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Leadership & Business Wisdom

EVA AS A PRODUCTIVITY MEASURE

Until a business returns a profit that is greater than its cost of capital, it does not create wealth, it destroys it.

Measuring total-factor productivity is one of the major challenges confronting the executive in the age of knowledge work. For manual work, measuring quantity is usually sufficient. In knowledge work, we have to manage both quantity and quality, and we do not know yet how to do that. We must try to assess total-factor productivity using the common denominator of revenues and expenses. By measuring the value added over all costs, including the cost of capital, EVA (economic value added analysis) measures, in effect, the productivity of all factors of production [or the true economic costs produced by all resources used].

Never mind that a business pays taxes as if it had earned a profit. It does not cover its full costs until reported profits exceed its cost of capital. Until a business returns a profit that is greater than its cost of capital, it operates at a loss. And this is why EVA is growing in popularity. It does not, by itself, tell us why a certain service does not add value or what to do about it. It does show which products, services, operations, or activities have unusually high value. Then we should ask ourselves, “What can we learn from these successes?”

ACTION POOINT: Calculate the “economic value added” for your organization or for a product or service that you provide.

BENCHMARKING FOR COMPETITIVENESS

Benchmarking assumes that being at least as good as the leader is a prerequisite to being competitive.

EVA (economic value added analysis) is a good start to assess the competitiveness of an enterprise in the global marketplace, but to it we must add benchmarking. Benchmarking is a tool that helps a firm tell whether or not it is globally competitive. Benchmarking assumes, correctly, that what one company does another company can always do as well. “Best performers” are often found in identical services or functions inside an organization, in competitor organizations, but also in organizations outside in the industry. Together, EVA and benchmarking provide the diagnostic tools needed to measure total-factor productivity and to manage it. They are examples of the new tools executives should understand to measure and manage what goes on inside the enterprise. Combined, they are the best measures we have so far available.

ACTION POINT: Instigate a benchmarking study by gathering data on a product, service, or process from a comparable organization, even from one outside your industry. Set performance measures to ensure that you are competitive with the best performers.

“If you live for having it all, what you have is never enough.”

Vicki Robin

“If you live for having it all, what you have is never enough.”

Vicki Robin

“Do not compromise on the quality and your customers will not negotiate on the price.”

Amit Kalantri

“I spent my time drinking and staring at a television in the airport bar. More death and destruction. Crime. Pollution. All the news stories were telling me to be frightened. All the commercials were telling me to buy things I didn´t need. The message was that people could only be passive victims or consumers.”

John Twelve Hawks

“Get off the treadmill of consumption, replication, and mediocrity. Begin lifting the weights of creativity, originality, and success.”

Ryan Lilly

 

“Here, in Lorrain’s poisoned little jewel of a tale (“The Man Who Made Wax Heads”) the consummate achievement of decadent art is caught in miniature. The genius of the artist entangles perpetrators and victims in a sticky web of perverse delights, in which exploitation becomes collusion, the ripples of guilt spread outward, and the real criminal slips away. In the end, responsibility is lodged firmly with the consumer, forced – he must confess – by his own perverse desires, to buy into the values of this particularly black market.”

Jennifer Birkett

“For an artist is not a consumer, as our commercials urge us to be. An artist is a nourisher and a creator who knows that during the act of creation there is collaboration. We do not create alone.”

Madeleine L’Engle

“We can’t worry about meaning. Ari proposed to us that meaning is a consumer item. Some people manufacture it through religion, philosophy, nationhood, politics, and some people buy it. But an artist is not a manufacturer.”

David Cronenberg

“As a business leader you have to ask yourself, “Am I creating a consumer environment that is conducive to loyalty?” If the answer is no, FIX IT!”

Steve Maraboli

“Difference between TV and the internet was how far you sat from the screen. TV was an 8 foot activity, and you were a consumer. The internet was a 16 inch activity, and you participated. I think the sitting down thing is similar. You’re not going to buy an armoir while standing on the subway.”

Seth Godin

“Modern consumer life is a form of extreme passive violence against all people.”

Bryant McGill

“Every state’s emblematic propaganda is worshiped by the consumer-citizen as a super-logo, a brand Juggernaut.”

Bryant McGill

“…the higher the expectations about unselected alternatives, the lower the level of satisfaction with the chosen good.”

Michael R. Solomon

“Consumer culture and the capitalist mindset have taught us to substitute acts of personal consumption (or enlightenment) for organised political resistance”

Derrick Jensen

“De waarde van dingen ligt voor ons niet zozeer in wat ze ons geven als wel in wat wij eraan uitgeven.”

Michel de Montaigne

“If beauty is in the eyes of the beholder, value is in the mind of the consumer.”

Michele Jennae

“Worth is not something you can buy for $39.99, nor something you can lose with 10 extra pounds. Self-judging people make good consumers. Start a revolution. Love yourself.”

Vironika Tugaleva

“The way of the consumerist culture is to spend so much energy chasing happiness that it has none left to be happy.”

Criss Jami

“The quicker you settle the debt,the quicker you can move forward with your life. Actions are bigger than words and get rid of that nasty debt”.

“When you are able to buy your home versus renting. The sky is the limit on how much you can and will prosper in years to come.

“Good luck and start a budgeting today. Do not wait as no time will ever be the right time.”

Financial Revolution

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