Value based Management (VBM)

Value based Management (VBM):

Value based Management (VBM):

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2.1 Steps for VBM:

Step 1: Strategy Development:

Example: Imagine a company that makes toys. To make the most money for its owners, the company needs a plan. This plan will focus on what toys to make and how to sell them. The company will also decide what things (like good design or marketing) are important for making money at all levels and divisions of the company.

Step 2: Setting Performance Targets:

Example: Now, the toy company sets specific goals, like selling 10,000 units of a particular toy. These goals are based on the plan from Step 1 and are set for both short periods (like a month) and longer periods (like a year). They consider both money-related and non-money-related targets.

Step 3: Operational Plans:

Example: The toy company assigns the goal of selling 3,000 units of a toy to a regional manager. This manager will then decide on the best ways to achieve this target, like which stores to stock more of that toy or how to advertise it.

Step 4: Performance Measures:

Example: The company will then decide on how to measure if the manager is successful. They will set up rewards (like bonuses) if targets are met. They will look at both short-term and long-term achievements and also consider both money and non-money targets.

2.1.1 Evaluation of VBM:

Advantages:	Disadvantages:
Value-Centric Approach: Focuses on long-term value, aligning with shareholders' wealth maximization. Clarity & Accountability: Provides clear goals across all levels and assigns specific targets to employees. Motivation: Incorporates performance measures and rewards, boosting employee motivation.	Cultural Shift: Requires significant changes in company culture and potential training for employees. Implementation Challenges: Difficult to identify key value drivers and might need costly system updates. Potential for No Change: Risk of investing time and resources without tangible process improvements.

Categories: : Advanced Performance Management (APM)