STRATEGIC FINANCIAL MANAGEMENT

BOOKS RECOMMENDED:1.FM-PRASANNA CHANDRA 2.Financial Analysis and Financial Mgt:-R.P.Rustagi 3.FM-Khan and Jain 4.FM and Policy-Van Horne 5.FM-S.N.MAHESWARI 6.FM-SHARMA AND GUPTA 7.SFM-A.N.SRIDHAR 8.SFM-RAVI M KISHORE 9. S F M - SOFAT, RAJNIHIRO, PREETI

Strategic Financial Management

Capital investment is the springboard for wealth creation.

In a world of economic uncertainty, the investors want to maximize their wealth by selecting optimum investment and financial opportunities that will give them maximum expected returns at minimum risk. Since management is ultimately responsible to the investors, the objective of corporate financial management should be implement investment and financing decisions which should satisfy the shareholders by placing them all in an equal, optimum financial position.

 The satisfaction of the interests of the shareholders

should be perceived as a means to an end, namely maximization of shareholders wealth. Since capital is the limiting factor, the problem that the management will face is the strategic allocation of limited funds between alternative uses in such a manner, that the companies have the ability to sustain or increase investor returns through a continual search for investment opportunities that generate funds for their business and are more favourable for the investors.

 All businesses need to have the following three

fundamental essential elements: A clear and realistic strategy, The financial resources, controls and systems to see it through and The right management team and processes to make it happen.

 Strtegic financial management is a combination of the

three terms: Strategy Finance

Management

Strategy: a carefully devised plan of action to achieve a

goal, or the art of developing or carrying out such a plan Finance: the business or art of managing the monetary resources of an organisation Management: the organising and controlling of the affairs of an organisation or a particular sector of an organisation

 The term strategy is popularly used in military and politics.It comes from the Greek word Stratos (Army) and Agein (to lead).
Strategy is the science of planning and directing military operations. Strategy is the art and science of combining the many resources available to achieve the best match between an organization and its environment.

 Strategy may be defined as, the long term direction

and scope of an organization to achieve competitive advantage through the configuration of resources within a changing environment for the fulfillment of stakeholders aspirations and expectations. In an idealized world, management is ultimately responsible to the investors. Investors maximize their wealth by selecting optimum investment and financing opportunities, using financial models that maximize expected returns in absolute terms at minimum risk.

 A strategy is a unified, comprehensive and integrated plan

that relates the strategic advantage of the firm to the challenges of the environment. It is designed that the basic objectives of an enterprise are achieved through proper execution by the organization. Mitzberg defines strategy as a pattern of decisions as actions Anybody who comes up with a new product or a new market, or is able to integrate different parts of those things is a strategist.-Mintsberg

STRATEGIC MANAGEMENT

S/M is defined as the set of directions and actions

resulting in formulation and implementation of strategies designed to achieve the objectives of an organization. S/M involves deciding and implementing strategies with the use of resources for ensuring existence and expansion of an enterprise.

STRATEGIC MANAGEMENT
A set of managerial decisions and actions that determines

the long run performance of a corporation Monitoring and evaluating of external threats and opportunities in the light of corporations strength and weaknesses. Elements ( A basic model) 1.Strategic planning 2.Environmental scanning(external & internal) 3.Strategy formulation 4.Strategy implementation 5.Evaluation and control 6.Feed back / learning proces

 Strategic planning involves allocation of resources to

achieve the mission and long run objectives of the organization. S/P involves the following:1.Deciding the vision, mission, objectives and goals 2.Environmental scanning or analysis 3.Internal analysis 4.Exploring strategic alternatives 5.Strategic analysis and choice of strategy

FINANCE
Finance is the life blood of any business. In modern

competitive business world, finance is the key store of each and every operational activities of the business. No business can be started without adequate finance. Modern business needs money to make more moneyto multiply money. Generally financing of sole trader or partnership forms of organizations are easy and the financial resources will also be limited to them.

 Finance means allocation of money at the particular

moment of time when it is wanted. Finance function refers to that procurement of funds and their effective utilization. Financial management refers to the management of finance. According to Ezra Soloman, FM is concerned with the efficient use of an important economic resource called capital funds.

 According to Weston and Brigham, FM is an area of

financial decision making, harmonizing individual motives and enterprise goals. FM is the operational activity of a business that is responsible for obtaining and effectively using the funds necessary for effective operations-Joseph and Mossie.

