Inhoudsopgave
WHAT IS VALUE-BASED MANAGEMENT? – TIMOTHY KOLLER ....................................................... 2
THE ECONOMICS OF SHORT-TERM PERFORMANCE OBSESSION – ALFRED RAPPAPORT .... 12
THE SEARCH FOR THE BEST FINANCIAL PERFORMANCE MEASURE – BACIDORE, BOQUIST,
MILBOURN, TAKHOR..................................................................................................................................... 25
THE STOCK MARKET IN THE DRIVER’S SEAT! IMPLICATIONS FOR R&D AND MARKETING –
CHAKRAVARTY & GREWAL ....................................................................................................................... 34
SUMMARY “LINKING CUSTOMER ASSETS TO FINANCIAL PERFORMANCE” - HOGAN .......... 42
SUMMARY CUSTOMER SATISFACTION AND STOCK PRICES: HIGH RETURNS, LOW RISK –
FORNELL ........................................................................................................................................................... 58
BALANCING RISK AND RETURN IN A CUSTOMER PORTFOLIO – TARASI ................................... 66
MEASURING MARKETING PRODUCTIVITY: CURRENT KNOWLEDGE AND FUTURE
DIRECTIONS – RUST ....................................................................................................................................... 80
MARKETING AND FIRM VALUE: METRICS, METHODS, FINDINGS AND FUTURE DIRECTIONS
– SRINIVASAN ................................................................................................................................................... 89
MARKET-BASED ASSETS AND SHAREHOLDER VALUE: A FRAMEWORK FOR ANALYSIS –
SRIVASTAVA ................................................................................................................................................... 111
HOW CAN A SHAREHOLDER VALUE APPROACH IMPROVE MARKETING’S STRATEGIC
INFLUENCE? – LUKAS ................................................................................................................................. 129
THE CHANGING ROLE OF MARKETING IN THE CORPORATION – WEBSTER .......................... 137
VALUING MARKET STRATEGIES – DAY & FAHEY ............................................................................. 152
RELATIONSHIP MARKETING’S ROLE IN MANAGING THE FIRM-INVESTOR DYAD -
HOFFMAN ........................................................................................................................................................ 165
CONSUMER’S STOCK PREFERENCES BEYOND EXPECTED FINANCIAL RETURNS – ASPARA
............................................................................................................................................................................ 173
HOW DOES FINANCIAL PERFORMANCE AFFECT MARKETING? STUDYING THE
MARKETING-FINANCE RELATIONSHIP FROM A DYNAMIC PERSPECTIVE – LOVETT ......... 182
THE ECONOMIC IMPLICATIONS OF CORPORATE FINANCIAL REPORTING – GRAHAM...... 191
THE DEBATE OVER DOING GOOD: CORPORATE SOCIAL PERFORMANCE, STRATEGIC
MARKETING LEVERS, AND FIRM-IDIOSYNCRATIC RISK – LUO ................................................... 208
SHAREHOLDER VALUE, STAKEHOLDER MANAGEMENT, AND SOCIAL ISSUES: WHAT’S THE
BOTTOM LINE? – HILLMAN....................................................................................................................... 217
USING A CUSTOMER-LEVEL MARKETING STRATEGY TO ENHANCE FIRM PERFORMANCE –
KUMAR ............................................................................................................................................................. 224
,What is value-based management? – Timothy Koller
The cause of failure of new management approaches had to do with performance targets that
were unclear or not properly aligned with the ultimate goal of creating value.
→ Value-based management (VBM) tackles this problem. It provides a precise and
unambiguous metric – value – upon which an entire organization can be built.
The thinking behind VBM
The value of a company is determined by its discounted future cash flows. Value is created
only when companies invest capital at returns that exceed the cost of that capital.
VBM extends these concepts by focusing on how companies use them to make both major
strategic and everyday operating decisions. Properly executed, it is an approach to
management that aligns a company’s overall aspirations, analytical techniques, and
management processes to focus management decision making on the key drivers of value.
What makes VBM different from 1960s-style planning systems?
It is not a staff-driven exercise.
▪ It focuses on better decision making at all levels in an organization.
▪ It recognizes that top-down command-and-control structures cannot work well,
especially in large multi business corporations. Instead, it calls on managers to use
value-based performance metrics for making better decisions.
▪ It entails management the balance sheet as well as the income statement, and
balancing long-and short-term perspectives
,Pitfalls
It can become a staff-captured exercise that has no effect on operating managers at the front
line or on the decisions that they make.
“VBM aligns a company’s overall aspirations, analytical techniques, and management
processes with the key drivers of value”
Not methodology
▪ The focus of VBM should not be on methodology, but on the why and how of
changing your corporate culture
▪ A value-based manager is interested in the sensitivities of organizational behavior as
in using valuation as a performance metric and decision-making tool
▪ When VBM is working well, an organization’s management processes provide
decision makers at all levels with the right information and incentives to make value-
creating decisions
“When VBM is working well, management processes provide decision makers at all levels
with information and incentives to make value-creating decisions”
VBM operates at other levels too. Line managers and supervisors, for instance, can have
targets and performance measures that are tailored to their particular circumstances but driven
by the overall strategy. A production manager might work to targets for cost per unit, quality,
and turnaround time. 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.
