| dc.description.abstract | Shareholders are putting huge pressure on top managers of corporations to deliver
superior performance that is unmatched by peers. This has made top managers to look
for management practices that could help them to fulfil shareholder expectations. One
such practice that leading companies like Coca Cola, Cadbury Schweppes, and Barclays
have adopted as response to these challenges is called value based management (VBM).
The success ofVBM in these companies has lead to its acceptance and adoption by many
companies in the world including those doing business in Kenya.
The key objective ofVBM is to create value for the shareholders and in so doing VBM
enables the company to fulfil the expectations of all other stakeholders. This is made
possible because shareholders are recipients of residual profits and hence the
requirements of all the other stakeholder in the chain must be fulfilled if not exceeded to
ensure more residual profits are generated.
The key corporate and business performance measure of VBM is called economic value
added (EVA). It is also called economic profits (EP) or value added profits (VAP). The
logic behind this measure is that it provides managers with a measurable target that could
be linked to their performance. This way managers are motivated to achieve their targets.
The objectives of this study were, first to establish the extent to which VBM is practiced
in Kenya and second, to test the managers/company's knowledge, awareness and extent
of VBM practice.
The study was done in Kenya and the sample covered all the 51 companies listed at the
Nairobi Stock Exchange. A questionnaire with open-ended and closed questions was used
to collect data for the study. The data was then analyzed and presented using descriptive
statistics. 62.7 percent of the companies responded, representing finance and investment,
industrial and allied, commercial and services and agriculture.
The findings of the study show that the corporate goals of most companies in Kenya are,
profitability, customer service, social responsibility, market share, employer of choice
and technological advancement. The study also revealed that customer satisfaction,
improved processes, leadership, cost cutting and improved technology make significant
contribution to company performance.
The findings of the study revealed that chief executive officers, senior managers,
shareholders and competitive pressure have a significant influence on the company's
management practices and formulation and implementation of company goals. The
results of the study further revealed that current management practices encourage
employee training especially in the middle and higher levels of management. The results
of the study indicated that most employee compensation policies link compensation to
performance.
The results from study revealed that majority of the respondents (59.4 percent) practice
VBM. These findings seek to suggest that most companies in Kenya practice VBM. The
study results further revealed that VBM is practiced across all sectors of the economy that
are represented at the Nairobi Stock Exchange. Furthermore the study revealed that
majority of the companies that have adopted VBM in Kenya use economic value added
(EVA) as a key performance indicator. The respondents also revealed that VBM is
desirable because it leads to higher profitability and productivity, higher shareholder
value and also leads to employee motivation. The results of the study also revealed the
difficulties that many Kenyan companies experienced while implementing VBM. The
difficulties listed were resistance to change, lack of understanding of VBM, lack of
training, high technology cost and culture.
In conclusion, the results of the study revealed that VBM is practiced by Kenyan
companies. The results further revealed that the key characteristics of VBM have been
adopted by majority of these companies. These characteristics include adoption of EVA,
employee training, linking employee compensation to performance and investment in
technology. | en |
