Value Based Management Practices - Some Evidence from the Field

Posted: 28 Aug 2003

See all articles by Teemu Malmi

Teemu Malmi

Aalto University School of Business

Seppo Ikaheimo

Aalto University

Abstract

Value Based Management (VBM), and especially Economic Value Added (EVA), has attracted considerable interest among organisations in recent years. These concepts can be applied to capital budgeting, valuation, management control and incentive compensation. Despite the growing number of applications, we have only limited independent research-based evidence on how these concepts are actually applied. However, this can be considered not only an essential step in research investigating the benefits of VBM (cf. Ittner & Larcker, 1998), but also on its limitations. With the aid of six Finnish-based organisations from five different industries, we illustrate the diversity of actual use of VBM. Our results indicate that for some organisations VBM is merely rhetoric, while for others it seems to have an impact on both decision-making and control system, taking various forms from one firm to another. In some organisations, application of VBM is restricted only to the highest levels of hierarchy, whereas in others it covers the whole organisation. However, in none of the studied organisations is VBM applied in as comprehensive a manner as suggested in the normative literature. This multitude of different ways in which VBM is actually used in practice raises some problems regarding the study of VBM and its benefits. In particular, the adoption of EVA, as measures with EVA based bonuses (see e.g. Wallace, 1997; Kleiman, 1999) is seriously challenged. practice

Keywords: value based management, economic value added (EVA), field study, management control practice, decision-making

JEL Classification: M40, M46

Suggested Citation

Malmi, Teemu and Ikaheimo, Seppo, Value Based Management Practices - Some Evidence from the Field. Available at SSRN: https://ssrn.com/abstract=439140

Teemu Malmi (Contact Author)

Aalto University School of Business ( email )

P.O. Box 21220
Aalto, 00076
Finland
+358 40 5100827 (Phone)

Seppo Ikaheimo

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
4,270
PlumX Metrics