Journal of Management Excellence - Creating Value

Overview: The principles underlying TVI are as old as control theory. Accountants audit a company by aligning money, information, and the flow of goods—or core business processes, in more modern terms. It begins to go wrong when information is lacking or when money flows do not align anymore to the core business process. TVI is not the only performance indicator that aims to predict business success. The most well known indicator is economic value added (EVA) which includes a charge against profit for the cost of capital. With this charge, EVA penalizes inappropriate behaviors at least in X3 and X4. But EVA will not tell you if your strategy to create value is "right". Another indicator—aimed at predicting bankruptcy—is Altman's Z-score. But again, this indicator does not account for "fairness". There are many initiatives aimed at measuring and managing intangible value such as social responsibility and morality, but most do not claim to have any predictive value for company success. However, TVI alone is not enough. You could allow suppliers a fair margin, have an appropriate non-primary income, try to not fool your customers . . . and still fail. TVI must be used in addition to other critical performance indicators.

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Format: PDF | Date: Feb 2009