a measure of business performance that overcomes the deficiencies of traditional accounting and business performance measurement,

developing development of a strategy to maximise value,

the setting of long time term and short term performance targets (Jack 2009).

Corporate value is created when the return on investments are greater than the cost of capital required to make the investments. The trick is ensuring that everything that is done in the organisation add value to it, and galvanises everyone to work towards the overriding aim of growing long term share (Demsetz 2005). To create and maximise value, you need to understand the source of value. Simply saying that you want to create value isn't descriptive enough, so you must should define how you intend to do it.

Essentially, value is created when the return on capital exceeds the cost of capital. Start by looking at all of the ways that you invest resources in your organisation, and then assess the value of those resources. Some of these value investigations are purely financial. For instance, before making capital investments, do a thorough financial analysis of future cash flow. Ask yourself how this investment will benefit your shareholders in the long time (Jack 2009). Your organisation also creates value in many other places that you can't measure as easily. For example, when you create value for customer, you may also, ultimately, create value for your shareholder and your organisation (Jack 2009).

PROBLEM STATEMENT

While many organisation have embraced the value based management phenomenon in recent years, (Chanchai 2010). At least in their communication with shareholders, it is far from clear that value based management has really had any significant impact on internal management systems. The new metrics are not being widely applied internally. This begs the question of whether diffusion is still at an early stage, or whether there is a gap between hype and reality, could value based management simply be another management fad thrust upon a workforce already punch drunk, disillusioned and cynical about new management paradigms, or that at its core value based management contains fundamental and radical truth which are able to lead to the kind of transformation which promotes shareholders and societal well being (Glen and Matt 2000).

OBJECTIVES OF THE STUDY

The study is based on the following objectives:

Virtually all CEO's and directors of publicly traded companies acknowledge, that creating value for shareholders is an important corporate objective typically (Jensen 2006). However, shareholders are considered to be only one of a numbers of important constituencies or 'SHAKEHOLDERS' vying foray preference in management evaluation of key decisions. These stakeholders are usually specified to also include customers, employees, suppliers (including creditors), and the wider community. These competing claims, for preference in the allocation of the organisations resources have given rise to distinctly different points of view about what the corporations governing objective should be some, like ourselves believe that the best managed companies are those that consistently resolve tradeoffs in ways that create the maximum possible value for shareholders (Baek, Kang and Park 2004).

To assess the necessity of value based management in an organisation.

To establish whether an organisation is financially and economically valuable in a competitive environment

To determine managers' efficiency in the utilisation of value based management scheme.

To determine shareholders benefits of adopting value based management in a particular organisation (Harley and Emery 1999).

RESEARCH HYPOTHESES

The following hypotheses have been formulated for empirical validation in order to achieve the main objective of the research findings, where H0 represents negative hypothesis and H1 for positive hypothesis two.

HYPOTHESIS ONE

H0: The assessment of value based management does not affect the growth of organisational modus operandi.

H1: The assessment of value based management affects the growth of organisational modus operandi.

HYPOTHESIS TWO

H0: Every organisation does not assess the principles of value based management for organisation growth and development.

H1: Every organisation assesses the principles of value based management for growth and development.

HYPOTHESIS THREE

H0: Government policy does not affect value based management.

H1: Government policy affects value based management.

DELINEATION AND LIMITATIONS

Basically, The delineation of the study is based on the assessment of value based management (Harris 2008). The quintessential role of an organisation is to fully adopt the strategic principles of value based management so as enhance productivity and efficiency. The research will be based on companies listed on the population samples from the Johannesburg Stock Exchange south Africa (JSE). The research will obtain the most representative sample from the organisations.

