Introduction to value creation with metrics and strategy

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The principal objective of this report is to provide a brief introduction into the area of value creation through the overview of the following value metrics and strategies: Shareholder Value Added, Economic Value Added, Return on Capital Employed, Value Based Management and Blue Ocean Strategy. In addition, some practical company applications of the mentioned metrics and strategies will be discussed.

Overview: value and value creation

Business value is an absolute summation of all that a company does and has, whether it is tangible or intangible. Measuring business value has been problematic since the very birth of the concept itself. It is especially difficult to set value for intangible components of the company (e.g. goodwill, customer loyalty, a brand, intellectual capacity of employees, etc.). A number of valuation techniques have been developed; each one of them has its own advantages and disadvantages. To get the clearest possible picture of the company's business value, it is recommended to create and use a mix of various valuation techniques.

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Shareholders, when investing in a company, expect the value of their invested capital to soar up over time by a certain margin. Since they provide the much needed capital for the firm, they hold specific rights, such as the right to vote for the candidates to the board of directors (that, in turn, appoints people to top managerial positions) and for any major proposal put forth by the company management. Therefore, it is incumbent on company managers to keep their shareholders somewhat "happy" with the company works. Now it is only logical to deduce that the principal goal of all corporate managers is the maximisation of shareholder wealth, or value (Gitman, 2006). Consequently, only those business alternatives that spurn the value creation process should be adhered to. A simple indicator of the increase in shareholder value is the increase in a stock price. The latter is influenced mainly, but not exclusively, by the timing of cash flows, their volume and the risk embedded in them. In the light of recent criticisms of the concept of stock price maximisation, it should be noted that shareholder value maximisation, as Schumacher (2009) puts it, "has nothing to do with short- term measures to drive the company value up but which will hurt the company in the long term". Many corporations in their pursuit of quick profits have taken steps that proved detrimental to their long-term performance and sustainable business development.

Most modern companies, alongside the goal of shareholder wealth maximisation, have very solid "social responsibility" policies in regards to its other major stakeholders, namely employees, customers, suppliers, creditors and others who are in any way affected by their operations. (Minimising the environmental harm has also become an integral part of the firm's social responsibility.) Indeed, building strong relationships with these stakeholders gives just another push to the company's performance; hence, since good company performance is a prerequisite for the stock prices to rise, shareholders only benefit from such noble efforts of the company managers. Companies that display sustainable growth patterns bring benefits to the society was well (Durant). As companies look to increase their values, the scarce resources are put to the most productive uses. Naturally, the more efficient the usage of resources is, the higher the growth the rate of the companies and the better the standards of living for the society as a whole. Therefore, in general there has been a long-established harmony between the goals of shareholder value maximisation and improvement of the "quality of life of people in society".

Definitions

The principle of shareholder wealth maximisation has universally accepted as an ultimate goal of all public companies. However, how that wealth, or value, should be measured has remained contentious. Still, there are some metrics which are more significant than others. Below are the condensed definitions of the three metrics of and the two strategies for value creation that are to be examined in this report:

Shareholder Value Added (SVA) - It is a "value-based performance measure of a company's worth to shareholders" (Investopedia, 2010). SVA is calculated by subtracting the cost of capital (based on the firm's weighted average cost of capital, WACC) from the net operating profit after tax (NOPAT):

SVA = NOPAT - Cost of Capital

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Economic Value Added (EVA) - It is an "estimate of economic profit, which can be determined, among other ways, by making corrective adjustments to the accounting profit" (Wikipedia, 2010). Since EVA is the value created for the shareholders above the required return, the basic formula for it is:

EVA = NOPAT - WACC*Capital Employed

A positive EVA figure would mean that the firm has invested in value-adding projects, while a negative EVA figure that the return on the projects would not cover the cost of capital.