STRATEGIC FINANCIAL MANAGEMENT

SFM-the application of financial techniques to strategic

decisions in order to help achieve the decision-maker's objectives Strategic Financial Management is the portfolio constituent of the corporate strategic plan that embraces the optimum investment and financing decisions required to attain the overall specified objectives. Strategic Financial Management refer to both the financial implications or aspects of various business strategies and the strategic management of finances.

 strategic financial management is the function of four

major components based on the mathematical concept of expected NPV (net present value) maximization, which are: 1. Investment decision 2. Dividend decision 3. Financing decision and 4. Portfolio decision.

 The key decisions falling within the scope of financial

strategy include the following: 1. Financial decisions: This deals with the mode of financing or mix of equity capital and debt capital. If it is possible to alter the total value of the company by alteration in the capital structure of the company, then an optimal financial mix would exist - where the market value of the company is maximized. 2. Investment decision: This involves the profitable utilization of firm's funds especially in long-term projects (capital projects). Because the future benefits associated with such projects are not known with certainty, investment decisions necessarily involve risk.

 . The projects are therefore evaluated in relation to

their expected return and risk. These are the factors that ultimately determine the market value of the company. To maximize the market value of the company, the financial manager will be interested in those projects with maximum returns and minimum risk. An understanding of cost of capital, capital structure and portfolio theory is a prerequisite here.

 3. Dividend decision: Dividend decision determines

the division of earnings between payments to shareholders and reinvestment in the company. Retained earnings are one of the most significant sources of funds for financing corporate growth, dividends constitute the cash flows that accrue to shareholders. Although both growth and dividends are desirable, these goals are in conflict with each other.

 A higher dividend rate means rate means less retained

earnings and consequently slower rate of growth in future earnings and share prices. The finance manager must provide reasonable answer to this conflict. 4. Portfolio decision: Portfolio Analysis is a method of evaluating investments based on their contribution to the aggregate performance of the entire corporation rather than on the isolated characteristics of the investments themselves. When performing portfolio analysis, information is gathered about the individual investments available, and then chooses the projects that help to meet all of our goals in all of the years that are of concern.

Functions of Strategic Financial Management

The investment and financial decisions functions

involve the following functions1: Continual search for best investment opportunities Selection of the best profitable opportunities Determination of optimal mix of funds for the opportunities Establishment of systems for internal controls Analysis of results for future decision-making.

UNIT-II-CAPITAL BUDGETING
What is capital budgeting?
It is a process of making investment decisions in capital

expenditure. It is long term planning for making and financing proposed capital outlays. It is an evaluation of capital expenditure decisions. Why capital budgeting decisions are considered important? Capital budgeting decisions are considered important because:-1.Large investments 2.Long term commitment of funds 3.Irreversible decisions 4.Long term effect on profitability 5.Difficulties of investment decisions.

 What are the methods of evaluating profitability of capital

investment proposals? 1.Traditional Methods:- (i) Pay back period (ii) Average Rate of Return Method (or) Accounting Rate of Return Method. 2.Discounted cash Flow (DCF) Methods: (i) Net Present Value method (ii) Profitability Index method (iii) Internal Rate of Return method.

Risk and uncertainty in capital budgeting

All the techniques of c/b require estimation of future cash

inflows and cash outflows. But future is highly uncertain and risky and cannot be predicted correctly. In such a situation, the following methods are suggested for accounting for risk in capital budgeting . I-General techniques:1.Risk adjusted cut off rate or Rate of Varying Discount Rate 2.Certainity Equivalent method II-Quantitative techniques:3.Sensitivity technique 4.Probability Technique 5.Standard deviation method 6.Co-efficient of variation method 7.Decision Tree analysis

METHODS OF ACCOUNTING FOR RISK AND UNCERTAINITY IN CAPITAL BUDGETING

1.Risk adjusted cut off rate or Rate of Varying Discount Rate
This is the simplest method of accounting for risk in

capital budgeting. Under this method, the cut-off rate or the discount factor is increased by certain percentage on account of risk. The projects which are risky and having greater variability in returns are discounted at a higher rate. (Problems for this method, refer another slide)

 2.Certainity Equivalent method: Under this method, the expected cash inflow is reduced

by certain amounts. It can be employed by multiplying the expected cash inflows by certainty equivalent coefficients as to convert uncertain cash flows to certain cash flows. 3.Sensitivity technique:- When cash inflows are very sensitive under different circumstances, more than one forecast of the future cash inflows may be made. These inflows may be graded as 1.Optimistic (very high) 2.Most Likely (Moderate) and 3.Pessimistic (Very low).

