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By James A. Knight, New York: McGrawHill, 1997. 307 pages, hard cover, $65.00
In this era of corporate governance and careful scrutiny of management, a company's responsibility to its shareholders has never been more consequential. Value Based Management discusses a management process-known as value based management, or just value management-that aligns strategy, performance measurement, and behavior in order to maximize shareholder value. James Knight discusses the advantages of managing for value and presents an overview of elements to be considered when adopting value management. He discusses definitions of value, roadblocks to value based decision making, performance measures and compensation strategies, and reasons why value management has failed at some companies. Knight illustrates his points with examples from such familiar companies as Apple Computer, Berkshire Hathaway, Coca-Cola and Quaker Oats.
According to Knight, "measure of value is not management of value." Much attention has been given to the metrics of value management and the complex derivation of different measures of value, such as Economic Value Added (EVA), economic profit and market value added. A proper discussion of value management goes well beyond an analysis of the mechanics and financial theory involved in calculating a measure of "value." Knight points out that one particular definition of value may not fit every industry. He notes that "value based management represents more than an accounting treatment of the financial results of operations and capital management. Value based management instills a mindset where everyone in the organization learns to prioritize decisions based on their understanding of how those decisions contribute to corporate value. True value based management creates management alignment by linking the often disparate corporate activities of strategic planning, financial reporting, and compensation/incentive planning. Value based management succeeds when decision making becomes focused and achieves alignment between strategy, performance measurement, and behavior." Toward that end, value measures should...