Return on Capital Employed (ROCE) - It is a "ratio that indicates the efficiency and profitability of a company's capital investments" (Investopedia, 2010). ROCE should at all times be higher than the rate at which the company borrows to prevent shareholders' earnings from decreasing due to increases in borrowing. It is calculated as:

ROCE = EBIT / (Total Assets - Current Liabilities),

where EBIT is Earnings Before Interest and Tax.

Value Based Management (VMB) - It is a management principle that "states that management should first and foremost consider the interests of shareholders in its business decisions" (Wikipedia, 2010). VMB is ordinarily a part of the "legal premise" of a public company.

In order to quantify the principle, the VMB model uses seven drivers of shareholder value (or value drivers):

Revenue

Operating Margin

Cash Tax Rate

Incremental Capital Expenditure

Investment in Working Capital

Cost of Capital

Competitive Advantage Period

Blue Ocean Strategy (BOS) - It is a "business strategy devised by W. Chan Kim and Renée Mauborgne that promotes creating new market spaces or "Blue Oceans" rather than competing in existing industries" (Wikipedia, 2010).

Literature review

In this second section of the report, the concept of value creation will be looked at from the perspective of each of the abovementioned metrics and strategies. Each will be individually examined with respect to some pertinent issues related to them, their respective methodologies and practical applications.

This literature review is basically a compilation of journal article summaries on each of the five topics with extrapolation of the main points on them.

Shareholder Value Added (SVA)

SVA is a value creation metric that tells shareholders about the opportunity cost of their investments in a firm (BusinessDictionary.com, 2010), i.e. SVA tells the shareholders how much they would earn (in terms of interest) had they invested in another firm with the same risk level.

Implementing Shareholder Value Analysis (2007).

SVA is one of the so-called "nontraditional metrics" of value creation. It was developed by Alfred Rappaport in the 1980s. It is based on the shareholder wealth maximisation principle, and, thus, assesses the returns stockholders get on their investment.

Why should SVA be adopted?

SVA proponents argue that it is only when equity returns are higher than equity costs a company can create additional value for its shareholders. In this way SVA helps the management to get the value figure for the company and from there identify potential improvement areas. SVA also helps the shareholders evaluate the performance of the company managers.

What should be done to adopt SVA?

There are seven basic steps managers should go through before they can benefit from the usage of SVA in their valuation practices.

The SVA approach necessarily entails full commitment on the part of senior executives of the firm, as they have to accept shareholder wealth maximisation as their ultimate goal and that traditional metrics and approaches may not work.

The company's true shareholder value has to be calculated. This value is affected by the present value of future cash flows, the residual value of future cash flows and the WACC. The first two should be added together, and then their sum should be divided by the WACC to get the total value of the company.

Shareholder wealth maximisation means improved cash flows for the company. In order to increase the cash flows, Alfred Rappaport's seven value drivers (sales growth rate, operating profit margin, income tax rate, working capital investment, fixed capital investment, cost of capital, value growth duration and residual value of future cash flows) have to be looked at, and out of the seven managers have to decide which value drivers affect the most their profitability and business performance in general. It should be remembered that these seven value drivers are, in turn, each influenced by other numerous factors; thus, the company management has to take the latter into account as well.

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Being a nontraditional valuation metric, SVA may draw skepticism from some managers. Adopting the SVA approach will probably require the setting of new performance targets and even the establishment of new operational processes. Therefore, the staff in charge of this big operational change should be trained to handle pressure situations and have a clear picture of what SVA is, what value drives and factors it is influenced by, what benefits it will bring to the company, etc. It is important to be able to achieve early successes in the adoption of the new approach, as this would dissuade the skeptics.

A new system of managerial incentives and rewards should set in place. It should be the one that rewards managers for achieving goals that add shareholder value over the long-run.

SVA will also require the company to upgrade its financial reporting standards and information systems. The former should now reflect all the information the SVA metric needs for evaluation; the latter should be used by managers to regularly monitor changes happening to the key value drivers.

The managers adopting the SVA approach should constantly assess the progress made, review their performance targets, and keep their work focused on the long-term shareholder value creation.

