Managing for Value: It's Not Just About the Numbers

In the classroom, value-based management (VBM) programs sound seductively simple. Theoretically, they involve just two steps. First, adopt an economic profit metric, such as Stern Stewart's Economic Value Added (EVA), as a key measure of performance. Second, tie compensation to agreed-upon improvement targets in that metric. For large companies with flagging share prices, this looks like a miracle cure. All they have to do to boost their market value is call in consultants to revamp their accounting system, install the new measure of performance, align their incentive systems, and voilà! Managers and employees will march along like good foot soldiers and start making all kinds of value-creating decisions.