Value Based Management in the Strategic Management of Germany's Automotive Sector
Document information
| Author | Razaq Raj |
| School | Leeds Beckett University |
| Major | Leeds Business School |
| Year of publication | 2019 |
| Place | Leeds |
| Document type | article |
| Language | English |
| Number of pages | 46 |
| Format | |
| Size | 510.02 KB |
- Value Based Management
- Automotive Industry
- Strategic Management
Summary
I. Introduction to Value Based Management
The concept of Value Based Management (VBM) is pivotal in the strategic management of the automotive sector in Germany. This approach emphasizes the importance of aligning corporate strategies with shareholder value maximization. The research highlights that the German automotive industry has not fully embraced VBM, despite its potential benefits. The study identifies a gap in empirical evidence regarding the implementation of VBM in this sector. It underscores the necessity for automotive enterprises to adopt VBM principles to enhance their strategic management practices. The findings suggest that companies, particularly Original Equipment Manufacturers (OEMs), must focus on value-oriented management to remain competitive. The research also indicates that the commitment to VBM can lead to improved performance metrics, which are essential for long-term sustainability in a rapidly evolving market.
1.1 Importance of VBM in Strategic Management
The significance of Value Based Management in strategic management cannot be overstated. VBM serves as a framework that guides companies in making decisions that enhance shareholder value. The study reveals that many automotive companies have begun to recognize the importance of VBM, yet implementation remains inconsistent. The research emphasizes that effective VBM requires a thorough understanding of control parameters and performance indicators. By focusing on these elements, companies can better align their operational strategies with their financial goals. The research also points out that the Economic Value Added (EVA) is a critical metric in assessing the effectiveness of VBM. This metric allows companies to evaluate their performance in terms of value creation, thus providing a clearer picture of their financial health.
II. Empirical Analysis of VBM in the Automotive Sector
The empirical analysis conducted in this research involved a comprehensive review of annual reports from 20 automotive companies between 2008 and 2011. The results indicate a growing commitment to value-oriented management among OEMs and listed suppliers. However, the communication of VBM practices in reports varies significantly among suppliers. The study highlights that while some companies effectively articulate their VBM strategies, others fail to do so, leading to a lack of transparency. This inconsistency can hinder stakeholders' understanding of a company's commitment to value creation. The research also identifies that the shareholder value approach, developed by Rappaport, remains a cornerstone of VBM in the automotive industry. This approach advocates for maximizing shareholder investments, which is crucial for maintaining investor confidence and market position.
2.1 Challenges in Implementing VBM
Despite the recognized benefits of Value Based Management, several challenges impede its widespread adoption in the automotive sector. The research identifies a lack of empirical studies that provide clear evidence of VBM's effectiveness in strategic management. Additionally, the focus on shareholder interests often overshadows the needs of other stakeholders, such as employees and customers. This narrow focus can lead to critical assessments of VBM practices, as stakeholders increasingly demand a more balanced approach to value creation. The study suggests that automotive companies must address these challenges by adopting a more inclusive strategy that considers the interests of all stakeholders. By doing so, they can enhance their reputation and foster long-term relationships that contribute to sustainable growth.
III. Conclusion and Practical Applications of VBM
The research concludes that the utilization of Value Based Management is essential for the strategic management of Germany's automotive sector. The findings underscore the need for automotive companies to integrate VBM principles into their operational frameworks. This integration can lead to improved performance, greater transparency, and enhanced stakeholder relationships. The study advocates for a shift in focus from solely maximizing shareholder value to a more holistic approach that considers the interests of all stakeholders. By embracing VBM, companies can better navigate the complexities of the automotive market and position themselves for future success. The practical applications of VBM extend beyond financial metrics; they encompass strategic decision-making processes that drive innovation and competitiveness in the industry.
3.1 Future Directions for Research
Future research should explore the long-term impacts of Value Based Management on the automotive sector's performance. Investigating the relationship between VBM implementation and market competitiveness can provide valuable insights. Additionally, studies should focus on the role of technology in facilitating VBM practices, particularly in data analysis and performance measurement. Understanding how digital tools can enhance VBM strategies will be crucial for companies aiming to thrive in an increasingly digital landscape. Furthermore, examining the perspectives of various stakeholders on VBM can enrich the discourse and lead to more comprehensive strategies that align with broader societal goals.
Document reference
- THE UTILISATION OF VALUE BASED MANAGEMENT IN THE STRATEGIC MANAGEMENT OF GERMAN’S AUTOMOTIVE INDUSTRY (Raj, R and Soliman, A and Beck, V)
- Creating Shareholder Value (Rappaport, A)
- Market analyst preferences for heuristics-driven earnings (Sayed, A)
- Control parameters in enterprises (Pellens et al.)
- Value-based management tools in OEMs (Eberlein, A)