Value-Based Management

Value-based management (VBM) emphasises financial return and shareholders' value (signal objective avoids trade-offs). It includes traditional tools such as return on investment (ROI) and residual income (RI). However, they have some drawbacks. Firstly, it focuses on past information. Then, it is failure to relate manager's actions with financial results. Moreover, profit based measures are open to manipulation, and lack of comparability among firms. And it may encourage managers to become short-term oriented. Due to drawbacks such as backward-looking and complicated accounting procedures, new tools--economic value added (EVA) and market value added (MVA)--are welcomed.EVA is advanced because it considers the cost of capital invested, lengthen the measurement period (3-5 years) and use both financial and nonfinancial measures. MVA is better because it considers return achieved from the investment rather than simply investing as much capital as possible. However, VBM has difficulties in behavioural, technical and organizational aspects. Activity-based management (ABM)focus on the activities and process by controlling such as consuming resources and costs. Activity-based costing (ABC) analysis is a common method.Qualitybased management (QBM), including measures such asTotal Quality Management and Cost of Quality Report,concerns more about the quality since quality has become one of the competitive variables.European Foundation for Quality Management (EFQM) excellence modelis a self-assessment framework based on nine criteriasuch as people. Benchmarking is used to analysecompetitors based on comparison. Strategic Enterprise Management (SEM) emphasises the role of information based on SEM system (a pool of data). Six Sigma is used tomeasure performance against standard variations, aiming at cut waste and make better products. But it eliminates non-value added waste rather than destroying value and also requires new infrastructure.