Disadvantages Of Value Based Management

TITLE PAGE Contents
Introduction 1
1. Value-based management and value indicators 3
1.1. The necessity for value-based management 3
1.2. Value indicators 6
2. Amazon.com 11
2.1. Amazon.com history 11
2.2. Business Operations 16
2.3. SWOT Analysis 19
2.4. Porter Analysis 21
3. Amazon.com shareholder value 24
4. Conclusions 24
Resources 24 Introduction

Value-based management and value indicators

The necessity for value-based management

As companies have evolved, the economic and competitional environment has become more and more complex and economic activity has diversified to the point where new tools and techniques are necessary to allow firms to overcome increasingly frequent and costly obstacles. In this given context, traditional

Understanding and adapting to this new managerial concept requires a company to overcome educational and motivational challenges. Changing an organization’s culture is quintessential to achieving the main goal: maximizing shareholder value. Re-educating and changing personnel reward systems are necessary for a good implementation of the value based management concept, which is oriented on obtaining value in the long-term.

Value based management, treated as a new philosophy, forces leaders to shift their way of thinking and to use new strategic and control tools, rather than abide to plans guided by accounting budgets which aim to increase certain performance indicators that can be manipulated, such as profit or capital.

Another feature of this new management philosophy is that managers are rewarded by their contribution to long-term value creation for shareholders, rather than an increase in short-term performance indicators. At the same time, managers should be inclined to scrap and salvage inefficient subsidiaries that are not creating value, but just adequate profit in accounting ledgers. In these situations, conflict between managers and shareholders arises, also known as the agency problem

This serves to demonstrate that Amazon helps its strategic partners leverage power of Amazon’s brand and infrastructure as well. Furthermore, Amazon is in a situation where suppliers, rather than the other way around choose them. In addition, they provide a conduit to more online customers than any other online retailer. In the end, Amazon’s profitability and ability to grow and nurture profitable relationships with partners comes from their ability to acquire and retain customers. As such, bargaining power of suppliers is low.

Bargaining power of customers:
Amazon has gained its consumers through the incentives it offers as well as advantageous prices and a generous offering. But other retailers failing to attract buyers has contributed to Amazon’s success as well. While other retailers have learned from their mistakes and implemented a customer oriented policy, much like Amazon, they still lack what attracts consumers to Amazon: its one stop shop concept and speed of delivery, both of which are costly to implement overnight. Therefore, the bargaining power of consumers is rated low to medium.