Starovic et al. (2004): Maximising Shareholder Value: Achieving clarity in decision-making.

Advantages of SVA

SVA is a valuation tool for the company and an evaluation technique for alternative strategic decisions. Its approach to valuation, through the usage of seven value drivers, is quite simple for managers to understand and use. The SVA model is subject to "sensitivity analysis", which evaluates the consequences of changes in the company's strategies/policies on the company value and can be used in identifying the key variables affecting the shareholder value. SVA is useful for managers to use when setting operational performance targets and the subsequent compensation system. Ultimately, it serves as a reminder and an incentive for managers to work towards the principal objective of the firm: shareholder wealth maximisation.

Disadvantages of SVA

The task of developing and putting SVA in action can be very daunting in many respects. The biggest disadvantage of this technique is in predicting and measuring the variables needed for the valuation analysis. Also accurate total value and future cash flows projections can be difficult; the training of the staff can take a very long time and be met with substantial resistance (BNET, 2007). It is a norm for the whole organizational change to take place over two years' time.

Pandey (2005): What drives shareholder value? A Malaysian case report.

The purpose of the study was to discover if (economic) profitability and growth affected shareholder value as measured by SVA (Shareholder Value Added). The study used economic profitability, which is a spread between ROE (Return on Equity) and cost of equity (ke), whereas accounting profitability is usually defined by ROE; the latter does not take into consideration cost and risk. Since growth is seen as a principal business strategy, the study looked into the question of how growth and profitability affected shareholder value.

The study was conducted on the panel data collected from 220 companies listed on Bursa Malaysia for a period from 1994 to 2002 using the Generalized Method of Moments (GMM) estimator. The three main variables were SVA, economic profitability and growth. The results of the study confirmed that SVA and profitability had a significantly strong positive relationship, whilst growth and SVA were negatively correlated. As for relationship between growth and profitability, it was discovered that in combination they enhance shareholder value to a greater extent than individually. Also found was an inverse relationship between the SVA metric and a company size, while there was a positive relationship between SVA and each of the following: business risk, financial risk and capital intensity. The SVA value across studied companies was generally in "continuous decline" from 1994 to 2002, whereas profitability on average was negative over the studied period.

Economic Value Added (EVA)

Lovata and Costigan (2002): Empirical analysis of adopters of economic value added.

Economic Value Added as an evaluation metric was introduced in 1991 in the book by Bennet Stewart "The Quest for Value". EVA is purported to reward managers for working those projects that have the potential of increasing shareholder value. In other words, these projects should bring more return than the cost of capital they initially required; this increases the firm's net present value. EVA at the time had a practical advantage over all the prior evaluation techniques: it claimed to be able to incorporate the idea of the increase in net present value into a corporate model to assess the current year's performance. It is real contribution is in the measurement of residual income, capital and cost of capital. Stewart (1991) states, "Every company's most important goal must be to increase its EVA. Let that be your quest. Forget about earnings, earnings per share, earnings growth, rate of return, dividends, and even cash flow. All of them are fundamentally flawed measures of performance and value. EVA is all that really matters." It was immediately adopted as a valuation tool by companies like AT&T, Coca-Cola, and Quaker Oats (Stewart, 1995).

McClenahen (1998) noticed that as compared to EVA traditional value metrics were put into a rank of second-class corporate value measures. Herzberg (1998) claimed that EVA was becoming widely popular among security analysts.