DEFINITION OF TERMS AND CONCEPTS

VALUE BASED MANAGEMENT

Value based management (VBM) is a customer focused system built upon shared principles and core values, which is designed to instil an ownership culture within an organisation (Karl 2004). Value based management [VBM] Delivers dynamic, high performance organisation results. Its builds on the strengths of financially focused tools, such as economic value and its derivatives, by adding the perspectives of customer and other stakeholders who make our organisations succeed or fail (John and

Martin 200). Value based management can best be understood as a marriage between a value creation mindset and the management processes and systems that are necessary to translate that mindset into action (Timothy 1994).

VALUE MANAGEMENT

It is simply a practical, disciplined way of doing business. It embraces everything from the way you lead your organisation to the way you make and implement strategy, from the measures you use to track your performance to how you reward your people (Tony 2003).

VALUE

Shareholder or economic value appears to be accepted as the correct measurement of performance for profit oriented corporations. The supports of shareholders and economic value sell the concept, with the proposition that the measurement and promoters of the mechanism of value enhancement are the ultimate solution for driving business performance. Money and financial performance are central to the performance of almost every organisation, and as such must should be ranked as the highest priority in the long run (Alfred 1986).

SHAREHOLDERS

Stockholders or shareholders are considered by some to be a subset of stakeholders which may include anyone who has a direct or indirect interest in the business entity. For example, labour, suppliers, customers the community, etc. are typically considered stakeholders because they contribute value and/or are impacted by the corporation (Vishy 2006).

MANAGEMENT

Koontz and O' Donnell (1968) defined management as an operational process based on the analysis of managerial functions which includes planning, organising, staffing, directing, leading and controlling.

MANAGEMENT

Sherlekar (2001) defines management as a social process, involving co ordination of human and material resources, through the function of planning, organising, staffing leading and controlling in order to accomplish stated objected.

VALUE

Sekaran (1989) defines values as an individual's standards or idea about what a person, object, even or activity ought to be.

ORGANISATION

Shein (1983) defines an organisation as the planned co ordination of activities of a number of people for the achievement of some common, explicit purpose or goal, through division of labour and function and through a hierarchy of authority and responsibility. ORGANISATION Sherlekan (2001) stated that organisation is the framework or medium to exercise managerial function.

SIGNIFICANCE OF STUDY

The study establishes the assessment of value based management for the following beneficial reasons:

This study will be significant to managers of various organisations because, it will help them to properly organise and manage the workforce effectively. It will also help enhance the decision making skill because value based management is quintessential to organisational growth.

The study is expected to augment the entrepreneurial skill of students studying management courses in higher institutions, who have the minds of setting up a business entity (Ford, Hakansson and Snehota 2003).

The shareholders also stand the chance of benefitting from the study as it will help to assess the level of transformation in their organisation's major business activities for instance, publishing of annual reports to determine profitability and excellence of the organisation. It may also help to analyse the organisation's strength and weakness so as to continuously strive in a cult throat environment (Grossman 2000).

Both private and public sectors of the economy stand the chance of acquiring comprehensive knowledge from the study as it will help to enhance corporate value for organisational growth and development.

STRUCTURE OF THE STUDY/RESEARCH

Literature review will be done in Chapter two, the research methodology will be discussed in Chapter three while Chapter four will be used for the on presentation and analysis of the data gathered and Chapter five will focus on the summary, conclusions and recommendations of study.

CHAPTER TWO: LITERATURE REVIEW

In this chapter a review of related literature will be carry carried out. The chapter will explore the concept of value based management, an overview of value based management, and a brief outline of application of value based management.

CHAPTER THREE: RESEARCH METHODOLOGY

This chapter explains the methodology used to gather and analyse the data. The research design is explained and the reasons for choosing the design are explained and the research techniques to be used are also highlighted.

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS OF THE DATA

In this chapter the presentation and analysis of the results of data will be done.

CHAPTER FIVE: SUMMARY OF THE FINDINGS, CONCLUSION AND RECOMMENDATIONS

This chapter shall summarise the findings, conclusions and present recommendations from the research. This chapter will also highlight the contributions of study and concludes with an outline for further study.

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