Value-based management can be seen 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.
A value creation mindset
This 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.
They must know, for instance, whether more value is created by increasing revenue growth or
by improving margins, and they must ensure that their strategy focuses resources and
attention on the right option.
Management processes and systems
This encourages managers and employees to behave in a way that maximizes the value of the
organization. Planning, target setting, performance measurement, and incentive systems are
working effectively when the communication that surrounds them is tightly linked to value
creation.
, The value mindset
▪ The first step in VBM is embracing value maximization as the ultimate financial
objective of the company
▪ Traditional financial performance measures, such as earnings or earnings growth, are
not always good proxies for value creation
▪ To focus more directly on creating value, companies should set goals in terms of
discounted cash flow value, the most direct measure of value creation
→ Such targets also need to be translated into shorter-term, more objective financial
performance targets
“Objectives must be tailored to the different levels within an organization”
→ Objectives must also be tailored to the different levels within an organization.
▪ For the head of a business unit, the objective may be explicit value creation measured
in financial terms.
▪ A functional manager’s goals could be expressed in terms of customer service, market
share, product quality, or productivity.
▪ A manufacturing manager might focus on cost per unit, cycle time, or defect rate.
▪ In product development, the issues might be the time it takes to develop a new
product, the number of products developed, and their performance compared with the
competition.
▪ Even within the realm of financial goals, managers are often confronted with many
choices: boosting earnings per share, maximizing the price/earnings ratio or the
market-to-book ratio, and increasing the return on assets, to name a few.
Companies also need nonfinancial goals – goals
concerning customer satisfaction, product
innovation, and employee satisfaction, for
example – to inspire and guide the entire
organization. Such objectives do not contradict
value maximization.
On the contrary, the most prosperous
companies are usually the ones that excel in
precisely these areas. Non- financial goals
must, however, be carefully considered in light
of a company’s financial circumstances.
“Companies that focus only on this year’s net
income or on return on sales are myopic and
may overlook major balance sheet
opportunities”
Exhibit 2 compares various measures of corporate performance along two dimensions: the
need to take a long-term view and the need to manage the company’s balance sheet.
Only discounted cash flow valuation handles both adequately. Companies that focus on this
WHAT IS VALUE-BASED MANAGEMENT? – TIMOTHY KOLLER ....................................................... 2
THE ECONOMICS OF SHORT-TERM PERFORMANCE OBSESSION – ALFRED RAPPAPORT .... 12
THE SEARCH FOR THE BEST FINANCIAL PERFORMANCE MEASURE – BACIDORE, BOQUIST,
MILBOURN, TAKHOR..................................................................................................................................... 25
THE STOCK MARKET IN THE DRIVER’S SEAT! IMPLICATIONS FOR R&D AND MARKETING –
CHAKRAVARTY & GREWAL ....................................................................................................................... 34
SUMMARY “LINKING CUSTOMER ASSETS TO FINANCIAL PERFORMANCE” - HOGAN .......... 42
SUMMARY CUSTOMER SATISFACTION AND STOCK PRICES: HIGH RETURNS, LOW RISK –
FORNELL ........................................................................................................................................................... 58
BALANCING RISK AND RETURN IN A CUSTOMER PORTFOLIO – TARASI ................................... 66
MEASURING MARKETING PRODUCTIVITY: CURRENT KNOWLEDGE AND FUTURE
DIRECTIONS – RUST ....................................................................................................................................... 80
MARKETING AND FIRM VALUE: METRICS, METHODS, FINDINGS AND FUTURE DIRECTIONS
– SRINIVASAN ................................................................................................................................................... 89
MARKET-BASED ASSETS AND SHAREHOLDER VALUE: A FRAMEWORK FOR ANALYSIS –
SRIVASTAVA ................................................................................................................................................... 111
HOW CAN A SHAREHOLDER VALUE APPROACH IMPROVE MARKETING’S STRATEGIC
INFLUENCE? – LUKAS ................................................................................................................................. 129
THE CHANGING ROLE OF MARKETING IN THE CORPORATION – WEBSTER .......................... 137
VALUING MARKET STRATEGIES – DAY & FAHEY ............................................................................. 152
RELATIONSHIP MARKETING’S ROLE IN MANAGING THE FIRM-INVESTOR DYAD -
HOFFMAN ........................................................................................................................................................ 165
CONSUMER’S STOCK PREFERENCES BEYOND EXPECTED FINANCIAL RETURNS – ASPARA
............................................................................................................................................................................ 173
HOW DOES FINANCIAL PERFORMANCE AFFECT MARKETING? STUDYING THE
MARKETING-FINANCE RELATIONSHIP FROM A DYNAMIC PERSPECTIVE – LOVETT ......... 182
THE ECONOMIC IMPLICATIONS OF CORPORATE FINANCIAL REPORTING – GRAHAM...... 191
THE DEBATE OVER DOING GOOD: CORPORATE SOCIAL PERFORMANCE, STRATEGIC
MARKETING LEVERS, AND FIRM-IDIOSYNCRATIC RISK – LUO ................................................... 208
SHAREHOLDER VALUE, STAKEHOLDER MANAGEMENT, AND SOCIAL ISSUES: WHAT’S THE
BOTTOM LINE? – HILLMAN....................................................................................................................... 217
USING A CUSTOMER-LEVEL MARKETING STRATEGY TO ENHANCE FIRM PERFORMANCE –
KUMAR ............................................................................................................................................................. 224
,What is value-based management? – Timothy Koller
The cause of failure of new management approaches had to do with performance targets that
were unclear or not properly aligned with the ultimate goal of creating value.