Advantages of EVA

EVA is a valuation tool that can also be used a strategic tool for performance targets' setting, evaluation and measurement (Starovic, 2004). Due to the number of adjustments specific to EVA, it is free from the accounting problems that some other valuation tools encounter (e.g. Economic Profit). EVA is better than accounting measures of value, as it recognises the cost of capital, and hence, the risk of a firm, as stated by Lehn and Makhija, 1996. According to Ismail (2006) EVA is best suited for non-governmental and non-profit organisations. Berry (2003) said that EVA is the best value metric for publicly traded companies because instead of focusing on debt it looks at the cost of equity, which is of primary importance to shareholders. Some, like Hedley (1997), even stated that adopting an EVA programme would help raise the company's stock. EVA is a good measure the firm's long-term performance, for it does not favour short-term profits but forces managers to go for the appropriate capital structure (Booth & Rupert, 1997). Using EVA alone can be the same as concurrently using multiple metrics, such as EPS, ROI (Return of Investment), ROE (Return on Equity) and Net Operating Profit after Tax (NOPAT), which often creates confusing and conflicts (Kudla and Arendt, 2000). In addition, EVA counters the distortions GAAP (Generally Accepted Accounting Practices) by relying on "real economic results" (Stewart, 1991).

Taub (2003) noticed that while most of the valuation tools are based on the financial and/or accounting data, EVA combines market, accounting and economic information. EVA also establishes an incentive compensation system for managers of the company (Grant, 1996).

Disadvantages of EVA

EVA as any other valuation programme has its own disadvantages. One of them is a relatively high implementation cost. Because it is not easy to calculate EVA, its implementation requires the spending of significant time and resources from the management. The staff would also need extensive training for them to understand the EVA concept well and be able to implement it properly in practice.

Ismail et al (2008): Economic Value Added (EVA) as a performance measurement for GLCs vs Non-GLCs: Evidence from Bursa Malaysia. A Malaysian case report.

Using EVA the study examined the four-year pooled data of 27 Malaysian GLCs (government-linked companies) and 208 Malaysian non-GLCs in order to compare the performance of GLCs to the performance of non-GLCs. Both the groups of companies came from various industries. The data drawn was gathered from the publicly available secondary historical data over the period from 1999 to 2002; all the studied companies were listed and actively traded on Bursa Malaysia for the period mentioned.

EVA, EPS (Earnings per Share), DPS (Dividends per Share) and NOPAT (Net Operating Profit after Taxes) for a total of 245 companies were calculated, and the results were arranged using "panel pool regression analysis with common and period specific coefficients with White's heteroscedasticity-corrected variances and standard errors". (A total of 980 observations were analysed for a period of 4 years.) The study was conducted using an exploratory design and a correlation method.

The findings of the analysis showed that there was a negative correlation between the size of companies and their EVA values. The difference of companies being government-linked or not was also found to be an important factor in determining EVA values. Seeing that GLCs in Malaysia tend to be larger in size that their private counterparts, it was concluded that Malaysian GLCs exhibit lower EVA values than Malaysian non-GLCs did. Interestingly, the study's findings were in direct opposition to what was discovered by Ang and Ding (2006) in Singapore, when they claimed that Singaporean GLCs were valued higher than non-GLCs. The Singaporean study attributed these results to "better governance practices". However, in Malaysia the government, as the study claimed, tended to invest in companies that manage public amenities (e.g. Telekom, POS and TNB) and other companies for it to "protect public interest". Thus, private, profit-driven companies were seen as more efficient and motivated to operate their businesses successfully, whereas companies with the government as their shareholder were often perceived as more relaxed realizing the strong financial and other backing they had from the government.

The study suggested that the Malaysian government should further restructure its investment board, Khazanah Nasional Bhd, for it to produce more accurate investment valuations and more effective strategies. EVA was proposed as a useful tool of evaluation of prospective investment projects for Khazanah to use. At the same time, the authors urged the government to reorganize the GLCs to make them more efficient market-driven.

2.3 Return on Capital Employed (ROCE)

Andersson et al (2006): Financialised account: Restructuring and return on capital employed in the S&P 500.

Because of the overwhelming use of accounting methods in the construction of financial accounts presented by management to demonstrate its performance, accounting figures also feature on the reports by managers on a company's asset management activities. In these reports many valuation metrics can be found, such as Return on Capital Employed (ROCE), Weighted Average Cost of Capital (WACC) and Economic Value Added (EVA) (Froud, Johal et al., 2002). The mentioned metrics all share a common feature: in their calculations they use earnings and capital employed. ROCE can be neatly broken down, or "deconstructed" into its components, in the so called "pyramid of ratios". (See Appendix, Figure 1.)

