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TESTE DEIN WISSEN

Processes involving several operating units require performance measures focusing on processes instead of organizational boundaries

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TESTE DEIN WISSEN
  • The performance measurement system for so called “core processes” must consider the critical elements of the process by setting concrete operating objectives
    • “Core Processes” are processes that cut horizontally through a company and have no
      organizational boundaries like profit centers:
    • “Core Processes” are, for example, new product development, customer service,
      supplier management or order fulfillment
  • Developing a performance measurement system for a core process
    • Map the process, identify the sequence of activities and the key players
    • Determine the areas where performance indicators are critical to the success of the
      process
Lösung ausblenden
TESTE DEIN WISSEN

Shareholder View

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TESTE DEIN WISSEN

Maximize the market value of a firm
(single objective)
Shareholder is residual claimant on
the company


Supported by a powerful theoretical
result: Social welfare is maximized, when
all firms in a society maximize their
own firm value


But: strong assumptions necessary


Maximize the market value of a firm
(single objective)


Shareholder is residual claimant on
the company
¨ Supported by a powerful theoretical
result:
Social welfare is maximized, when
all firms in a society maximize their
own firm value
¨ But: strong assumptions necessary

Lösung ausblenden
TESTE DEIN WISSEN

Adidas during corona

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TESTE DEIN WISSEN

Situation:
German retail company Adidas stops paying rent for
its stores, which are closed due to the Covid-19 crisis
n Some weeks earlier, Adidas published its financial results of 2019: record year with
profits of € 1.9bn (+12%), major increase in dividends and share-buyback
Assessment and public reaction:
n Myopic decision benefitting the shareholders at the expense of landlords
n Significant reputational damage and extensive criticism by society, politicians and press,
even calls to boycott Adidas
No long-term value-maximizing strategy, arguably not even for shareholders
Result and takeaway
Adidas apologizes and pays rent again1)
Shareholder value is not yet dead, but stakeholders and society can put immense
pressure on a company

Lösung ausblenden
TESTE DEIN WISSEN

Questions for value maximisation

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TESTE DEIN WISSEN

(1) Should firms have a single-valued objective?
o Value maximization: single-valued objective
o Stakeholder value maximization: multiple objectives
(2) If so, should that objective be value maximization or something else?
Possible objectives:
o Maximizing (shareholder) value,
o Maintaining employment,
o Improving the environment, etc.

Lösung ausblenden
TESTE DEIN WISSEN

Issue 2: Value Maximization makes society better off

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TESTE DEIN WISSEN
  • Social welfare is max, if firms max firm value
  • Assumptions:
    • No monopolies 
    • Perfect markets 
    • No externalities
  • Firms use inputs (labor, capital, material) for outputs (goods/service)
  • Social welfare is increased, if the prices > costs 
  • As long as the firm maximizes its profits (revenues - costs), social welfare is maximized
  • If the assumptions don't hold, the corporate objective of value maximization must be
    carefully analyzed
Lösung ausblenden
TESTE DEIN WISSEN

VW Challenge value maximisation

Lösung anzeigen
TESTE DEIN WISSEN

Loss in the market capitalization of about
€ 15.8bn1) in the short term after the
publication


Barrett et al. (2015) estimate the
social costs due to health impacts by US$ 450m.
=> Implications for shareholder value approach


A narrow focus on exclusively financial KPIs and
short term value creation can set incentives to
ignore other important fields such as quality
and sustainability in company’s success.
=> The goal of value maximization must always be from a long term perspective

Lösung ausblenden
TESTE DEIN WISSEN

Stakeholder View

Lösung anzeigen
TESTE DEIN WISSEN
  • Stakeholders are all parties that
    are affected by a firm‘s actions,
    e.g. shareholders, customers,
    suppliers, workers, local
    communities
  • All stakeholders have claims on the
    company
  • Multiple objectives:
    Which one is relevant?
    Conflicting objectives?
  • Stakeholder value approach does
    not provide a guideline for
    managerial decision making
Lösung ausblenden
TESTE DEIN WISSEN

Stakeholder theory: Decision Making (Issues)

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TESTE DEIN WISSEN
  • Competing interests 
  • Decision criteria has to guide tradeoffs
  • Stakeholder theory doesn't provide criterion

=> Managerial decisions difficult to evaluate as in shareholder view

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TESTE DEIN WISSEN

Shareholder value creation <-> Reputation

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TESTE DEIN WISSEN

Top value creators = most admired companies
Innovation

  • Quality of management
  • community and environmental responsibility
  • ability to get people
  • quality of product
Lösung ausblenden
TESTE DEIN WISSEN

Value creation <-> Employee focus

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TESTE DEIN WISSEN

Companies that treat employees good 

=> more and better patents 

=> higher stock and higher future return

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TESTE DEIN WISSEN

Allianz Targets => Value Creation

5 levers and 4 targets

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TESTE DEIN WISSEN

5 levers:

  • Customer centricity
  • Digital by default
  • technical excellence
  • Growth engines
  • inclusive meritocracy 


