Management Code 17 Notes Unit 1 (UGC NET Paper 2)

Value Based Organization

Values represent stable, long lasting beliefs about what is important. They are evaluative standards that help us define what is right or wrong, good or bad, in the world.
Values of an organisation are created by those who establish the organization, and in one way, organizational values depend on the values of the founders and other key personnel who are responsible for managing the organisation . These values decide, to a very great extent, what business, the origination should be in and also determine how organisational activities will be carried out, that is what type of practices will be followed.

Value Based Organization is the organizational philosophy and approach that enables and supports maximum value creation in organizations, typically the maximization of shareholder value. VBO encompasses the processes for creating, managing, and measuring value.

Characteristics of Value-Based Organization
Organizations should always be run with a view to being as valuable as they can be at any point in time. The potential can be best realized when the companies maximize the value for the customers while maximizing their own. Accordingly, companies must drive the clients towards the value-creating business metrics. We have identified common characteristics of value for businesses (whether they are customers or suppliers) at two different stages.

1. At all stages, businesses have greater value when they have the following:
i. Adequate capitalisation
ii. Well-regarded investors
iii. Experienced management team
iv. Unique technology or service
v. Ability to innovate
vi. Rapidly expanding market
vii. Customer acceptance
viii. Social acceptance

At the start-up stage, these factors need to be deployed with a high level of energy and dynamism duly backed up by quality responses in time to unforeseen occurrences.

2.Once they are past the start-up stage, their value increases when they also have:
i. Leadership and dominant position in market
ii. Important customers
iii. Effective operating teams
iv. Strong gross margin
v. Projections of positive cash flow and high return on equity,
vi. Social perception as to whether they are contributing a good part of their earnings towards social causes.


Core Values, Vision & Mission

The Vision, Mission, Goals and Core Values define the What, ‘Why’, ’How” and ‘To what extent’ (or limits) in respect of any action or plans of an organisation. Any organisation should define its Vision and Mission properly, and review and modify them (if needed) from time to time. Unless the V & M are properly defined and focused upon, organisations tend to drift.

Vision represents the imagination of future events ad prepares the organisation for the same. It implies that the organization should create projections about where it should go in the future and what major challenges lie ahead.
A visionary company is characterized by the following features:
i. A visionary company holds distinctive set of values form which it does not deviate.
ii. It expresses its core purpose in enlightened terms which provides challenges for action.
iii. It describes a visionary scenario of its future, decides actions accordingly, and implement these.

Thus, vision is derives form values that have been set at the first step of creating organizational culture.

While the essence of vision is forward-looking view of what an organisation wishes to become, mission is what an organization is and why it exists. Mission is a statement which defines the ole that organization plays in the society. Once the Vision & Mission are clear, the organization should focus on the Goals . Goals denote what an organization hopes to accomplish in a future period of time. A board category of financial and non-financial issues are addressed by the goals that a firm sets for itself.

Core Values
Core values are the fundamental beliefs of a person or organization. These guiding principles dictate behavior and can help people understand the difference between right and wrong. Core values also help companies to determine if they are on the right path and fulfilling their goals. All the above have to be built in an environment of ethics – The ethical systems and values to which the organization and its management are committed. The entire organisation’s social positioning is done based on its ethical framework and the core values. They determine whether an action or a direction shall be taken by the organisation or not. For this purpose, the organisation shall have a set of Core Values well defined and agreed to by all the stakeholders. Preferably these shall be clarified and converted into statements that are well publicized and disseminated throughout the organisation and among all stakeholders, even before finalizing the Vision & Mission Statements.

Tangible and Intangible Values of Business

Values are either experienced or perceive.
Organizations have a large number of physical and measurable values, commercial as well as non-commercial. These are called Tangible Values. They also have a large number of subjective, non measurable and satisfaction level based values. Many of these are just perceived. These are intangible values.

tangible and intangible values


Any business has multiple values. The physical and measurable values are termed as Tangible Values. The tangible values are legitimate expectations of business. They must be realized. Otherwise there is no incentive to run the business. If the business fails, it is the society that loses. Tangible values in business are classified into three categories.
(i) Physical
(ii) Monetary
(iii) Efficiency of Performance Related that is, measurable in other term

(i) Physical Values of Business

Physical Value is related to tangible assets like building, land, infrastructure and some movable and non-movable assets. These assets either depreciate or appreciate over a period of time. Physical value also includes aesthetic appearance of the product, which is very essential for selling a product. Physical values give direct benefits to customers, including psychological comfort.

(ii) Monetary Values of Business

Monetary value is measured in terms of money. The value could be profit, Economic Value Added, sales, capital build up, monetary growth, etc. Some of the important monetary values are described in latter sections.

(iii) Efficiency of Performance Related Values

Efficiency is an input output ratio concept. An efficient manager is one who achieves outputs or results, with minimum inputs used to achieve them. Managers who are able to minimize the cost of the resources needed to achieve goals are acting efficiently. Efficiency of Performance in Business is often measured in terms of Financial Ratios, like Profit to Sales, Profit to Capital Employed, Return on Equity; Return on Net Worth etc. Efficiency of Performance can also be measured in terms of Contribution per Employee, Productivity etc.


