Value drivers

Identifying the sources of value and the levers that must be pulled to change performance (we call these R D value drivers ). 

Value driver analysis, a development of financial analysis visualizations first created at DuPont [19], provides an intuitive, graphical way of breaking down the sources of value (Fig. 11.4) and, in conjunction with stochastic models of the project process, can be used to quantify the likely contribution of different kind of change. 

Biotechnology Industry Life Cycle and Value Drivers... 

To allow for maximum consistent data over a long time frame, we used equity related metrics for this analysis. The basic approach is that the valuation level of the industry (its price-earnings ratio) can be linked to the fundamental value drivers as follows ... 

Perfect capital markets should see through the cycle and the reaction of valuations to purely cyclical fluctuations in the industry return on capital should be insignificant. To examine this, we again compared the actual valuation level to a fundamental predicted valuation level for commodity chemical companies. To pinpoint the effects of cyclicality, however, we used a slightly different approach. As we wanted to evaluate capital market expectations, we compared the actual valuation level with a fundamental valuation level based on perfect foresight , i.e., assuming that the capital market knew the actual development of the key value drivers for the next 8 years and evaluated this information in line with its implied fundamental value creation.4 Furthermore, we used a capital structure-adjusted market-to-book ratio instead of an earnings-based metric for the valuation level. 

On the business unit level, regardless of the type of business, chemical companies should focus on capital productivity as the key value driver of ROIC besides margins. 

Across industries innovation is the key value driver for the "Fortune 500 survivors ... 

Drive performance and health processes with the right rhythm to allow the organization to be directed and operated effectively and efficiently. A chemical company can have in place the appropriate review processes, value-drivers, and targets, but not the proper sequence, timing, and pace of performance management events for its particular businesses. 

Diagnostic approaches typically involve collecting data from a variety of sources. In addition to fact-based analyses, such as competitive benchmarking or value driver analyses, surveys and interviews can help in gaining a better understanding of the company s workings and uncovering the complex roots of performance problems ... 

Value creation 11-21, 26-35 Value-driver trees 156, 159 Vendor managed inventory (VMI) 84 Ventro 34 Venture capital funds biotechnology 67, 77 corporate 117-118 innovation 32, 114 Venture capitalists 31, 66-67, 118 Vertical integration 37, 40-42 Vestolit 39 Victrex 98 Vinnolit 39 Virtual crackers 43 Virtual organization 122 Vopak 34, 35... 

It is vitally important to translate the various outward-looking perspectives into measurable and concrete technical targets for production managers and front-line personnel. Detailed value-driver trees are an excellent tool for establishing a direct link between financial indicators at the corporate level - such as Return on Invested Capital - and hands-on technical indicators that mean something to a production unit, such as tonnes of steam per tonne of product (Fig. 12.3). 

Explaining these value-driver trees to employees helps them to understand how the individual s daily actions and performance have an immediate and direct influence on the company s (or the business units) profitability. Based on this transparency, specific targets for front-line and intermediate performance indicators can be agreed upon in yearly target contracts at all levels of the organization. 

Fig. 12.3 Value-driver trees from financial to technical Indicators Source McKinsey...

Finally, by applying the appropriate indicators from the value driver trees mentioned in the previous section, management can lay the groundwork for comprehensive and practical monitoring of performance improvements during the implementation phase. 

There are three basic elements to entrepreneurship in chemical production (Fig. 12.6). The first - estabhshing entrepreneurial focus - means that performance targets have to be set which are driven by the capital markets in a participative process starting from the top - that is, at the business unit or divisional level -and which follow through a transparent value-driver tree in order to determine targets for the front line (see Section 12.2.1). The desired end product is a balanced scorecard for each operational unit with a clear Hnk to the overall profitability of the business unit... 

Companies can assess the potential value of any deal by considering how much scope they have to capitalize on five important value drivers, which are described below. 

Sensitivity analysis is used to identify and quantify project characteristics that are major factors in the expected value of a project/ and is one of the most powerful tools of modern portfolio management. Sensitivity analyses serve two goals. The first goal is to identify the project characteristics that were used to determine the project value/ the so-called value drivers/ and ensure that the project plan developed by the project team solidly supports these value drivers. For example/ a value driver for a potential sedative hypnotic might be that it has no potentiation or interaction with alcohol. Because much of the value of this project depends on this product characteristic/ the project team will plan to assess this expected value driver as early as possible in the development cycle. 

Environment, as measured by environmental, social, and community service scores, also ranks consistently among the top ten value drivers in our VCI model,... 

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