Targets:
- Growth
- RoE
- Net Promoter Score (Customers centricity)
- Inclusive Meritocracy Index (IMIX) = culture where people & performance matter

Lösung ausblenden
TESTE DEIN WISSEN

Shareholder Value vs. Stakeholder views

Lösung anzeigen
TESTE DEIN WISSEN

Maximise value to shareholder vs. maximise value to all stakeholders

Lösung ausblenden
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Q:

Processes involving several operating units require performance measures focusing on processes instead of organizational boundaries

A:
  • The performance measurement system for so called “core processes” must consider the critical elements of the process by setting concrete operating objectives
    • “Core Processes” are processes that cut horizontally through a company and have no
      organizational boundaries like profit centers:
    • “Core Processes” are, for example, new product development, customer service,
      supplier management or order fulfillment
  • Developing a performance measurement system for a core process
    • Map the process, identify the sequence of activities and the key players
    • Determine the areas where performance indicators are critical to the success of the
      process
Q:

Shareholder View

A:

Maximize the market value of a firm
(single objective)
Shareholder is residual claimant on
the company


Supported by a powerful theoretical
result: Social welfare is maximized, when
all firms in a society maximize their
own firm value


But: strong assumptions necessary


Maximize the market value of a firm
(single objective)


Shareholder is residual claimant on
the company
¨ Supported by a powerful theoretical
result:
Social welfare is maximized, when
all firms in a society maximize their
own firm value
¨ But: strong assumptions necessary

Q:

Adidas during corona

A:

Situation:
German retail company Adidas stops paying rent for
its stores, which are closed due to the Covid-19 crisis
n Some weeks earlier, Adidas published its financial results of 2019: record year with
profits of € 1.9bn (+12%), major increase in dividends and share-buyback
Assessment and public reaction:
n Myopic decision benefitting the shareholders at the expense of landlords
n Significant reputational damage and extensive criticism by society, politicians and press,
even calls to boycott Adidas
No long-term value-maximizing strategy, arguably not even for shareholders
Result and takeaway
Adidas apologizes and pays rent again1)
Shareholder value is not yet dead, but stakeholders and society can put immense
pressure on a company

Q:

Questions for value maximisation

A:

(1) Should firms have a single-valued objective?
o Value maximization: single-valued objective
o Stakeholder value maximization: multiple objectives
(2) If so, should that objective be value maximization or something else?
Possible objectives:
o Maximizing (shareholder) value,
o Maintaining employment,
o Improving the environment, etc.

Q:

Issue 2: Value Maximization makes society better off

A:
  • Social welfare is max, if firms max firm value
  • Assumptions:
    • No monopolies 
    • Perfect markets 
    • No externalities
  • Firms use inputs (labor, capital, material) for outputs (goods/service)
  • Social welfare is increased, if the prices > costs 
  • As long as the firm maximizes its profits (revenues - costs), social welfare is maximized
  • If the assumptions don't hold, the corporate objective of value maximization must be
    carefully analyzed
Mehr Karteikarten anzeigen
Q:

VW Challenge value maximisation

A:

Loss in the market capitalization of about
€ 15.8bn1) in the short term after the
publication


Barrett et al. (2015) estimate the
social costs due to health impacts by US$ 450m.
=> Implications for shareholder value approach


A narrow focus on exclusively financial KPIs and
short term value creation can set incentives to
ignore other important fields such as quality
and sustainability in company’s success.
=> The goal of value maximization must always be from a long term perspective

Q:

Stakeholder View

A:
  • Stakeholders are all parties that
    are affected by a firm‘s actions,
    e.g. shareholders, customers,
    suppliers, workers, local
    communities
  • All stakeholders have claims on the
    company
  • Multiple objectives:
    Which one is relevant?
    Conflicting objectives?
  • Stakeholder value approach does
    not provide a guideline for
    managerial decision making
Q:

Stakeholder theory: Decision Making (Issues)

A:
  • Competing interests 
  • Decision criteria has to guide tradeoffs
  • Stakeholder theory doesn't provide criterion

=> Managerial decisions difficult to evaluate as in shareholder view

Q:

Shareholder value creation <-> Reputation

A:

Top value creators = most admired companies
Innovation

  • Quality of management
  • community and environmental responsibility
  • ability to get people
  • quality of product
Q:

Value creation <-> Employee focus

A:

Companies that treat employees good 

=> more and better patents 

=> higher stock and higher future return

Q:

Allianz Targets => Value Creation

5 levers and 4 targets

A:

5 levers:

  • Customer centricity
  • Digital by default
  • technical excellence
  • Growth engines
  • inclusive meritocracy 


Targets:
- Growth
- RoE
- Net Promoter Score (Customers centricity)
- Inclusive Meritocracy Index (IMIX) = culture where people & performance matter

Q:

Shareholder Value vs. Stakeholder views

A:

Maximise value to shareholder vs. maximise value to all stakeholders

VBM

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