The Actions-to-Value Framework – Coursework Example
Number: Lecturer: The Actions-to-Value Framework This article talks about the day to day actions by managers that will have either a short-term or long-term impact on the value that will result from these actions. Such actions include, but not limited to, making decisions, allocating resources, and pursuing actions that will determine success. According to Ballou, Heitger, and Schultz (1), managerial behavior has a resultant value through understandable, an informal, casual chain of direct effects on each intervening variable. According to them, managers have been having a narrow view of the results of their actions, thinking that their actions only have an economic value-the operating profit. Organizations try to create formal statistical models for cause-effect relationships, but few consistently build and verify such models; hence managers use informal models. The Economic value, economic capital, and market value are the variables that organizations strive to achieve by managing business processes quantitatively.
It puts such actions to the results in a framework where there are components beginning with the action, through the process (actions-both financial and nonfinancial) to the result, hence actions-to-value framework. The framework has components that go through a series of steps starting from primary actions with the end result being economic value addition and market value. They follow the following order;
i) Managerial actions-include process quality decisions, production quantities, staffing, material purchases, supplier selection, equipment replacement, and lean practices.
ii) Nonfinancial measures-actions that do not have a financial impact, but operating performances such as defect rates, efficiency variances, and customer satisfaction.
iii) Operating profit-sales revenues minus related costs (cost of sales, general and administrative expenses) as income from operations.
iv) Net cash flows-the difference between cash receipts and cash payments.
v) Economic value added-it is a result of net increases in operating cash flows leading to returns being generated exceeding the opportunity cost of capital.
vi) Market value-reflected in the share price as determined by current and prospective investors. It is influenced by both economic and psychological factors. Economic factors include the company’s historical generation of accrual-based earnings, net cash flows exceeding a specified rate of return, and investors’ expected sustained growth.
vii) Long-term organizational value-all the above variables leads ultimately to long-term value. It can either be assessed as a reputation with key stakeholders to some organizations or market capitalization at some point in future (Ballou, Heitger, and Schultz, 8).
The importance and, or shortcomings of the article for class discussion
This article is an eye opener for those managers are used to repetitive activities in an organization so long as the organization financial health is good. Hence for this class I wish to front the following issues for further discussion;
i) How to get everyday managers out of their comfort zones to act in order to improve the organizational value.
ii) Do these actions apply or are components of an organizational long-term strategic plan.
iii) The nonfinancial measures can be favorable to some personnel in the management. Whereas those whose departments might not need any form of action change will feel that they are left out when performance reviews are done.
iv) Balancing between expenditure to create stronger value proposition and pursuing a lean model where costs are kept minimum and delivering a price competitive product in the market.
Ballou, Brian, Heitger, Dan L & Schultz, Thomas D. "The Actions-to-Value Framework; Linking Managerial Behavior to Organizational Value." Management Accounting Quarterly Summer 11.4 (2010): 1-9.