Flevy Management Insights Q&A

What impact do emerging technologies have on the metrics used in Value Based Management?

     David Tang    |    Value Based Management


This article provides a detailed response to: What impact do emerging technologies have on the metrics used in Value Based Management? For a comprehensive understanding of Value Based Management, we also include relevant case studies for further reading and links to Value Based Management best practice resources.

TLDR Emerging technologies like AI, IoT, and blockchain are transforming Value Based Management by enhancing traditional metrics such as EVA and ROI, necessitating new metrics like Digital Maturity Score, and redefining value creation with a focus on operational efficiency, customer engagement, and strategic innovation.

Reading time: 5 minutes

Before we begin, let's review some important management concepts, as they relate to this question.

What does Value Based Management (VBM) mean?
What does Predictive Analytics mean?
What does Digital Maturity Score mean?
What does Customer Lifetime Value (CLV) mean?


Emerging technologies such as Artificial Intelligence (AI), Internet of Things (IoT), blockchain, and advanced analytics are revolutionizing the business landscape, significantly impacting the metrics used in Value Based Management (VBM). VBM focuses on creating value for shareholders and is driven by metrics such as Economic Value Added (EVA), Return on Investment (ROI), and Cash Flow Return on Investment (CFROI). The integration of these technologies necessitates a reevaluation of traditional metrics to reflect the digital transformation and its impact on value creation.

Impact on Traditional Value Metrics

The adoption of AI and advanced analytics has led to the development of more nuanced and predictive metrics. For instance, traditional financial metrics like EVA and ROI are being complemented by predictive analytics that can forecast future performance trends and provide a more dynamic view of value creation. According to a report by McKinsey, companies that integrate advanced analytics into their operations see a 15-20% increase in their EBITDA. This demonstrates the significant impact emerging technologies have on enhancing traditional value metrics by providing deeper insights into operational efficiency and future profitability.

Furthermore, IoT technologies enable real-time data collection and analysis, which can be used to improve operational efficiency and asset utilization—key components of VBM. For example, in the manufacturing sector, IoT can track the performance of machinery in real-time, leading to a more accurate calculation of CFROI by accounting for the actual usage and efficiency of assets. This real-time data collection provides a more accurate and timely reflection of value creation, moving beyond the historical data typically used in VBM metrics.

Blockchain technology, on the other hand, introduces transparency and security in transactions, which can significantly reduce costs and improve trust in business ecosystems. This reduction in transaction costs and improvement in efficiency directly impacts value creation metrics by lowering operational costs and improving margins. For example, by using blockchain for supply chain management, companies can reduce counterfeiting, theft, and losses, thereby improving ROI on supply chain investments.

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Emergence of New Value Metrics

Emerging technologies not only enhance traditional VBM metrics but also necessitate the creation of new metrics that reflect the digital age's complexities. For instance, digital transformation efforts are often evaluated using metrics such as Digital Maturity Score, which assesses an organization's digital readiness and its ability to create value through digital initiatives. According to Accenture, companies at the highest level of digital maturity are 2.5 times more likely to report strong financial performance than their industry averages.

Additionally, the integration of AI and machine learning into business processes has led to the development of metrics around AI effectiveness, such as algorithmic accuracy, data bias reduction, and the impact of AI on customer satisfaction and engagement. These metrics are crucial for businesses investing in AI to ensure that these technologies are not only driving efficiency but also enhancing customer value and contributing to the overall strategic objectives of the organization.

Customer-centric metrics have also gained prominence, with technologies enabling a more detailed understanding of customer behavior and preferences. Metrics such as Customer Lifetime Value (CLV) and Net Promoter Score (NPS) are increasingly used alongside traditional financial metrics to provide a more holistic view of value creation in the digital era. This shift acknowledges that long-term value creation is as much about building strong, lasting customer relationships as it is about financial performance.

Real-World Examples

Companies like Amazon and Netflix have leveraged emerging technologies to redefine value creation in their industries. Amazon's use of AI and analytics to optimize its supply chain and personalize customer recommendations has significantly enhanced its operational efficiency and customer engagement, leading to sustained revenue growth and market leadership. Netflix's recommendation engine, powered by advanced analytics, has improved customer satisfaction and retention, directly impacting its CLV and contributing to its global success.

In the automotive industry, Tesla's integration of IoT and AI in its vehicles and manufacturing processes has not only improved operational efficiency but also created new value propositions for customers, such as over-the-air software updates and autonomous driving features. These innovations have redefined value metrics in the automotive sector, focusing on technology, sustainability, and customer experience as key drivers of value.

These examples demonstrate the profound impact of emerging technologies on VBM metrics, highlighting the need for businesses to adapt and evolve their value measurement frameworks to remain competitive in the digital age. The integration of new technologies not only enhances traditional metrics but also introduces new dimensions of value creation that are critical for strategic decision-making and long-term success.

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Value Based Management Case Studies

For a practical understanding of Value Based Management, take a look at these case studies.

Value Based Management Enhancement in Aerospace

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Sustainable Growth Strategy for Apparel Manufacturing in Eco-Friendly Segment

Scenario: An established apparel manufacturer, specializing in eco-friendly textiles, is facing the challenge of integrating value based management into its operations to remain competitive in a rapidly evolving market.

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Related Questions

Here are our additional questions you may be interested in.

What are the key metrics and KPIs that should be considered in a VBM framework to ensure a comprehensive evaluation of value creation?
A comprehensive VBM framework evaluation necessitates a balanced mix of financial, non-financial, strategic, and operational metrics to effectively measure current performance and focus on long-term Value Creation, Strategic Alignment, and Operational Excellence. [Read full explanation]
How does Value Based Management influence corporate culture and employee engagement?
Value Based Management shifts corporate culture towards value creation, promoting Ownership, Innovation, and Clarity, while enhancing Employee Engagement through Transparency, Communication, and Personal Development, leading to superior performance. [Read full explanation]
How can companies effectively integrate ESG (Environmental, Social, and Governance) criteria into their Value Based Management framework?
Learn how Strategic Alignment, Operational Excellence, and Performance Management with clear ESG Metrics can enhance Value Based Management for sustainable, competitive advantage. [Read full explanation]
How can companies ensure that their VBM strategy is flexible enough to adapt to rapid market changes and emerging business trends?
To maintain flexible VBM strategies, companies should integrate agility into Strategic Planning, foster a resilient Organizational Culture, and utilize technology for improved agility, positioning for sustained success in dynamic markets. [Read full explanation]
How does the rise of digital technologies and AI influence the implementation and effectiveness of Value Based Management?
The integration of digital technologies and AI into Value Based Management enhances Strategic Planning, Performance Management, and Decision Making, enabling more precise, agile, and insightful value creation for shareholders. [Read full explanation]
How does shareholder value creation under VBM differ from traditional profit maximization strategies?
Value-Based Management (VBM) shifts focus from short-term profit maximization to long-term shareholder value creation, emphasizing sustainable growth, strategic alignment, and stakeholder interest alignment through metrics like EVA and ROIC. [Read full explanation]

 
David Tang, New York

Strategy & Operations, Digital Transformation, Management Consulting

This Q&A article was reviewed by David Tang. David is the CEO and Founder of Flevy. Prior to Flevy, David worked as a management consultant for 8 years, where he served clients in North America, EMEA, and APAC. He graduated from Cornell with a BS in Electrical Engineering and MEng in Management.

It is licensed under CC BY 4.0. You're free to share and adapt with attribution. To cite this article, please use:

Source: "What impact do emerging technologies have on the metrics used in Value Based Management?," Flevy Management Insights, David Tang, 2025




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