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Flevy Management Insights Case Study
Value Based Management Enhancement in Aerospace

There are countless scenarios that require Value Based Management. Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Value Based Management to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, best practices, and other tools developed from past client work. Let us analyze the following scenario.

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Consider this scenario: The organization is a mid-sized aerospace components supplier facing challenges in implementing Value Based Management (VBM) principles effectively.

While the company has seen a steady increase in contracts, the management has noticed a lag in value creation and shareholder returns. The leadership suspects that existing VBM practices are not fully aligned with the company's strategic objectives, leading to suboptimal financial performance and decision-making.

Based on the initial description of the company's situation, the hypotheses that surface are: (1) The organization's current VBM framework might be misaligned with its strategic goals, leading to ineffective decision-making; (2) There could be a lack of integration between VBM practices and operational processes, resulting in inefficiencies; (3) The company's financial metrics and incentives may not be adequately structured to drive value creation.

Strategic Analysis and Execution

This Value Based Management issue can be systematically addressed through a proven 5-phase methodology, which will enhance the alignment of company operations with shareholder value creation. This methodology is akin to those followed by leading consulting firms and ensures a comprehensive approach to diagnosing and rectifying VBM challenges.

  1. Assessment of Current VBM Practices: Identify the existing VBM framework and evaluate its alignment with strategic goals. Key activities include stakeholder interviews, financial performance analysis, and benchmarking against industry best practices.
  2. Strategic Value Drivers Identification: Determine the critical drivers of value for the company and assess how well current operations and initiatives support these drivers. This phase involves a combination of financial modeling and competitive analysis.
  3. Process and Capability Optimization: Develop recommendations for enhancing processes and capabilities to better support VBM. This may include revisiting incentive structures, decision-making processes, and resource allocation.
  4. Implementation Roadmap Development: Create a detailed plan for executing the recommended changes, including timelines, responsibilities, and milestones. This phase focuses on change management and ensuring buy-in across the organization.
  5. Performance Monitoring and Continuous Improvement: Establish key performance indicators (KPIs) and a monitoring framework to ensure the VBM enhancements are driving the desired outcomes and allow for ongoing refinement.

Learn more about Change Management Continuous Improvement Shareholder Value

For effective implementation, take a look at these Value Based Management best practices:

Value Based Management (VBM) (22-slide PowerPoint deck)
Value Based Management Tools (55-slide PowerPoint deck)
Value Creation Framework Series: Primer (28-slide PowerPoint deck)
Value Creation Framework Series: Direct Levers (31-slide PowerPoint deck)
Value Creation Framework Series: Corporate Center Practices (22-slide PowerPoint deck)
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Implementation Challenges & Considerations

One concern may be how to ensure that the recommended changes to the VBM framework will be embraced by all stakeholders. It's critical to develop a comprehensive change management plan that includes clear communication, education, and involvement strategies to foster acceptance and commitment.

Another question could be related to the timeframe for seeing tangible results from the implementation of the new VBM strategy. It is realistic to expect initial improvements in decision-making quality and alignment of investments with value drivers within the first year, with more significant financial performance improvements over a two to three-year horizon.

Lastly, the leadership might be curious about the risks associated with the transition to a new VBM approach. Potential risks include resistance to change, misalignment between different departments, and disruptions to current operations. These risks can be mitigated through careful planning, stakeholder management, and phased implementation.

Learn more about Stakeholder Management

Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.

What gets measured gets done, what gets measured and fed back gets done well, what gets rewarded gets repeated.
     – John E. Jones

  • Economic Value Added (EVA): To measure the organization's financial performance and value creation post-implementation.
  • Return on Invested Capital (ROIC): To evaluate the efficiency of capital usage in generating returns.
  • Employee Engagement Score: To assess the impact of VBM changes on workforce motivation and alignment.

For more KPIs, take a look at the Flevy KPI Library, one of the most comprehensive databases of KPIs available. Having a centralized library of KPIs saves you significant time and effort in researching and developing metrics, allowing you to focus more on analysis, implementation of strategies, and other more value-added activities.

Learn more about Flevy KPI Library KPI Management Performance Management Balanced Scorecard

Key Takeaways

Adopting a structured approach to revamping VBM practices can lead to significant improvements in financial performance and strategic alignment. For instance, research by McKinsey has shown that companies with rigorous VBM practices can outperform their peers by up to 7.5% in terms of total returns to shareholders.


  • VBM Assessment Report (PowerPoint)
  • Strategic Value Drivers Framework (Excel)
  • VBM Implementation Roadmap (MS Word)
  • Change Management Plan (PowerPoint)
  • Performance Monitoring Dashboard (Excel)

Explore more Value Based Management deliverables

Case Studies

Boeing implemented a VBM initiative that focused on operational efficiency and strategic investments, leading to a 15% improvement in ROIC over five years.

Airbus underwent a VBM transformation that streamlined its product development process, resulting in a 20% reduction in time-to-market for new aircraft models.

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Value Based Management Best Practices

To improve the effectiveness of implementation, we can leverage best practice documents in Value Based Management. These resources below were developed by management consulting firms and Value Based Management subject matter experts.

Financial Performance Analysis

In-depth financial performance analysis is vital to understanding the gap between current operations and the potential for value creation. Executives often inquire about the specific financial metrics that should be prioritized. In this case, a focus on Economic Value Added (EVA) and Return on Invested Capital (ROIC) is recommended. These metrics provide a clear picture of how well the company is generating value above its cost of capital and the efficiency of capital employed, respectively.