 The cash inflows may be discounted to find out the net

present values under these different situations. If the present values under these three situations differ widely, it implies that there is a great risk in the project and the investors decision to accept or reject a project will depend upon hid risk bearing abilities. (For problems under this method, refer another slide) 4.Probability Technique:- A probability is the relative frequency with which an event may occur in the future.

 When future estimates of cash inflows have different

probabilities, the expected monetary value can be computed by multiplying cash inflows with the probability assigned. The monetary values so arrived can further be discounted to calculate the present value. The project that gives higher NPV may be accepted. (For problems under this method, refer another slide) 5.Standard Deviation method:- If two projects have the same cost and their NPVs are also the same, S.D. of the expected cash inflows of the two projects may be calculated to judge the comparative risk of the two projects. The project having a higher SD is said to be more risky as compared to the other. (For problems under this method, refer another slide)

 6.Co-efficient of variation method:- If two projects have

the same cost but different NPVs, relative measure i.e., Co-efficient of variation should be compared to judge the relative position of risk involved. It can be calculated as C.V.= Std.deviation X 100 Mean (For problems under this method, refer another slide) 7.Decision Tree analysis:- In modern business, there are complex investment decisions which involve a sequence of decisions over time. Such sequential decisions can be handled by plotting decisions trees.

 A decision tree is a graphic representation of the

relationship between present decisions and future events , future decisions and their consequences. The sequence of events is mapped out over time in a format representing branches of a tree and hence the analysis is known as Decision tree analysis. (For problems under this method, refer another slide)

 The various steps involved in the decision tree analysis are: 1.identification of the problem 2.Finding out the alternatives 3.Exhibiting the decision tree indicating the decision

points, chance events and other relevant data 4.Specification of probabilities and monetary values for cash inflows and 5.Analysis of alternatives

UNIT-IV-CORPORATE VALUATION (Refer FM-book by Prasanna Chandra-Chapters 32&33Pages 771-862 Value maximization is the central theme in FM. It is widely accepted that the primary aim of the firm is to maximize the wealth or it is generally agreed that the goal of the firm should be Shareholders Wealth Maximization From the economist's viewpoint, value is created when management generates revenues over and above the economic costs. Costs come from four sources: employee wages and benefits; material, supplies, and economic depreciation of physical assets; taxes; and the opportunity cost of using the capital. It is therefore more important to know the variables which influence value addition.

Today, financial managers play a dynamic role in solving complex problems like Shaping the fortunes of the enterprise, Decisions regarding allocation of capital, Raising of funds most economically and using them in the most efficient and effective manner. Because of this change , the descriptive treatment of the subject of financial management is being replaced by growing analytical contents.

Today, financial managers play a dynamic role in solving complex problems like Shaping the fortunes of the enterprise, Decisions regarding allocation of capital, Raising of funds most economically and using them in the most efficient and effective manner. Because of this change , the descriptive treatment of the subject of financial management is being replaced by growing analytical contents.

 The subject now accords a far greater importance to management decision-making and policy.
Hence new tools in financial management emerged. It

comprises of Tools and techniques in Financial Analysis, Profit Planning and Control Long-term Investment or capital budgeting Decisions Working Capital Management

 Creating value for shareholders is now a widely accepted corporate objective. The interest in value creation has been stimulated by several developments. Performance measurement (qualitative or quantitative) is the key to value addition Capital markets are becoming increasingly global. Investors can readily shift investments to higher yielding, often foreign, opportunities.

 Institutional investors, which traditionally were passive

investors, have begun exerting influence on corporate managements to create value for shareholders. Corporate governance is shifting, with owners now demanding accountability from corporate executives. Manifestations of the increased assertiveness of shareholders include the necessity for executives to justify their compensation levels, and wellpublicized lists of under performing companies and overpaid executives. Greater attention is being paid to link top management compensation to shareholder returns.

 Creating shareholder value is the key to success in

today's marketplace. There is increasing pressure on corporate executives to measure, manage and report the creation of shareholder value on a regular basis. In the emerging field of shareholder value analysis, various measures have been developed that claim to quantify the creation of shareholder value and wealth.

