Five Reasons to Employ
Economic Value Management
Economic Value Management, as defined in the book by the same name, is a way of managing a business. It is a rigorous and disciplined approach, that can provide immediate gains, better long term strategies, ensure focused execution, and create the alignment within organizations that is critical for success. There are many reasons to employ this approach to managing a business. Here are five.
Setting the stage for greatness
Many researchers have tried to define what makes for successful leaders and successful companies. Perhaps one of the most well known books on the topic is Good to Great by Jim Collins. ''Throughout our research,'' Collins says, ''we were struck by the continual use of words like 'disciplined,' 'rigorous,' 'dogged,' 'determined,' 'diligent,' 'precise,' 'fastidious,' 'systematic,' 'methodical,' 'workmanlike,' 'demanding,' 'consistent,' 'focused,' 'accountable' and 'responsible.' '' These attributes may be natural to some, but for others, these traits do not come naturally. For those seeking to be a part of great companies, and companies that remain great after the CEO leaves, and for CEOs wishing to establish a true legacy that remains even after they have gone, the question is how to create an ongoing culture and set of management processes that embodies the list of traits required. Economic Value Management to the rescue. This approach to managing the business demands discipline. It is a replicable approach to managing the business that requires rigor. And it is an approach that promotes consistency, focus, and accountability.
So one reason to employ Economic Value Management is to set the stage for greatness, by employing a set of management processes that embody the traits associated with greatness. Its approach to assessment (embodied in the systematic answer to 14 questions) provides an organization with the basis for a sense of reality, allowing the organization to develop a structured approach and plan, and the decisive action necessary to address risks and maximize value creation.
Providing immediate gains
The discipline of Economic Value Management in providing a sense of reality allows managers to make decisions that can generate millions of dollars in value to the firm. This is because the assessment process provides a level of methodical objectivity that many companies do not inculcate into their daily choice making. In my work with firms, even quick assessments, using the Economic Value Management methodologies, can identify significant opportunities and provide the foundation for better long-term strategies. Fast.
In part, this is due to the consistent process used in Economic Value Management. One of the ways it differs from many other approaches is in using analyses to provide early warning signals. One company using the systematic methodology was able to determine early on changes in buyer habits for one of their products. As a result, they were able to beat the competition in making adaptive changes consistent with value and growth. Another company, using the discipline, identified a market segment that was about to take off and was able to immediately capitalize on that information. Still others have found Economic Value Management an approach that opened the door to C level decision maker prospects and potential customers who were reluctant to engage in meetings with the firm before.
Better long-term strategy
While clearly the discipline of Economic Value Management helps companies in the short run, its demanding, focused approach results in better long-term strategies as well. One company employing this rigorous methodology was planning additional investment in its "profitable" overseas operations. The disciplined approach rightly dissuaded them. While it took others several years to read the tea leaves, this firm was alerted early on and able to reallocate valuable company resource. Another company used the discipline in reviewing M and A decisions in an area where it was a major international player. As a result of their consistent diligence, an insightful analysis emerged, missed by other analysts of this sector. They were able to advise their clients on better long-term strategies and show their clients how to use Economic Value Management processes to produce better long-term strategies for themselves. Many years later others discovered the same benefits to modified strategy changes that the methodical, systematic process revealed early on. Still others have used Economic Value Management to shape their long-term strategic approaches to new or existing markets. One company used the process to provide a clear map that ensured that the product launch would be successful (which it was). Without the diligence demanded by Economic Value Management, the company would have abandoned its early ideas as unworkable. The focused accountability of the systematic approach, revealed what was required to make the product a major success.
However, while a great strategy is one aspect; execution is also vitally important.
Economic Value Management instills an execution discipline. How does it do this? In contrast to other approaches, the performance metrics and systems used prior to decision making (ROI, NPV, IRR) are not abandoned once the decision is made. While after the fact, many organizations do not maintain the same level of rigorous discipline and focus, and do not diligently track the NPV impacts of their actions, the Economic Value Management methodical discipline demands that same level of accountability and responsibility from start to completion and provides the financial tools required to do just that. By so doing, Economic Value Management creates an execution focus and discipline often lacking in firms that supplant accountability for real results with budgeted measures of performance that often ignore the crucial requirements of return on investment. Because the Economic Value Management discipline demands this level of responsibility, accountability and focus, it doesn't really matter what the natural inclination of the leader may be. A natural strategist will be balanced by the rigors demanded by Economic Value Management in execution. A natural pragmatist who is execution focused will be balanced by Economic Value Management's systematic strategic discipline.
And the fifth reason? Economic Value Management creates organizational alignment. It gets everyone on the same page. How? The discipline and rigor of the approach itself requires that everyone point in the same direction: in the short term and for the long term; in strategy and execution. This makes the company more effective. From a performance measurement perspective, the organization becomes aligned. From a strategy, a process and technology, organizational structure, reward and communications perspective as well. In fact, CEOs have often recognized the benefits most when they are working to create alignment. They have found that the kind of discipline and focus required by Economic Value Management act as a rallying cry within an organization, bringing disparate groups together, to work on a common, shared goal in a way that is systematic and promotes the required accountability and responsibility required to generate superior results.
There is another way in which Economic Value Management creates alignment as well. Many people want their work to provide meaning. Economic Value Management is defined in the book by the same name as "an integrated approach to managing any organization, one that is based on the principle of stewardship (and the inexorable consequences of failed stewardship)." This lifts the meaning of work beyond the financial to something more. A responsibility, accountability, discipline and focus on creating something that is truly valuable, on multiple dimensions. The rigor of Economic Value Management demands it. At the end of the day, it is also what most people desire: to know that what they spent time doing meant something, something valuable to the world. For that, people have moved mountains. Through diligence, consistency, and discipline, Economic Value Management makes moving mountains something employees are willing to do.
Eleanor Bloxham, the author of Economic Value Management: Applications and Techniques (John Wiley and Sons) is President of The Value Alliance and Corporate Governance Alliance, a firm that advises CEOs and Boards on corporate governance and value creation (www.thevaluealliance.com; www.corporategovernancealliance.com). She may be reached at email@example.com or 614-571-7020.
Many more articles on Creative Leadership in The CEO Refresher Archives