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alue-based management (VBM) inspires everyone in an organization to make decisions based on an understanding of how their decisions will contribute to the organization's value. VBM focuses on creating value and increasing shareholder wealth.

VBM has three objectives. First, as an integrated approach to align the vision, strategy, management processes and people in an organization that is aimed at continually increasing share value; second, as a framework to link goals, strategies, resource allocation, performance assessment, and compensation to value; and third, to understand investors perspectives when assessing a corporation's performance and linking it to the stock price.

In the past, earnings per share were a common key indicator of financial performance and a determinant of an enterprise's value. At present, economic, cash-based metrics are widely accepted indicators to help businesses more efficiently focus on meeting their financial expectations. One of the VBM methods used in financial measures is the Economic Value Added (EVA) method. EVA identifies areas of an enterprise (resources, processes and assets) that create and/or destroy value. Successful management of EVA works as a driver to increase an organization's wealth.

To focus on the achievement of operational excellence and to create organizational value, the management needs a tool to translate its vision into strategy. The Balanced Scorecard (BSC) is one of the powerful strategic tools to address such challenges. Kaplan and Norton made BSC popular and, since its introduction in 1992 in the Harvard Business Review, the system has been accepted as a powerful strategic control mechanism to help management define and implement its corporate strategy.

In the BSC framework, there are four perspectives, namely financial, customer, internal business process and learning and growth. The perspectives are used to describe the strategy, so the system is called "balanced". "Balanced" means that the system comprises performance measures across the four perspectives and provides the essential feedback required to assess performance. Then, the necessary corrective actions can be adjusted and refined in accordance with the organization's strategy over time.

How the integration works in BSC

The BSC model in a value-based organization normally starts from the board, corporate, executive and goes to the operational level. As a main driver, BSC at the board level is built to describe and manage the strategic responsibilities of the board, and commonly it starts with a strategy map (see figure). Strategic themes include performance oversight, compliance and communication, and executive enhancement. These themes provide the architecture for defining specific objectives of the board.

The second part is the corporate scorecard, which is usually used as a "dashboard" of the CEO. However, it also has a central role in fulfilling the board's oversight responsibilities. As a CEO tool, the corporate BSC is used to define, communicate and manage strategy. A strategy map is used to describe how the enterprise will ultimately create value. Each objective on the strategy map has a corresponding measurement and target.

The third part is the executive scorecard, which equips the board to select and motivate executives. This tool helps the board separate and evaluate the performance expectations of an individual executive from the performance expectations of the enterprise. The CEO can use this to align the executive team, hold it accountable and reward it based on strategic performance. In a skill-based competency organization, the compensation committee can use this tool to assess individual executive performance and facilitate compensation decisions.

Lastly, at the operational level, the management can use it as a tool to align the implementation of a strategy to achieve operational excellence. Integration at the operational level is very essential and critical in aligning the processes within an organization. As an integral part of the pursuit of operational excellence, many organizatons appoint "Process Integrators" in the internal business process who perform an important role in horizontal integration, which aims at achieving operational excellence.

How does process integration deliver and create the shareholder wealth in a VBM organization? This is the next logical step in integrating each perspective in an organization by using the strength in internal business processes to deliver customer value. Logically, when the customers are satisfied, they will deliver profitability to the firm. Customer satisfaction helps create other business opportunities; acquisition of new customers and customer retention. Both achievements drive market share growth. Major growth in the market share gives value to the organization. At this point the strategic role is to integrate each business perspective through vertical integration, which is aimed at delivering added value to the stakeholders of an organization.

At the stage of vertical integration, the focus of people who are responsible for integrating each perspective are: to link strategic planning to operational execution (i.e. via Sales and Operation Planning/S&OP), to increase efficiency, to drive the right product or services to the market and to deliver customer profitability (i.e. through Activity Based Costing) in order to increase shareholder value. Management is able to view the resource allocated to an activity-based perspective that helps drive true product cost and profitability as an integral part of the EVA model in BSC.

By using enabling technology that is implemented in state-of-the-art management practices, the management can focus the energy of the enterprise on activities, both internal and external, that truly create value for their stakeholders. Finally, the cross integration model in BSC provides corporate leaders with insight, alignment and confidence to effectively manage and develop the value of an organization.