 There are four broad approaches to appraising the

value of the company. 1.Adjusted book value approach 2.Stock and debt approach 3.Direct comparison approach 4.DCF approach

Methods of Corporate Valuation 1.Adjusted book value approach:-This is the simplest approach to value a firm. There are two equivalent ways of using the B/S information to appraise the value of the firm. First the book values of the investor claims may be summed directly. Second, the assets of the firm may be totaled and from this, the total non-investor claims may be deducted. (For problems on this approach, view another slide)

 2.Stock and debt approach:- Under this appr0ach, the

value of the firm is obtained by merely adding the market value of all its outstanding securities. This method is also known as Market approach. For example, X Ltd., has 15 lakh shares at a market value of Rs.20 per share and a debt with a market value of Rs.210 lakhs. Then the value of the firm under this method is:- MV of shares-15 lakh X Rs.20=300 lakhs MV of debt--------------------- 210 lakhs Total value of the firm-----------------------510 lakhs

 3.Direct comparison approach:- Under this method, a

companys data are compared with other companies. The following are the steps in this approach. 1.Analyse the economy 2.Analysis the industry 3.Analyze the subject company 4.Select comparable companies 5.Analyze multiples 6.Value the subject company

4.DCF approach:- This method calls for forecasting

cash inflows over an indefinite period of time for an entity that is expected to grow.

 The value of the firm is separated in two time periods.

Value of the firm:-PV of CI during an explicit forecast

period + PV of CI after the explicit forecast period Steps:-1.Analyze the historical performance 2.Estimating the cost of capital 3.Forecasting performance 4.Determine the continuing value 5.calculate the firm value and interprete the results

VALUE BASED MANAGEMENT

In the last decades, management accounting faced

increasing challenges to adopt new approaches, designed to fit the changes in the economic environment and to correct perceived inefficiencies in existing controlling structures. In the 1950s and 1960s an important debate focused on the character of information for decision-making. Another group of scholars addressed the issue whether the contribution margin approach was superior to systems that fully allocated overheads. In the 1970s several researchers flocked around the topic of residual income and the optimal control of relatively autonomous divisions.

 More recently with new developments in management

accounting it appears that the three letter acronyms are becoming very popular. Some of the most fashionable are: SMA (strategic management accounting), ABC, ABM & ABB (activity-based costing and its variants; activity based management and activity-based budgeting), BPR (business process re-engineering) and

 BSC (balanced scorecard). A common element, which distinguishes the later management accounting tools from the earlier ones, is that the more recent approach have emerged predominantly from practice and from consultants. Another modern-day .hot. topic in practice, which is claimed to be changing financial management at the highest level in some of the worlds largest companies, (Bromwich, 1998) is value-based management (VBM).

VALUE-BASED MANAGEMENT
Value-based Management is essentially a management

approach whereby companys driving philosophy is to maximize shareholder value by producing returns in excess of the cost of capital. (Simms, 2001) Value-based Management is a framework for measuring and, more importantly, managing businesses to create superior long-term value for shareholders that satisfies both the capital and product markets.

 Value-based management is a framework for

measuring and managing businesses to create superior long-term value for shareholders. Rewards are measured in terms of enhanced share price performance and dividend growth. Value-based Management is a management philosophy which uses analytical tools and processes to focus an organization on the single objective of creating shareholder value.

 Value-based Management is a new way for managing,

focused on the creation of real value not paper profits. Real value is created when a company makes returns that fully compensate investors for the total costs involved in the investment, plus a premium that more than compensates for the additional risk incurred. Value-based Management is a term that describes a management philosophy based on managing a firm with Economic Value Creation principles.

 Value-based management is a management control system

that measures, encourages and supports the creation of net worth. Value-based management is a managerial approach in which the primary purpose is shareholder wealth maximization. Value Based Management is a management approach which puts shareholder value creation at the centre of the company philosophy. The maximization of shareholder value directs company strategy, structure and processes, it governs executive remuneration and dictates what measures are used to monitor performance.

 Value-based Management is a different way of

focusing an organization strategic and financial management processes. In order to maximize value, the whole organization must be involved. Features of VBM: Management:- VBM is a management tool, a control system; an apparatus that is used to integrate resources and tasks towards the achievement of stated organizational goals.

 Approach: VBM is a prescribed and usually repetitious way of carrying

out an activity or a set of activities that propagate its values all over the organization. It is a robust disciplined process that is meant to be apparent in the heart of all business decisions. Maximizing shareholder value: VBM.s purpose is to generate as much net worth as possible. Or put in another way: to distribute the given resources to the most valuable investments. Maximization also implies a forward vision, based on expected outcomes.

