MANAGING in the

NEW WORLD

Most business owners would want their company executives to prioritize long-term growth rather than the present year’s targets. Yet, most executives would not behave this way as invariably their compensations are tied up to annual company revenues. There exists a wedge between long-term value creation and yearly business targets. A lot of companies confuse price for values. In reality, the real value of an asset is determined by several factors dealing with an uncertain future. The naive view popular in business cycles is that value can be improved by tying performance with measurable KPIs. This approach is known as Red-line management. Linking KPIs with bonuses, compensation and promotion is terrible talent management was it ends up destroying value in the long run. In order to achieve their set KPIs, managers often undercut costs in different ways. It could be through underinvesting in some brand or less of corporate training sessions. Real value creation on the other hand requires experimentation. So, the alternative Blue-line management style must be adopted where all decisions are made with the only objective being long-term organizational value creation.

Source:https://knowledge.insead.edu/economics-finance/kpis-should-never-be-tied-to-compensation-9846

Uploaded Date:09 August 2018

SKYLINE Knowledge Centre

Phone: 9971700059,9810877385
E-mail: info@skylinecollege.com
© 2017 SKYLINE. All right Reserved.