→ Value-based management (VBM) tackles this problem. It provides a precise and
unambiguous metric – value – upon which an entire organization can be built.
The thinking behind VBM
The value of a company is determined by its discounted future cash flows. Value is created
only when companies invest capital at returns that exceed the cost of that capital.
VBM extends these concepts by focusing on how companies use them to make both major
strategic and everyday operating decisions. Properly executed, it is an approach to
management that aligns a company’s overall aspirations, analytical techniques, and
management processes to focus management decision making on the key drivers of value.
What makes VBM different from 1960s-style planning systems?
It is not a staff-driven exercise.
▪ It focuses on better decision making at all levels in an organization.
▪ It recognizes that top-down command-and-control structures cannot work well,
especially in large multi business corporations. Instead, it calls on managers to use
value-based performance metrics for making better decisions.
▪ It entails management the balance sheet as well as the income statement, and
balancing long-and short-term perspectives
,Pitfalls
It can become a staff-captured exercise that has no effect on operating managers at the front
line or on the decisions that they make.
“VBM aligns a company’s overall aspirations, analytical techniques, and management
processes with the key drivers of value”
Not methodology
▪ The focus of VBM should not be on methodology, but on the why and how of
changing your corporate culture
▪ A value-based manager is interested in the sensitivities of organizational behavior as
in using valuation as a performance metric and decision-making tool
▪ When VBM is working well, an organization’s management processes provide
decision makers at all levels with the right information and incentives to make value-
creating decisions
“When VBM is working well, management processes provide decision makers at all levels
with information and incentives to make value-creating decisions”
VBM operates at other levels too. Line managers and supervisors, for instance, can have
targets and performance measures that are tailored to their particular circumstances but driven
by the overall strategy. A production manager might work to targets for cost per unit, quality,
and turnaround time. 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.
Value-based management can be seen 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.
A value creation mindset
This 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.
They must know, for instance, whether more value is created by increasing revenue growth or
by improving margins, and they must ensure that their strategy focuses resources and
attention on the right option.
Management processes and systems
This encourages managers and employees to behave in a way that maximizes the value of the
organization. Planning, target setting, performance measurement, and incentive systems are
working effectively when the communication that surrounds them is tightly linked to value
creation.
, The value mindset
▪ The first step in VBM is embracing value maximization as the ultimate financial
objective of the company
▪ Traditional financial performance measures, such as earnings or earnings growth, are
not always good proxies for value creation
▪ To focus more directly on creating value, companies should set goals in terms of
discounted cash flow value, the most direct measure of value creation
→ Such targets also need to be translated into shorter-term, more objective financial
performance targets
“Objectives must be tailored to the different levels within an organization”
→ Objectives must also be tailored to the different levels within an organization.
▪ For the head of a business unit, the objective may be explicit value creation measured
in financial terms.
▪ A functional manager’s goals could be expressed in terms of customer service, market
share, product quality, or productivity.
▪ A manufacturing manager might focus on cost per unit, cycle time, or defect rate.
▪ In product development, the issues might be the time it takes to develop a new
product, the number of products developed, and their performance compared with the
competition.
▪ Even within the realm of financial goals, managers are often confronted with many
choices: boosting earnings per share, maximizing the price/earnings ratio or the
market-to-book ratio, and increasing the return on assets, to name a few.
Companies also need nonfinancial goals – goals
concerning customer satisfaction, product
innovation, and employee satisfaction, for
example – to inspire and guide the entire
organization. Such objectives do not contradict
value maximization.
On the contrary, the most prosperous
companies are usually the ones that excel in
precisely these areas. Non- financial goals
must, however, be carefully considered in light
of a company’s financial circumstances.
“Companies that focus only on this year’s net
income or on return on sales are myopic and
may overlook major balance sheet
opportunities”
Exhibit 2 compares various measures of corporate performance along two dimensions: the
need to take a long-term view and the need to manage the company’s balance sheet.
Only discounted cash flow valuation handles both adequately. Companies that focus on this