Methods and key premises of VBM

1.Free cash flow method-proposed by Mckinsey and Alcar

group 2.The Economic Value Added and Market Value Added (EVA and MVA) by Stern Stewart and company 3.The Cash Flow Return On Investment(CFROI) and Cash Value Added (CVA) There are some common premises / assumptions/ in the above methods. They are:1.The value of any company is equal to the PVs of the future cash flows expected to be produced by the company .

 2.Conventional accounting earnings are not a

sufficient indicator of value creation because they are not the same as cash flow, they do not reflect risk, they do not include an opportunity cost of capital, they do not consider time value of money and they are not calculated the same way by all firms because of variations in accounting policy. 3.For managing shareholder value, firms should use metrics that are linked to value creation and employ them consistently in all the facets of Financial mgt.

 A well designated performance measure measurement and

incentive management compensation system is essential to motivate employees to focus their attention on creating shareholder value. There are different approaches to the VBM. 1.Marakon approach 2.Alcar approach 3.Mckensey approach 4.Stern Stewart approach (or)EVA-Economic Value Added approach 5.BCG-Boston Consulting Group approach (OR)CFROI approach Cash Flow Return On Investment

MARAKON APPROACH
Marakon Associates, an international management-consulting

firm founded in1978, has done pioneering work in the area of value-based management. This measure considers the difference between the ROE and required return on equity (cost of equity) as the source of value creation. The key steps in this approach are:1.Specify the financial determinants of value 2.Understand the strategic drivers of value 3.Formulate higher value strategies and 4.Develop superior organizational capabilities

 1.Specify the financial determinants of value: This method is based on market to book ratio model.

According to this model, shareholder wealth creation is measured as the difference between the market value and book value of a firms equity. The book value-B, measures approximately the capital contributed by the shareholders, whereas the market value of equity-M, reflects how productively the firm has employed the capital contributed by the shareholders, as assessed by the stock market.

 Therefore, the Mgt. creates value for shareholders if M

exceeds B, reduces the value of M is less than B and maintains the value if M is equal to B. According to Marakon Model, the market-to-book values ratio as a function of the return on equity, the growth rate of dividends and the cost of equity. M = r-g M=Market value of equity : r=return on equity B k-g B=Book value of equity g=Growth rate in dividends and k is the cost of equity

 1. X Ltd., earns a return on equity of 25%. Its dividend

payout ratio is 0.40. Equity share holders of X Ltd., require a return of 18%. The book value per share is Rs.50. (a)What is the market price per share, according to Marakon Model ? (b)if the return on equity falls to 22%, what should be the payout ratio to ensure the market price per share remains unchanged?

 2.Understand the strategic drivers of value:- The following are

considered as the primary determinants of growth and value(i)market economics and (ii)Competitive position (i)Market economics:- It refers to the structural factors which determine average equity spread as well as the growth rate as applicable to all competitors in a particular market segment. The following are the key forces which shape market economics/ profitaboility.1.Intensity of indirect competition 2.Threat of entry 3.Supplier pressures 4.Regulatory pressures 5.Intensity of direct competition 6.customer pressures. Marakon refer to the first four as limiting forces and the other two as direct forces.

 (ii)Competitive position:- It refers to the relative position in

terms of equity spread and growth rate of the average competitor in nits product market segment. It is shaped by two factors-product differentiation and economic cost position. A firm is successful in its product differentiation if the customers value its particular offering and are willing to pay a premium for the same. The offering is capable of commanding a price premium relative to competitor offerings. The firm can raise the price, leaving the market share unchanged or increase its market share, without raising the price.

 For some products, successful product differentiation may

not be possible. In such cases, higher profitability may arise from a relative economic cost advantage i.e., the cost will be lower than the market average. Some of them are:- 1.Access to cheaper raw materials 2.Efficient process technology 3.Access to low cost distribution channels 4.superior management 5.Economies of scale in some markets 3.Formulate higher value strategies:-Value is created by participating in attractive markets and / or building a competitive advantage. Thus the key elements of a firms strategy are its participation strategy and competition strategy.

 The participation strategy defines the product markets in

which it will compete.-in which it should enter and from which existing businesses it should exit ? In which unserved markets it should enter and from which existing market centers it should exit? The competition strategy spells out the means the management will employ to build competitive advantage and /or overcome competitive disadvantage in the markets served by it?

 4.Develop superior organizational capabilities:- Higher value

strategies are designed to overcome the forces of competition. This should be combined with superior organizational capabilities which enable a firm to overcome the internal barriers to value creation and counter institutional imperative. The Key organizational capabilities are:-1.A competent and energetic CEO who is fully committed to the gaol of value maximization 2.A Corporate Governance mechanism that promotes the highest degree of accountability for creation and destruction of value.

