In this second blog in the Value Mindset series, you can gauge the critical differences between the first phase of the value transformation versus the second phase. The first is focused on tools, methods, processes, and systems. The second phase gets deep into individual transformation by focusing on mindset, culture, and change leadership.

At one company, the CEO and CFO made a video for their employees in which they pledged their support for the initiative, declared that the basis of compensation would shift at the end of the year from earnings to economic profit, and gave examples of what VBM meant. At the top of the organization, on the other hand, VBM informs the board of directors and corporate center about the value of their strategies and helps them to evaluate mergers, acquisitions, and divestitures. The ROE for the aggressive growth strategy was lower than the harvest strategy for the first year, about the same in the second year, and only slightly higher in the third year. A value creation mindset means that senior managers are fully aware that their ultimate financial objective is maximizing value; that they have clear rules for deciding when other objectives (such as employment or environmental goals) outweigh this imperative; and that they have a solid analytical understanding of which performance variables drive the value of the company. Analysis of these variables showed that the number of stores per warehouse significantly affected the cost per transaction: the more stores that could be served by a single warehouse, the lower the warehouse costs relative to revenues.

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. Taken alone, either element is. insufficient. Taken together, they can have a huge and sustained impact.

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In this second blog in the Value Mindset series, you can gauge the critical differences between the first phase of the value transformation versus the second phase. The first is focused on tools, methods, processes, and systems. The second phase gets deep into individual transformation by focusing on mindset, culture, and change leadership.

At one company, the CEO and CFO made a video for their employees in which they pledged their support for the initiative, declared that the basis of compensation would shift at the end of the year from earnings to economic profit, and gave examples of what VBM meant. At the top of the organization, on the other hand, VBM informs the board of directors and corporate center about the value of their strategies and helps them to evaluate mergers, acquisitions, and divestitures. The ROE for the aggressive growth strategy was lower than the harvest strategy for the first year, about the same in the second year, and only slightly higher in the third year. A value creation mindset means that senior managers are fully aware that their ultimate financial objective is maximizing value; that they have clear rules for deciding when other objectives (such as employment or environmental goals) outweigh this imperative; and that they have a solid analytical understanding of which performance variables drive the value of the company. Analysis of these variables showed that the number of stores per warehouse significantly affected the cost per transaction: the more stores that could be served by a single warehouse, the lower the warehouse costs relative to revenues.