ROCE is computed using two ratios: return on sales (ROS), which is basically the company's profit generated, and capital intensity index (CII), which looks at how much capital was employed in producing the given profit. Therefore, it is a good indicator of how efficient management is in the usage of the company capital. It should be noted that to make ROCE more useful, its current year value should be contrasted to values of previous years, and "with those of competitors".

The paper argues that financialisation should help "realign" managerial decisions and investor needs; the latter is almost always about earning higher return on capital invested. The existing managerial incentives, in the form of compensation systems and threats of corporate takeovers, seal the deal and encourage managers to work towards increasing shareholder value. The study conducted on the S&P 500 index (both constituent and survivor firms) over the period from 1980 to 2003 shows that while most S&P 500 companies during the boom of corporate restructuring of the 1990s were becoming more profitable, they were not able to translate this increasing profitability into higher ROCE values. The authors now "deconstruct" the performance of the S&P companies and find that average ROCE has not changed (from 1980s to 2003) from roughly 12% "because the value of capital employed inflates relative to earnings acting to put a brake on the ROCE". It was also discovered that trade-off and diffusion significantly restrain the ROCE changes. The authors add that since most capital market decisions made to increase ROCE have to be based on market value, there is a need for accounting adjustments to prevent balance sheet capitalization and, hence, ROCE stalling. These accounting adjustments include reducing costs and underwriting the cost of capital on balance sheets. Balance sheet restructuring has recently come to include share repurchases that increase ROCE values, as investors get their money back and managers, who are responsible for shareholder value creation, are given treasury stock, and now that managers also own a part of the company, they will be even further incentivised to work hard to deliver shareholder value.

Value Based Management (VBM)

Starovic et al. (2004): Maximising Shareholder Value: Achieving clarity in decision-making.

In the light of the recent global financial crisis, there has been a new wave of renewed interest in the concept of shareholder value. It is especially so when it comes to the managing the process of shareholder wealth maximisation: its context, tools and techniques. This process is known as value-based management. VBM is "a managerial process which effectively links strategy, measurement and operational processes to the end of creating shareholder value" (CIMA's Official Terminology, 2004).

The concept of VBM originates from the 19th century, when the idea of residual income was born. The term itself has been in use since the middle of the 1990s, starting from Copeland and McTaggart. This is how they viewed VBM: "…a formal, systematic approach to managing companies to achieve the objective of maximising value creation and shareholder value over time" (McTaggart et al, 1994) and "… an approach to management whereby the company's overall aspirations, analytical techniques and management processes are all aligned to help the company maximise its value by focusing management decision making on the key drivers of value" (Copeland et al, 2000). VBM became popular in the mid-1980s when Rappaport published his book called "Creating shareholder value: the new standard for business performance" (1986). Then companies like Boots, Lloyds TSB and Cadbury Schweppes were swearing their allegiance to the new strategy. They were the early and successful pioneers of the VBM approach. For example, after adopting VBM Lloyds TSB has doubled its stockholder value every three years from then on. Today VBM companies typically reach an increase of 5 to 15 per cent in their shareholder values (Benson-Armer et al, 2004).

VBM has these three main functions, namely value creation, value measurement and value management (corporate governance, organisational structure and related communications).

Very often companies that claim to pursue shareholder wealth maximisation on their mission statements take actions that can in fact destroy the shareholder value over the long-run. This usually occurs because of the simple lack of knowledge of the difference between managerial actions that lead to the long-term value creation and those that lead to higher profits in the short-term.

78 per cent of public firms surveyed for a study by the University of Washington admitted to "artificially smoothing earnings and sacrificing shareholder value in order to beat Wall Street expectations" (Graham, 2004), while 55 per cent added that they would not take on a project with a high Net Present Value (NPV) if it would cause the current quarter's earnings to drop. This study shows that too many a company are trying to meet the public consensus on their earnings expectations forgetting about their principal "mission" of stockholder value creation. As a result, the accounting standards (based on GAAP) used by these companies are also criticised, as they count in only accounting profits as an indicator of the company's performance (Stewart, 2003). VBM reminds us that to see if shareholder value is indeed being created we have to gauge the difference between the returns on equity and the cost of capital.