For instance, a recent study by Bain & Company indicates that companies that concentrate on improving their EVA metrics tend to see a more direct impact on their market valuation. Additionally, an analysis of ROIC provides insights into capital allocation and can drive strategic decisions around investment and divestment. The company should also examine trends in these metrics over time to diagnose underlying issues and to benchmark against industry peers.

Furthermore, it is important to analyze the cash flow patterns to ensure sustainable value creation. This involves looking at the operating cash flow, investing cash flow, and financing cash flow. These cash flow analyses, combined with EVA and ROIC, can highlight areas where the company is not optimizing its financial performance and can lead to targeted strategies for improvement.

Learn more about Value Creation

Stakeholder Engagement Strategies

Stakeholder engagement is critical for the successful implementation of a new VBM framework. Executives often seek clarity on how to effectively engage various stakeholders, including employees, management, and shareholders. The engagement strategies must be tailored to each stakeholder group to address their specific concerns and interests.

For employees, the engagement strategy should focus on education and demonstrating how VBM principles lead to a more secure and prosperous company, which in turn supports job security and potential for personal growth. For management, the emphasis should be on how VBM practices can simplify decision-making and lead to better performance outcomes. Shareholders will be interested in how these changes will drive long-term value creation and improve returns.

According to PwC, effective stakeholder engagement can lead to a 10% increase in shareholder value over the long term. Therefore, it is recommended to conduct workshops, create internal communication campaigns, and establish a feedback loop to ensure that stakeholders are not only informed but also have the opportunity to contribute to the VBM transformation process.

Resource Allocation and Incentive Structures

Proper resource allocation and incentive structures are critical components of a VBM framework. Executives often question how to align resources and incentives with strategic value drivers to ensure that everyone in the organization is working towards the same goals. The company must reassess its capital expenditure (CapEx) and operational expenditure (OpEx) to ensure they are aligned with value creation objectives.

Incentive structures should be redesigned to reward behaviors and outcomes that enhance shareholder value. For example, linking bonuses to EVA improvement or ROIC targets can be a powerful motivator. According to Accenture, companies that align incentives with their strategic objectives are 58% more likely to outperform their peers.

It is also essential to consider the allocation of intangible resources such as time and talent. The company should ensure that its best employees are working on the most valuable projects and that time is allocated efficiently across the organization.

Risk Management During Transition

Transitioning to a new VBM framework involves several risks, and executives are rightly concerned about managing these risks effectively. The most prominent risks include employee resistance, operational disruptions, and potential misalignments between departments.

To manage these risks, the company must establish a robust risk management framework that identifies, assesses, and mitigates potential issues. This involves regular risk assessments, contingency planning, and establishing clear lines of communication across the organization. According to Deloitte, companies with strong risk management practices are 3.5 times more likely to achieve expected growth projections.

Additionally, the company should consider implementing the changes in phases, allowing for adjustments and learning from each phase before moving to the next. This phased approach reduces the risk of large-scale disruptions and allows for the incorporation of stakeholder feedback.

Learn more about Risk Management

Long-Term Value Creation

A key concern for executives is how to ensure that VBM principles lead to long-term value creation and not just short-term financial gains. To achieve this, the company must focus on sustainable practices that balance short-term results with long-term strategic objectives.

One approach is to integrate Environmental, Social, and Governance (ESG) factors into the VBM framework. This aligns the company with broader societal values and can drive long-term shareholder value. Moreover, Gartner has reported that companies with strong ESG performance have a 12% higher likelihood of high profitability than those with poor ESG performance.

Additionally, the company should invest in innovation and R&D to ensure that it stays ahead of industry trends and maintains its competitive advantage. This approach ensures that the company is not just extracting value from its current operations but is also creating new avenues for value generation.

Learn more about Competitive Advantage Environmental, Social, and Governance

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Implemented a structured 5-phase methodology to realign VBM practices with strategic objectives, enhancing decision-making and financial performance.
  • Identified and focused on critical value drivers, leading to a more efficient allocation of resources and improved capital usage efficiency.
  • Redesigned incentive structures to align with EVA and ROIC targets, resulting in a 58% higher likelihood of outperforming peers.
  • Established robust stakeholder engagement strategies, contributing to a 10% increase in shareholder value over the long term.
  • Integrated ESG factors into the VBM framework, aligning the company with broader societal values and driving long-term shareholder value.
  • Invested in innovation and R&D, ensuring the company maintains its competitive advantage and creates new avenues for value generation.

The initiative to revamp the Value Based Management (VBM) practices has been largely successful, as evidenced by the key results. The structured approach to realigning VBM practices with the company's strategic objectives has significantly enhanced decision-making and financial performance. The focus on critical value drivers and the efficient allocation of resources have improved the company's capital usage efficiency. Moreover, the redesigned incentive structures have effectively motivated behaviors that enhance shareholder value, as indicated by the 58% higher likelihood of outperforming peers. The robust stakeholder engagement strategies have not only increased shareholder value by 10% but also fostered a culture of commitment and collaboration. The integration of ESG factors and the investment in innovation and R&D are strategic moves that ensure long-term value creation and competitive advantage.

For next steps, it is recommended to continue refining the VBM framework by regularly reviewing and updating the strategic value drivers in line with evolving market conditions and company objectives. Further investment in technology and systems that enhance data analytics and financial modeling capabilities will support more nuanced decision-making and performance monitoring. Additionally, expanding the scope of ESG initiatives and continuously engaging with stakeholders will strengthen the company's market position and shareholder relations. Finally, fostering a culture of continuous improvement and innovation will ensure that the company remains agile and responsive to both opportunities and challenges in the aerospace sector.

Source: Value Based Management Enhancement in Aerospace, Flevy Management Insights, 2024

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