Creating Value in Organizations
- New Horizons in Management series
Chapter 6: Predicting Value Creation and Financial Performance
6. Predicting value creation and ﬁnancial performance The ﬁrst ﬁve chapters of this book provided a view of how the Competing Values Framework helps leaders create value by expanding and enhancing an understanding of tradeoﬀs, tensions, possible integrations, and new leadership activities. We explained three diﬀerent levels of analysis that the Competing Values Framework helps to highlight: 1. the importance of considering the competing and contradictory elements in leadership and in organizations that are necessary for eﬀective performance; the integration of opposites to create ‘both/and’ thinking in the pursuit of value creation; and the creation of completely new and more complex strategies for leadership based on the merger of positive opposite terms. 2. 3. In this chapter, we explain an important application of the Competing Values Framework. This application relates to predicting and enhancing the ﬁnancial value of organizations (Thakor, 2001). That is, in addition to being useful for guiding leader behaviors, the Competing Values Framework also serves as a method for measuring and predicting ﬁnancial performance. The framework does so at a level of accuracy that exceeds other such measurement frameworks (e.g., the Balanced Scorecard, Economic Value Added, and so on). Statistical analyses reveals that the rankings assigned to ﬁrms based on the Competing Values Framework display a contemporaneous correlation of about 74 percent with the market-value-to-book-value ratios of these ﬁrms. Thus, the Competing Values Framework correlates more highly with stock market valuation than other measures of which we are aware. PRINCIPLES OF VALUE CREATION To...
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