Measuring the understanding of value-based management in small businesses in Gauteng

Abstract

Value-based management (VBM) is a framework that relies on the sole principle of creating value for shareholders. The ultimate and sole goal of a business is to create value for its shareholders whether for a non-profit or profit organization. The main goal for companies is to deliver value for its shareholders. Most firms who have accepted and implemented VBM are those that are listed on stock exchanges. This is mainly because there is a strong correlation between the share price, market value and value added for shareholders. Although small businesses may not entirely utilize the VBM methods and principle, the underlying concept behind VBM is still valid and crucial for any business. It is thus imperative for small businesses to understand the concept of VBM and to implement its various attributes within their business. The ability of small businesses to create and maximise shareholder value is essential for their survival and longevity. Although in most small businesses the owner manager is usually the only shareholder, the premise of VBM is still valid and applicable. It allows the owner or business manager to increase the performance and, consequently, the value of the enterprise, which should translate into outperforming competitors, increasing growth rate and maximising return on capital. The rationale in such a process lies in the fact that if small businesses use VBM as a concept, adopted from the principle, they are more likely to perform better than their counterparts who do not use this concept. There is need for small businesses to focus on strategic financial management rather than on the normative financial accounting metrics. This action entails small businesses looking to become proactive and to strategize rather than being reactive and focusing solely on ensuring a financial profit. The initial stages of this research study sought to define and describe value-based management from literature as a means of presenting a background for the premise of the research study. The research also highlighted the various value-based performance metrics, the stages of implementation and components of a value-based system. An empirical study by means of an interview was conducted among small businesses within Gauteng, South Africa. An interview guide was constructed in consideration of the literature study conducted in terms of the various concepts within VBM. The interview guide ensured that the interview was focused and remained as unbiased as possible.The interview was designed to investigate participants’ level of understanding of VBM. The results of the study showed that many respondents did not have a good understanding of the various concepts within VBM. The participants showed a lack of understanding towards the concepts of strategic and general business decisions, operations and supply chain management, as well as financial management. The findings of the empirical study were analyzed and conclusions were drawn from these. The premise of the conclusion was based on both the primary and secondary objectives. From the conclusions presented, recommendations were also made and presented. Consequently, recommendations for further areas of research, including looking into small business practices in other regions, were also presented.