Value-based manage is a management strategy that ensures corporations or organization are managed consistently on value. This is a customer oriented system built upon shared principles and core values, which are designed to instill an ownership culture within an organization. By providing a consistent strategic focus, value based management acts as an efficient device though which the value of a corporate is improved. Every day people at organizational levels make decisions that affect the value of an organization. Value based management model requires that for every decision that a company makes must be linked with the change in value. This ensures that accompany makes decisions that only increases the value of the company. To achieve this, the corporation must ensure that everything that is done within an organization adds value to it, and galvanizes everyone to work towards the overriding aim of building long-term shareholder value. The chief financial officer plays a very critical role in ensuring successful implementation of VBM. The successful VBM program calls for introducing fundamental changes to the company’s culture. These changes should instill a sense of responsibility in employees towards the business. This is easily obtained though effective communication, transparency and confidence with the top management. Sustained communication about VBM is one of the main success key for deeply rooting this new culture within the group (Arnold 2000).
The CFO must ensure that all management processes are correctly measured to make sure they are adding value to an organization this is because they are in a better position to link strategy to execution and financial success. He or she should critically analyze how each strategy and its value drivers contribute to true value creation. Also to ensure successful implementation of VBM program, CFO is bestowed with the responsibility of ensuring that they have right skills in their departments. They can do this by putting a program in place to develop their financial employee’s skills (Arnold 2000).
VBM has not had full success because of various challenges. This model requires comprehensive training and management consultancy which are often difficult to achieve due to cost. This model requires a strong and explicit executive board support. When this does not happen, it compromises the success of the model. Also the perfect VBM or valuation method has not been invented therefore drawbacks in the model are common (Arnold 2000).
The CFO and his financial team should take a lead in overhauling the company’s performance measurement systems because financial performance forms a critical part that determines the overall performance of a company. It is through financial statements that a company performs financial analysis that is very vital in gauging overall performance. Overhauling the performance measurement system is of great significance as it will enable the company to monitor and control its strategies or management activities. It will also act as a tool to drive improvement and maximize the effectiveness of the improvement effort. It is also through effective performance measurement systems that a company will be able to achieve alignment with organizational goals and objectives. There are often pitfalls in design and implementation of this system. These pitfalls can arise at any stage of the performance measurement system. For instance, when determining goals and objectives, pitfalls can occur when measures are not linked to overall strategy. Also when there are too many measures there is lack of focus on what is really critical to managing a business. Pitfalls can also occur while evaluating data, where too much data roll-up leads to reducing the value of impactful data and can mask the impact of potentially significant events and trends. Therefore to avoid these challenges, the management team should be trained on how to recognize pitfalls at every stage and how to avoid them. The team for instance should be trained on effective ways of tracking relevant data in their performance metrics (Habour 20009).