This project is therefore an effort to find out the importance of value based management and how companies are doing it.
The realisation for a need to identify the key stakeholders in order to optimise their contributions towards the cause arose when the modern management principles were experimented with. Stakeholder concept was originally defined as, "those groups without whose support the organization would cease to exist". But the term 'stakeholder' as such was introduced by the Stanford Research Institute in 1963, for generalising the notion of 'stockholder' when the term was made a part of the internal memo (Zsolnai, 2006). These days management encompasses a range of issues involving various aspects like environment friendliness, adherence to rules and regulations, management of the human resources, ethical business practices and of course the profitability of the operations. Japanese management philosophy of commitment to serving the timely needs of a stakeholder has been at the back of the concepts like JIT, and Kaizen. Value based management, in a way is termed to carry forward these very principles.
Koller (1994) finds out that one of the key reasons behind the failure in delivering the objectives is the setting of unrealistic performance targets. While underlining the fact that value is created only when companies are able to invest the capital at rates exceeding the cost of that capital, Koller (1994) state that value based management helps companies in devising the targets in such a manner that they get strategic as well as operating advantages. Even an ordinary individual investor expects profits from investing in shares of an enterprise. As a result, the investor keeps comparing his or her holdings with other such investment opportunities. It is for the company and its management to retain the interest of such investors into the enterprise.
While devising suitable strategies for value based management, it is equally important that the enterprise is able to take stock of the outcome as a result of implementing certain policies and decisions. Therefore, the search for suitable metrics in order to measure economic performance represents an essential area in theory and practice of company management. In these times of globalization, liberalization, market deregulation, cut-throat competition and industry consolidation, value-based company management becomes all the more important. The manner in which some of the reputed banks and companies have melted during the ongoing recession around the world, is an indicator that if the company is not able to make itself strong enough to take on uncertain times, it will have to face the heat.
Rationale of the Study
As the industrial activities see an upsurge on global scale, it requires the stakeholders to be more conscious about their investments, risks and operating conditions. For example, when the Lehman Brothers announced bankruptcy in 2008, the world community was taken aback. But, subsequently, stakeholders started taking more active interest and becoming more aware about the operational details and financial health of the companies. With an objective of maximizing the market value and using the 'shareholder value' enterprises have now started resorting to newer evaluation models. The idea