What “The McKinsey Quarterly” says about Value-Based Management

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Since its founding in 2000, SmartOrg has enabled companies to realize the benefits of Value-Based Management (VBM) through a unique combination of decision process and web-based software systems.

VBM was introduced in a pace-setting article by Timothy Koller, a principal in McKinsey & Co.’s New York office, in “Valuation: Measuring and Managing the Value of Companies – Second Edition” (John Wiley & Sons). The chapter was reprinted in The McKinsey Quarterly.

Koller writes, “VBM aligns a company’s overall aspirations, analytical techniques, and management processes with the key drivers of value.” He says that the thinking behind VBM is simple, citing that “the value of a company is determined by its discounted future cash flows. Value is created only when companies invest capital at returns that exceed the cost of that capital. VBM extends these concepts by focusing on how companies use them to make both major strategic and everyday operation decisions.”

Koller further makes the point the when properly executed, it (VBM) …aligns a company’s overall aspirations, analytical techniques, and management processes to focus management decision making on the key drivers of value.

His book was published in 1994. Thirteen years ago! Since then, a few innovative companies have employed VBM to create exceptional value. SmartOrg accelerated the adoption of VBM via its leading software applications, Project Navigator™ and Portfolio Navigator™. By combining process with enabling software, these solutions make it practical for companies of all sizes in many industries to deploy VBM.