How VQ approach is different from the Kaplan/Norton methodology

The February 2004 issue of Harvard Business Review includes an article by Robert S. Kaplan and David P. Norton entitled Measuring the Strategic Readiness of Intangible Assets. In this article, Kaplan/Norton argue that measuring the value of a firm's intangible assets - such as a customer database or people with specific skills - is about estimating how closely aligned these intangible assets are with the company's strategy. The authors present a tool, the strategy map, that they suggest can link these intangible assets to shareholder value creation.

Kaplan/Norton's strategy map purports to help managers measure the strategic readiness of their intangible assets. The authors suggest that their strategy map can help managers assess how well their company's people, systems, and culture fit with changes in strategic direction. Kaplan/Norton recommend that managers identify the job families needed to implement a strategy shift and offer a way to measure how well the firm's job families match the needs of the strategy. They propose similar techniques for assessing their firm's systems and culture.

The VQ approach measures how well a company's actions embody Value Leadership. Value Leadership is the concept that companies that outperform competitors in building and sustaining relationships with employees, customers, and communities earn better returns for their shareholders. Value Leadership is supported by seven principles:
- Valuing human relationships,
- Fostering teamwork,
- Experimenting frugally,
- Fulfilling your commitments,
- Fighting complacency,
- Winning through multiple means, and
- Giving to your community.

Screening 1,500 companies based on 11 criteria, analysis suggests that Value Leadership pays. This analysis selected eight Value Leaders -- Synopsys, WalMart, Goldman Sachs, MBNA, Johnson & Johnson, J. M. Smucker, Southwest Airlines, and Microsoft - which offer a rich source of examples of Value Leadership in action. Through two recessions, these companies grew 35% faster, were 109% more profitable, and generated five times more shareholder wealth than their peers

The VQ, which is tightly linked to this superior performance, can help executives measure how well they follow the 24 specific activities underlying these seven principles and learn from the Value Leaders' best practices.

By creating a measurement system that links values, people, activities, competitive advantage, and financial performance, the VQ helps companies directly link corporate values with everyday business practices -- developing a company-wide discipline that goes beyond 'talking the talk' to actually 'walking the walk.'

Benefits

Applying the VQ offers the following benefits:
- Objective analysis of the organization's strengths and opportunities for improvement vis-à-vis practices of top performing companies -- Value Leaders;
- Short-term opportunities likely to boost financial performance relatively quickly;
- Medium-term opportunities likely to enhance the firm's competitive position and longer term earnings power; and
- Long-term employee orientation shift toward value-based performance goals.

Process

The six to eight week Value Leadership Assessment (Phase One) follows five steps:
- Form team. Establish a senior management Steering Committee and project team and set project objectives, deliverables and schedule;
- Gather data. Identify and interview roughly 100 stakeholders including executives, employees, customers, shareholders, and others;
- Perform analysis. Determine the firm's VQ by comparing interview results with best practices in the Value Leadership Database;
- Draw conclusions. Highlight strengths and opportunities for improvement; and
- Present results. Deliver final results to the Steering Committee.

The Value Leadership Change Process (Phase Two) generally takes six to eighteen months to:
- Create a value building business process. Develop a plan based on the results from Phase One to infuse value building as a central business goal;
- Measure Value Building. Use the VQ from Phase One to track value building.

Competitive advantages of VQ over the scorecards

Managers should evaluate these tools by answering three questions:
- Which tool is most rigorously linked to financial performance and shareholder value?
- Which tool is most comprehensive and objective?
- Which tool can generate usable results most quickly?

The VQ has significant competitive advantages from the perspective of managers, as summarized below.

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