Forming successful strategies is of one of the principal tasks of VBM. VBM fosters a "structured and disciplined decision-making process". VBM managers are ought to produce several strategic alternatives, from which the best option will be subsequently chosen. However, VBM does not make strategic planning perfect, for perfect forecasting is simply impossible.

Implementing a VBM programme can be difficult due to both the practical and theoretical aspects of it. The 2003 survey by Ernst & Young 2003 resulted in only 30 per cent of companies claiming to use VBM extensively, while another 30 per cent of companies said they had tried but subsequently dropped the VBM programme. The reasons to this rejection are usually in the clash of managerial interest within an individual company, the lack of resources or commitment to go on with the project for long time.

(See Table 1, in the Appendix, summarizing advantages and disadvantages of VBM programmes as devised by Cooper et al (2001).)

22

Jaapar and Torrance (No date): Contribution of value management to the Malaysian construction industry. A Malaysian case report.

The report was made with the objective of assessing the current state of VBM (Value Based Management) adoption in the Malaysian construction industry and projecting its prospects of wider application. The study was based on the prior questionnaires, interviews and case studies conducted in the area of VBM globally and in Malaysia. It was found that, even though it was used by property projects marketers as a selling point for quite some time, VBM was not widely used in practice in the Malaysian construction industry since it was introduced in Malaysia in 1986. Since VBM became a part of the national university curriculum and since a separate institute dedicated to VBM was opened in Malaysia (the Institute of Value Management Malaysia, IVMM), a positive relationship (albeit weak) between VBM education, research and its practical application was established. VBM, therefore, the authors claimed, definitely had positive prospects of growth in Malaysia.

The industry professionals suggested the usage of VBM universally for all construction projects, regardless of cost and other specifications. VBM received acclamation due to its disciplined methodology and a proven track record of successful project implementation cases from all around the world. However, it was thought that the Malaysian government should give stronger support towards the adoption of the VBM system in the country through its backing of the Prototype VM (or VBM) Guidelines, being currently formulated specifically for the construction industry.

The authors believed that the application of VBM for construction projects would embed into the latter the concept of money value that would, in turn, bring significant efficacies to the industry in terms of increased corporate and shareholder values.

Blue Ocean Strategy (BOS)

Sheehan and Vaidyanathan (2009): Using a value creation compass to discover "Blue Oceans". 

The Blue Ocean Strategy was presented by W. Chan Kim and Renée Mauborgne in 2004 after almost twenty years of joint consultancy and partnership. The underlying reason for the research on the topic is the inefficiency in which most companies are caught once they try to beat the industry competition. This strategy necessarily calls for a compromise between value and cost; either way customers will not derive any value from what the company offers them now. These companies will be attempting to outpace each other in the "Red Oceans" of the toughest competition.

Kim and Mauborgne believe that there is an alternative to this scenario. The Blue Ocean Strategy calls for the search for new market spaces where companies can create unique value for their customers instead of benchmarking themselves against rival firms and trying to beat the current competition. "Blue oceans" are the new and growing markets that are yet to be discovered by companies. Kim and Mauborgne set out to seek for strategy patterns across 15 industries and 150 "Blue Ocean creations". Indeed, as they discovered, these companies have discovered a new strategy that would be named "value innovation: simultaneous pursuit of differentiation and low cost." Value innovation is the fundamental basis of the Blue Ocean Strategy and defies the long-standing dogma of the value-cost (or cost-differentiation) tradeoff, which says that a company has to choose between differentiation and low cost but cannot pursue both.

It should be noted that value and innovation have equal weightage in the equation, thus, one supplements the other. Value innovation can happen in any stage or part of a business process (e.g. product/service development, costing, marketing, pricing, etc.).

