Optimizing Business Value: CEOs spotlight Integrated Value Management

Nearly 200 US Business Roundtable CEOs adopted the stakeholder approach to value management. Now the tough work begins! There will be large-scale external resistance, internal company friction, and massive public skepticism. Most company transformation efforts fail to deliver intended results after all . Moving from a shareholder- to a stakeholder-based approach to value management requires much more than a statement of intent. It requires a wholesale paradigm shift in companies. A “new way of thinking” about value and value management. Use the Integrated Value Process (IVP) to direct your company’s value efforts. Read More

Business Valuation – Preventing Type I /II and Type X Financial Losses

Statistics introduces the important notion of probabilistic error. There are two types of statistical errors when testing hypotheses: Type I (false positives) and Type II (false negatives). Corporate finance decisions depend upon accurate estimates of the future worth of particular investments. The ultimate aim is not to lose money by either overestimating returns and investing more than you receive back (Type I error), nor underestimating returns and not investing thereby foregoing a profitable business opportunity (Type II error). Type X errors occur when executives don’t properly diagnose the underlying business problem, don’t know which disciplinary theory is appropriate for / relevant to solve a problem, don’t understand the details of a particular methodology (and its limitations), or some combination of the preceding. Type X errors occur more often in business than executives care to admit, and their financial consequences can be catastrophic. While accounting is the language of business, value is the essence of business. Unlike accounting, however, there is no no generally accepted definition of business value across business functions. Avoid Type I, II and X financial errors when weighing business opportunities! Use the Integrated Value Process (IVP) framework to translate the essence of business (value) into the language of business (accounting). Read More

Integrated Value Management: A Principia Valorem for Business Value

Solving math problems requires using mathematical “first principles”. It also requires understanding multiple complementary domains (Algebra, Geometry, Calculus, Statistics & Proability, etc.), the types of problems each addresses, and how these domains connect / “fit together.” Business management also has multiple domains, i.e. Strategy, Marketing and Operations. They use multiple academic disciplines (e.g. Economics, Finance, Psychology, Quality, etc.) to solve different but complementary problems. However, each domain / discipline is insufficient by itself to resolve complex issues like Integrated Value Management (across a company / its value chain). All must be integrated and synthesized. Sadly value integration is sorely lacking in business. Use the Integrated Value Process (IVP) framework to manage value holistically and optimize your value flows! Read More