Factors influencing the utilisation of value based management tools in the water industry
Maladze, Shumani Daniel
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For management to perform its functions of planning, organising, leading and controlling effectively, a control process has to be in place. This control process should incorporate a target or standard measures, and compare performance with standard, evaluate results and take any necessary corrective action. The introduction of a control process, including performance measurements, has been recognised as an important development to ensure organisations achieve their objectives and goals. There are a number of performance measurement tools for management and/or organisations to select from but one that stands out as possibly the preferred method is Value-based management (VBM). VBM, a relatively new concept, offers management a better way to measure performance in today's business environment. The application of VBM links business strategy, finance, performance measurement and management processes all together to create value. VBM demonstrates how organisational value is maximised, while developing corporate value indicates how the current management is doing its job. Therefore, VBM indicates the current situation as well as the future prospects of an organisation. In addition, VBM helps managers and employees to obtain a clear focus of the corporate vision and objectives based on the leading measurement indicator - that is, to enhance corporate value. Unlike many performance measurement tools that may focus on many objectives (which may cause the lack of single focus for shareholder value creation accountability) VBM provides a clearer objective focusing on the financial objectives across the organisation. Above all, VBM includes the cost of capital required, while many measurement tools still provide information without cost. The purpose of this dissertation is to study which organisational factors influence the selection and use of performance measurement tools, such as VBM as selected by management. This dissertation also studies the mariner in which the selection and the use of VBM might affect the performance of water utility entities in South Africa. A number of studies were conducted in the past dealing with the effectiveness of VBM. These studies analysed how VBM assisted management in the administration and measurement of organisational activities. These research studies contributed immensely to the body of knowledge and advancement of the VBM concept. However, most researchers ignored an important aspect and that is, which factors influence management to select and utilise VBM tools. This research attempts to address this knowledge gap, and answer the following questions: • What are the organisational factors that could influence the selection and the use of VBM tools to measure organisation performance? • Do the selection and the use of VBM tools improve organisation performance? To examine and properly evaluate the above questions, this dissertation identifies four key objectives. Firstly, factors that influence management in selecting VBM tools to measure performance and set standards are to be identified. Secondly, to identify the relationship between organisational performance, the use of VBM and certain organisational factors such as leadership style, organisation culture and cost structure, are explored. Thirdly, to study the impact of VBM on the water utility entities in South Africa, and fourthly, to provide information on how VBM is selected and used in the water industry. To answer the research questions, a mailed survey questionnaire was used to collect data. A population sample of 22 heads of finance/accounting departments of the Water Boards of South Africa was employed. The empirical part of the study showed that the companies in this study seems to have implemented many ways to create shareholder value; little effort seems to be made to measure it since the majority of them are still using traditional accounting measures. The reasons for this may be conservatism and lack of pressure from stakeholders. Having noticed this, it is recommended that the companies use value based methods when measuring organisation performance since they are more reliable.
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