These are values based on the perception of an individual, which are subjective, non-measurable and satisfaction based. These values are known as intangible values. Tangible values alone cannot make business great and fulfilling. They ,must realize their tangible values. Let us discuss some important intangible values.

i. Creativity & Innovation

In today’s competitive world, companies have to be creative and innovative. Without creativity, they will not survive. Creativity is generation of a new idea whereas Innovation is the translation of a new idea into a new product, a new service, a new process, a new method of production or even a new company. Creativity is the ability to create whereas Innovation is translation of that ability into a reality. Organisational structures, which encourage interdepartmental communication and integration, are particularly suited for generating, developing, and implementing creative ideas and approaches. Such organisational structures are known as “Web-Matrix” structures as distinct from the conventional vertical/ hierarchical structures and the Matrix type organisations. More about creativity from an ethical perspective is discussed elsewhere in detail.

ii. Quality

Quality is the most important value of business. There are many definitions of quality. One of the best is “Fitness for use”. Another is the ability of a product or service to meet the expectations of the customer. Customer expectation changes all the time over the lifetime, it changes from generation to generation, and it varies with the facets of human activity. Quality is also doing things right the first time, rather than making and correcting mistakes. Quality should be implemented in the minds of people, and should be a way of thinking in production, procedures and all transactions. Quality orientation in organisations will ensure that commitments are met in all spheres, that is, Total Quality good performance, few deviations, high purity levels, maintenance of schedules, and good record keeping, etc.

iii. Stakeholder Satisfaction

As already stated, the stakeholders of an organisation are its customers, suppliers, investors, employees, creditors, the society (social groups) and the government. The stakeholder satisfaction is very important for the development of organisations. The stakeholder framework is developed for understanding and influencing the direct-action environment. Organisations device plans, organise themselves, lead, and control ways to interact with key stakeholders. Their satisfaction is necessary for the growth of the organisation.

iv. Safety

Every customer will look for this value in the product. Any product design must take into account health and safety. Sharp edges, breakability and short circuits must be looked into for the safety of the customer. If it is a food product, then health and hygiene should be the top priority. Similarly safety within the organisation of employees, visitors, equipment, other assets are all important. Safety also includes safety of the processes used, the systems and procedures, as well as the services provided. If the service provided caters to only the short-term performance, ignoring safety problems that may arise over time and usage, it is not of good value for the customer.

v. Environment & Ecology Related

In modern days the value of this aspect cannot be over emphasised. This has become a primary concern as a value in society due to the ravages of industrial progress and environment abuse in the name of industrial and economic development. Stung by the large-scale criticism from environmentalists and forward thinking intelligentsia, many companies are now coming forward for the improvement of natural environment. They are involved in developing new processes and new products that either do no environmental damage or clean up environmental damage that has already occurred. This is one of the few values that is totally related to ethical behaviour of businesses.

There are two basic frameworks for evaluating action in response to environmental concerns:
• Cost Benefit Model
A traditional approach to thinking about environmental solutions that says – a proposed environmental regulation should be implemented if the potential benefits outweigh the potential costs. The question that needs to be addressed is how to measure the benefit that may accrue to the future generations in terms of the money based assessment systems that are used to set the benchmark for the level of satisfaction provided by a given factor of value.

• Sustainable Development Model
A more modern approach to thinking about environmental issues that says an organisation should engage in activities that can be sustained for a long period of time without harming the environment or the ecology, or which renew themselves automatically. If the future of the human society is at stake, obviously the activity has serious weaknesses; whatever may be the short term benefits that it may provide.

We humans have to live in a manner that is in harmony with mother earth and its natural processes. The earth’s resources should not be exploited for short-term gains, which may in fact be long-term loss for humanity. Animals and plants should be preserved to support the ecological balance in nature.

vi. Service to society
Organizations can have a significant impact on the communities and societies within which they operate. Whether through the services they deliver, their employment practices, or through their other activities, today’s businesses have an impact on society. while business leaders may be directing their attention towards employees and customers, they are in no doubt of the role they must play to positively impact society.
Social impact is how organizations, businesses or individuals’ actions affect the surrounding community. It may be the result of an activity, project, program or policy and the impact can be intentional or unintentional, as well as both positive or negative. The social impact can be felt by people directly associated with that organization or individual, or have a more far-reaching effect on people in different communities, states and even countries.

vii. Governance
In this present turbulent times, a breakdown in values is noticeable in almost every sphere of life ranging from family, religion, administration, public life and management of corporate sector. This decline is more obvious in business, industries, public institutions, government departments, voluntary organizations and professional institutions. Owing to the process of privatization, liberalization and globalization intense competition has evolved as basic guidelines for business survival. It is simply a mad-race where each person wants to win over the other, irrespective of the consequences, which leads to erosion of value system.

Our whole attitude has become negative, indifferent, fatalistic, escapist, cynical, rigid and argumentive thus what is needed in this hour is not only fulfilling short-term objectives, but also fulfilment of long-term objectives incorporated with ethical and moral responsibilities by corporate houses, to survive intense completion. Management should develop human values by setting examples so that they are perceived as role models—the winning combination should include.

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