Innovation in value innovation does not always call for creating of leading edge technology but instead focuses on restructuring of the technology that is already available in the market and making it more valuable and affordable for a customer. This is how companies like IBM, Apple and Dell have come to the forefront of their industries.

There are two main analytical framework offered by Kim and Mauborgne for the discovery of Blue Oceans and the practical application of the strategy. The first is the four-actions framework called the ''Eliminate, Reduce, Raise, Create Grid'' whose objective is to help managers think of and design new sets of attributes. (See Appendix, Exhibit 1.)

The second is the six paths framework called "Six Path Analysis" that involves the analysis of the industry from both the inside and outside. (See Appendix, Exhibit 2.)

Difficulties of implementing the Blue Ocean Strategy:

Cognitive difficulty: changing the mindsets of managers is hard, given they are accustomed to working in high pressure Red Oceans.

Limited resources: since it should be a wholesome organisational change, it will require a certain amount of resources, both financial and human, to be dedicated to this exclusive task.

Motivation: motivating key managers to continue with the strategy is difficult, given all the operational changes it entails.

Organisational politics: vocal opponents to the change should be paid special attention to as to give them a deeper understanding of a new system under the Blue Ocean Strategy.

To counter these and other problems that may arise in the course of the strategy implementation, Kim and Mauborgne suggest the tipping point leadership techniques discussed in their book.

The Blue Ocean Strategy advises companies not to solely focus on the numbers in their multiple spreadsheets but instead on the bigger picture. Kim and Mauborgne believe that "strategic plans" that are derived from the financial statements, while they might work individually, will not create a common compelling strategy. For that reason, a strategy canvas has been conceived, where all of the resources of the company are revalued and restructured to be able to collectively contribute to the process of discovering Blue Oceans.

The Blue Ocean Strategy can be applied for all kinds of industries, ranging from consumer product industries to B2B, industrial, pharmaceutical, financial services, entertainment, IT, and defense industries (Anonymous, 2009).

During the recent economic recession, the Blue Ocean Strategy has proved to be especially useful. Companies like Microsoft, General Electric, FedEx, CNN, Apple and hundreds of more companies have managed to emerge even more victorious than before thanks to their discovery of their respective blue oceans. While the whole economy is cutting costs everywhere they can, including the Research and Development costs, these Blue Ocean companies would be encouraging even more active innovation within the company a more generous allocation of funds into Research and Development. It has worked out just well for them.

Zainal and Mohamed (No date): Analysis of the use of the Blue Ocean Strategy: case study analysis on 14 different agencies. A Malaysian case report.

A case study analysis of the qualitative nature was conducted on 14 Malaysian organisations that claim to be currently implementing the Blue Ocean Strategy. The purpose of the paper was to verify the quality of the strategy's implementation in the mentioned agencies. The methodology of the study was based on the data gathered for each organisation in regards to the ''Eliminate, Reduce, Raise, Create Grid'' (ERRC Grid) four actions framework.

It was found that, despite their differences in the nature of business operations, the agencies studied exhibited some similarities in their ERRC Grid components. For example, in the "eliminate" or "reduce" sections ordinarily certain costs and projects with low returns would feature. In the "raise" and "create" sections, customer satisfaction and product diversity, respectively, would be common. The author did not make any specific generalisations due to the limitations of the study, which were the limited number of organisations participating in the study and the limited amount of prior literature on the usage of the Blue Ocean Strategy in Malaysia.

It was concluded that amongst the studied agencies there is a lack of consensus on the basic principles of the Blue Ocean Strategy, especially on its implementation tactics. This situation arose because the managers of these organisations had not gone through the official training that certified Blue Ocean strategists offer before launching the strategy (its formulation and implementation) within their respective agencies but instead studied the strategy on their own directly from the original source, i.e. W. Chan Kim and Renée Mauborgne's "Blue Ocean Strategy"; thus, they all had individual understanding and interpretations of the book's contents.

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