 3.A Top mgt. compensation plan which is guided by the

principle of relative pay for the relative performance 4.A Resource allocation system which is based on (i)the principle of zero based resource allocation (ii)the principle of funding strategies but not projects (iii)the principle of no capital rationing and (iv)the principle of zero tolerance for bad growth A performance mgt. process is founded on two basic principles(i)the performance targets are driven by the plans (ii)the process should have integrity implying that the performance contract must be fully honored by both sides, the chief executive and each business unit head.

ALCAR APPROACH
The Alcar Inc., is a management education and soft ware

company. It developed an approach to VBM based on DCF analysis. Mr.Alfred Rappaport has fully described Alcar approach in his book- Creating shareholder value: Aguide for managers and investors. According to Mr.Alfred Rappaport , the following seven factors which are called as Value Drivers-affect shareholder value. 1.Rate of sales growth 2.Operating Profit margin 3.Income tax rate 4.Investment in working capital 5.Fixed capital investment 6.cost of capital 7.Value growth duration

Steps in the Assessment of the shareholder value impact of a strategy-Alcar Approach

Steps:- 1.Forecast the operating cash flow stream for the

strategy over the planning period 2.Discount the forecasted operating cash flow stream using the weighted average cost of capital 3.Estimate the residual value of the strategy at the end of the planning period and find its present value Perpetuity cash flow Cost of capital 4.Determine the total shareholder value with the following formula:-

 PV of the operating cash flow stream + PV of the residual

value market value of debt 5.Establish the pre-strategy value Cash flow before new investment Minus MV of debt Cost of capital 6.Infer the value created by the strategy:Total shareholder value Minus pre-strategy value The following diagram explains the concept of shareholder value management cycle.

 A successful implementation of shareholder value mgt.

means that the firm (i)selects a strategy that maximizes the expected shareholder value (ii)finds the highest valued use for all assets (iii)bases performance evaluation and incentive compensation on shareholder value added and (iv)returns cash to shareholders when value creating investments do not exist. (For problem under this approach, refer Page 855 PC)

McKinsey Approach
McKinsey, an International consultancy firm, has

developed an approach to VBM. According to that: VBM is an approach to mgt, whereby the companys overall aspirations, analytical techniques and mgt. processes are all aligned to help the company maximize its value by focusing decision making on the key drivers of the value. Value Thinking:-To make value happen, a companys actions should have be based on a foundation of value thinking. It has two dimensions namely 1. value metrics 2.value mindset

 1Value metrics:-Does the mgt. understand how companies

create value? Does the mgt. know how the stock market values companies? Does the company include opportunity cost of capital in its measurements? Do the metrics represent economic results or accounting results? 2.Value Mindset:-How does the mgt. care about shareholder value creation? Does the CEO strive to seek as much value for shareholders as possible? According to Mckinsey approach, there are six areas where a company must focus to make the value happen. They are:-

 1.Aspirations and targets:-The company must develop a

broad statement of purpose that inspires employees and specify value-linked quantitative targets that provide some degree of stretch 2.Portfolio mgt:-The company must build a portfolio of businesses which exploits its strategic advantages, improves its performance and provides profitable growth avenues. 3.Organizational design:-An org. design with well defined performance units and individual accountabilities is essential to translate value creation aspirations and strategy into disciplined achievements.

 4.Value Driver identification:-A value driver is a

performance variable such as customer satisfaction or employee productivity which has a bearing on the results of the company. The metrics used for measuring value drivers are called key performance indicators- for eg., revenue per employee, customer retention rate etc., Value drivers must be identified, prioritized and institutionalized. 5.Business Performance Mgt:-It involves setting targets for performance units and reviewing periodic progress with the objective of enhancing performance.

 6.Individual performance mgt:-It is on motivating and

rewarding strong individual performance and aligning the interest of managers with those of shareholders. Individual performance mgt. involves setting targets, reviewing performance and giving appropriate rewards.

EVA (Economic Value Added) Approach (OR0 Stern Stewart Approach

This approach was originally proposed by the consulting

firm Stern Stewart &Co., Peter Drucker has referred to it as a measures of total factor productivity. It is considered as To-days hottest financial idea and getting hotter. EVA is the surplus left after making an appropriate charge for the capital employed in the business. For calculating EVA, we should know the following. 1.NOPAT-Net Operating Profit After Tax.