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Value Based Management

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A value based management is an administrative approach which primarily focuses to maximize the wealth of shareholders. It also ensures the steadiness of organizational aim, the corporate strategies to achieve its goals, decision making and systems, operating procedures, analytical tools, organizational culture and performance measurement which are being used as guiding principles to maximize shareholder wealth (http: //www. There are four fundamental modules of value based management. It includes Valuation, Strategy, Finance and Corporate Governance. Valuation deals with corporate value and its key drivers. Strategy defines a specific correlation between the driver values and the business strategies.

Financial module is associated with available value increasing policies. The last module i. corporate governance describes the managerial actions of top authorities such as performance measurement, incentive systems, and shareholder communication (Morin & Jarrell, 2001). The following figure shows the framework of VBM and its fundamental modules. The creation of value is the primary job of mangers in huge organizations. The leading feature of VBM is its application to increase the shareholder value and enables the organization to compete at global level. A unique feature of VBM is that it brings a harmony between the concerns of managers and shareholders and stakeholders.

It means it emphasizes on value defined by stakeholders and primacy set by the administrative authorities. VBM creates a democratic culture in the organization which improves the communication between top and lower staff and formulation of corporate strategy. VBM has strong affiliation with outsourcing. Outsourcing is an important aspect of modern business scenario. In his famous book, Feenstra and Hanson (1996) define the term outsourcing as "the fragmentation of production into discrete activities which are then allocated across countries".

All unprofitable business parts and activities are often outsourced to an organization that has adequate capability to take financial benefits from the same parts or activities. Thus promoters of VBM consider the outsourcing strategy as an attractive provision to top level management. Since VBM revolves around the value, therefore it sets the productive targets to the individuals. Further it not only merges the acquisitions but also balances the short term and long term corporate objectives to expand the organizational

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preview essay on Value Based Management
  • Pages: 20 (5000 words)
  • Document Type: Dissertation
  • Subject: Unsorted
  • Level: Ph.D.
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