Methods and concepts for Value Based Management (VBM)
CGE&Y Value Creation Indices
The Value Creation Index (VCI) is a tool designed to quantify the link between an organizations non-financial performance and its valuation in the markets. Traditional methods of assessing organizational performance are no longer adequate in today's economy. Stock price is less and less determined by earnings or asset base. Value Creation in today's companies is increasingly represented in the intangible drivers like innovation, people, ideas, and brand.
Yet these non-financial factors for creating value are difficult to quantify, rarely acknowledged in accounting methods, and are not adequately measured, managed or reported on by organizations.
We created a tool to quantify the link between an organization's non-financial performance, creating value and a firm's valuation in the markets. The Value Creation Indices not only quantify the impact of non-financial performance on market value, but also identify the specific intangibles that drive value for a given industry. Models have been created for a number of industries including financial services, airlines, pharmaceuticals, telecommunications, and others.
While the crucial non-financial value drivers vary by industry, we have settled upon some critical categories of intangible performance that determine corporate value creation: