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The importance of business support services for the sustainable development of companies. The hidden unexploited added value from within companies
Abstract
To be able to be competitive in the future more complex and globalized markets, morphed ambidextrous business organizations have understood that the core competence needs to be developed and promoted and their classical approach towards non-core business activities needs to change.
The goal of the doctoral thesis is to show that intangible assets like knowledge and information as an output of business support services are a clear and valuable commodity of the 21st century economics that are driving the value creation process of business organizations.
Value driven performance indicators are used to capture and measure the business value creation process of the business support activities.
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Companies have focused for decades on maximizing the value creation process of direct productive business activities. The information revolution has left its mark and has started an irreversible transformation of classical business processes and activities. In the new 21 st century information and data driven society, commodity is value and knowledge, making Porters value chain concept an important key factor for successful and innovative businesses. Business value creation was during the industrial revolution a topic strictly liked to direct productive activities. The increased and transformed business environment required innovative and sustainable competitive advantages for business organizations. The indirect productive business activities, and the business support services have been considered business value consuming and having no contribution towards the company value chain. 21 st century accounting has evolved from the role of record keeper to a business value driver that assures and contributes to the company value chain by using its internal knowledge pool. The existing scientific publications are approaching accounting from different perspectives and support the main conclusion of the paper: accounting, in the 21 st century is not a " bean counter " anymore, accounting is a certain and consistent business value driver. JEL Classification Numbers: D46, L84, M41; DOI: http://dx.doi.org/10.12955/cbup.v5.909
Business organizations of the 21st century, a century driven by globalization, internationalization and speed, must compete on changing and evolving markets. One of the main goals of every business is to create value for its shareholders, value that is generated by the proper usage of existing resources. The notion that can be utilized to successfully illustrate the increase in economic value is the economic value added concept.. The Economic Value Added concept known also as EVA is an add on to value, value based management and economic value.. EVA is a method and a tool for quantification and measurement of the value created by a business organization.
This paper argues that information technology (IT) outcomes are more valuable to companies when their top management team (TMT) moves from flirting with IT to marriage. Previous research has demonstrated an association between top management support (TMS) and IT value. We extend the concept of TMS with the imbrication metaphor to define the construct of TMT-IT imbrication, which allows us to account for a tighter and continuous entwining of the TMT and IT to create IT value. Our definition of the TMT-IT imbrication construct embraces four dimensions: involvement, participation, attention, and use. In addition, with the support of upper echelons (UE) theory, we explore certain managerial traits, competences, and team processes that may be antecedents of this imbrication. As a result, our work provides a variance model and various propositions rooted in the logic of UE that contribute to research on IT business value.
Since the very early stages of human development knowledge, knowledge management have made a difference in who is prevailing and who is not. Driven by the information technology revolution of the 20st century knowledge and especially knowledge management within the establishing knowledge society and knowledge based economies have kicked off a major transformation of classical economical concepts. Economists started to rethink and transform the classical resource based economic theory towards information and knowledge based economy. The 21st century is dominated by the most effervescent transformations of human society. Information and information management through information technology has changed the way business organizations are developing and act and react to the globalized market and competition. The key to success is rapid assimilation and management of information and development through proper usage of accumulated knowledge that is leveraged by increased amounts of new information. There is a decisive transition from the classical economy of the 20st century based on resources towards the next level of economic evolution, towards knowledge based economy. In a knowledge based economy the main commodity is information and knowledge, the classical economy is only a subsequent result of the proper management of knowledge. The key defining concepts of the 21st century are information and knowledge that have had a major impact on business organizations all over the world. Business organizations have to redefine their strategies and their values in order to assure their competitive advantage in the increasing fast moving global market place.
The main economic purpose of a business organization is to create value for its owner. The value concept is a complex notion that has developed alongside human history and reflects the concerns of human society through time. As a result of the value theory, the management of value has also emerged as an essential and accompanying activity. Value-based management emerged as a management philosophy rather than a management method. It consists of a change in mindset from managing resources or output quantities to value creation. The challenge is to identify or create the value flows and act upon these within the specific business organization to have proper value management. Value creation and value management will define the business organizations in the economy of the 21 st century, which is governed by knowledge and information. The present paper focuses on the history and development of the value concept and the history and development of the management of value through value-based management. JEL Classification Numbers: B00, N00, M2, DOI: http://dx.doi.org/10.12955/cbup.v4.740
In 1494, the first book on double-entry accounting was published by Luca Pacioli. Since Pacioli was a Franciscan friar, he might be referred to simply as Friar Luca. While Friar Luca is regarded as the "Father of Accounting," he did not invent the system. Instead, he simply described a method used by merchants in Venice during the Italian Renaissance period. His system included most of the accounting cycle as we know it today. The first accounting book actually was one of five sections in Pacioli's mathematics book, titled Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic, Geometry and Proportions). This section on accounting served as the world's only accounting textbook until well into the 16th century. Accounting practitioners in public accounting, industry, and not-for-profit organizations, as well as investors, lending institutions, business firms, and all other users for financial information are indebted to Luca Pacioli for his monumental role in the development of accounting.
Sustainable procurement is increasingly on the agenda for purchasing and supply managers seeking to demonstrate corporate social responsibility in their supply chains. In this paper, we identify trends in the literature and establish that this is a burgeoning field. We identify methodological challenges and research gaps to guide future research. We propose a sustainable procurement framework to help structure future research across supply chains. Finally, we introduce each of the papers in the special issue, and identify what makes them stand out as making a novel contribution to research in the field.
Knowledge management came for some as the proverbial bolt from the blue. This paper traces the history of knowledge management from its modest beginnings in the early/mid eighties to its current status. It shows that knowledge management is, to a certain extent, the logical next step in a sequence of societal developments that has already been going on for a very long time. The likely future of knowledge management is explored along four perspectives: The management practices perspective, the information technology perspective, the organizational efforts perspective and the development, supply and adoption rate perspective. The conclusion is that knowledge management methods and technologies will, until the turn of the century, be provided in a ‘technology push’ manner. After that time a more ‘demand pull’ way is foreseen. For the average company the full operation period will probably be in the first quarter of the next century. And, as will happen with every new approach, it will become outdated somewhere in the second quarter of the next century.
The biases in accounting causes management to choose inappropriate investment strategies since manager is influenced by their inaccurate perception of successful and unsuccessful businesses. Management needs a model that bridges the gap between measurement of historic financial performance and investment evaluation in order to make better strategic choice. The model must measure discounted cash flow, since cash flow and time value of money determines value. Shareholders want to make money on the company's ventures and therefore have financial requirements on management's strategic decisions, i.e. strategic investments. All additional, nonstrategic outlays with the purpose of maintaining the original value of the venture should be considered as "costs". In this paper we present a new model called Cash Value Added (CVA) that introduces a relevant cash flow benchmark which will make it possible to measure historic financial performance based on discounted cash flow.
We define the knowledge economy as production and services based on knowledge-intensive activities that contribute to an accelerated pace of technical and scientific advance, as well as rapid obsolescence. The key component of a knowledge economy is a greater reliance on intellectual capabilities than on physical inputs or natural resources. We provide evidence drawn from patent data to document an upsurge in knowledge production and show that this expansion is driven by the emergence of new industries. We then review the contentious literature that assesses whether recent technological advances have raised productivity. We examine the debate over whether new forms of work that embody technological change have generated more worker autonomy or greater managerial control. Finally, we assess the distributional consequences of a knowledge-based economy with respect to growing inequality in wages and high-quality jobs.
Given assumptions about the characteristics of knowledge and the knowledge requirements of production, the firm is conceptualized as an institution for integrating knowledge. The primary contribution of the paper is in exploring the coordination mechanisms through which firms integrate the specialist knowledge of their members. In contrast to earlier literature, knowledge is viewed as residing within the individual, and the primary role of the organization is knowledge application rather than knowledge creation. The resulting theory has implications for the basis of organizational capability, the principles of organization design (in particular, the analysis of hierarchy and the distribution of decision-making authority), and the determinants of the horizontal and vertical boundaries of the firm. More generally, the knowledge-based approach sheds new light upon current organizational innovations and trends and has far-reaching implications for management practice.
0. ABSTRACT Needs for improved performance places different demands on enterprises everywhere. They must provide knowledgeable, intelligent behavior that requires new capabilities. Enterprises have turned to explicit and systematic knowledge management practices to make available the intellectual capital needed to perform effectively, internally and relative to stakeholders. They emphasize creation of people-centric practices to build, apply, and deploy knowledge and understanding for support of innovative and effective knowledge-intensive work. Starting knowledge management practices can be achieved by modifying and implementing standard building blocks. Whereas knowledge management has become a valuable business tool, its complexity may be vexing, and successful practice requires appropriate competence by both practitioners and their managements. The knowledge economy has already led to significant changes in the workplace, and future changes may be greater. As for many other management directions, it is expected that in the intelligent enterprise, knowledge management will be integrated into the basket of effective management tools, and hence disappear as a separate effort.
Experts state that a new critical function has emerged for the HR department called as the practice of knowledge sharing. The penetration of KM it’s happening either voluntarily or not. The responsible inside the organization must reconsider priorities and align to business trends, employees’ necessities or society requirements and expectations. The mission of KM is to give more credit to information, workers and the organization by extracting, using and creating knowledge (the order has also a logic). Both KM and HRM focus on individuals/employees. Using the research undertaken in a regional approach, we identified the perception of KM among HR executives and top managers. We strive, starting from the results of the research to underline some improvements that can be done for both HRM and KM functions within the companies. The mutual goal for HRM and KM is motivating the employees to work their best with the information they have, to be innovative while doing their job and to share knowledge and experiences without giving away the competition spirit. The paper approaches in the first part the perspectives of KM and also its connection to HRM. The main part of the work intends to establish some common directions in order to better integrate the cooperation of KM and HRM within the organization. The concluding remarks are bold and optimistic as there is much more to be done.
In times of uncertainty, knowing the best methods of measuring performance and creating value, determines the increase competitiveness of companies. By development of international markets and globalization, companies pursue entry in many national, regional or international markets. Competitiveness of companies is linked to performance; the latter can be presented by various methods, as this company must have a sustainable presence on the market. Performance and value creation concepts are common in company reports, but most often these concepts are not defined. Through this study, we highlight their importance and we measure this direct link between past performance and future value creation.
This paper aims to present a narrative literature review of 112 papers published on the EVA from 1994 to 2008. It provides a classification scheme, identifies the gaps in existing literature and suggests the direction for future research. Studies are classified and presented on the basis of the time period, issues covered, distribution of literature in various sources, methodology used, country-wise publications and contributions made by the researchers on the concept. The studies conducted in the developed countries have largely been found to be supporting EVA though there are certain studies in these countries too that consider conventional measures as better tools of corporate performance reporting. However, in developing economies less numbers of studies are available supporting the empirical validity of the concept as a corporate performance measurement tool. The concept of EVA has gained significant attention in the advanced economies, but implementation issues and its validity is under debate all over the world. The paper presents a comprehensive literature review and a critical analysis to move towards the advances in EVA. It may be a very useful source of information to the researchers and managers who wish to understand and implement EVA and carry out further research on the diverse issues of this interesting and value adding performance metric.
With increased competition and greater awareness among investors, new and innovative ways of measuring corporate performance are being developed. New tools/techniques provide flexibility to managers in their functions, be it in terms of operational aspects or evaluation parameters. Economic Value Added (EVA) is one such innovation. Besides the measures like Return on Equity (ROE), Return on Net Worth (RONW), Return on Capital Employed (ROCE) and Earnings per Share (EPS), EVA is a new measure available to the corporate managers. This paper describes and compares the EVA with other measures. Apart from this, taking the real financial data of a company, the paper shows how EVA calculations can be done to demonstrate whether the company is adding to shareholder value by generating profits over and above the capital charge. EVA is not a tool to create wealth. Yet, it encourages managers to think like owners and, in the process, may impel them to strive for better performance.
This innovative Handbook aims to examine whether there is a need to adapt and widen our understanding of knowledge management. A common definition of knowledge management is taken as the starting point for discussions on its relevance in various contexts, such as Buddhist organizations, law firms, the army and indigenous organizations. Moreover, the universality of Ikujiro Nonaka's ideas on knowledge management is explored, and some alternative definitions are suggested. This book will appeal to academics and students of business and management, business administration, sociology and organizational behavior. Practitioners, managers and business-owners will also find this an invaluable resource.
This study describes some of the approaches to the problem of establishing an effective system of internal financial control structures aimed at rational use of material, labor and financial resources in the conditions of crisis in the global economy. In the study in particular, we hypothesized about the need to use key performance indicators in the internal financial control system. The KPI system is integrated in the modern concept of corporate finance in particular VBM. In this regard in the study, we constructed an econometric model of the relationship between financial performance and economic value added for the purpose of identifying which particular KPI may serve as reference points for the internal financial control department.
This paper assesses the empirical evidence and policy issues associated with the human resources revolution. While managers and practitioners have long emphasized the role of human resource practices, economists and policy makers have only recently begun to evaluate the impact of human resource policies on overall productivity growth. This paper suggests that advanced human resource practices (ranging from team-based problem solving, to incentive pay, to training) have facilitated the strong productivity record experienced in the 1990s, both directly and as a complement to the intensive adoption of information technology. Two implications emerge from the analysis. First, the advantages of innovative human resource practices can be realized only when the U.S. workforce possesses a strong human capital foundation. Second, although the private sector has invested intensively in advanced human resource practices, many of these investments have not been measured consistently or expensed correctly as an accounting matter. The lack of standards by which to measure workplace organization implies that society finds it difficult to identify and diffuse productive practices as quickly as possible.
This paper applies the "value chain" model developed by Michael Porter and others to knowledge-based processes. Parallels are drawn between knowledge development/ application and other value-added processes such as manufacturing. As in manufacturing, the Knowledge Value Chain is described as a series of States (stages of processing), with a series of Action Steps required to move from each stage of processing to the next. An example involving the highest levels of strategy in a major US firm is described. Various implications of the model are drawn, including those that use the model to diagnose common problems in the development and application of knowledge.
Traditional methods of managing human capital, innovation, and learning within organizations, particularly law firms, have proven ineffective as they often fail to contribute to a firm's success. Over the last few decades, the rise of a knowledge-based economy has precipitated the need for management of such intangible assets, as they often signify a company's competitive advantage. This paper examines knowledge, knowledge management, their impact on law firms, and the role of human resources throughout the knowledge management process. The results of this study demonstrate the importance of human resources in the implementation and direction of knowledge management. Human resources (HR) is required to generate an organizational culture of knowledge sharing through the implementation of policies and reward systems, including pay-for-knowledge. HR will also need to ensure person-to-person contact through Communities of Practice, mentoring programs and daily contact. Ensuring support and commitment on behalf of the senior management team is imperative for effective execution of knowledge management. The implementation of knowledge management systems will enable firms to thrive in the face of today's rapidly changing economy and will further contribute to the development of sustainable competitive advantages. The scope of this paper is to examine what human resource professionals can do, and describe how human resources management can play a critical role, in ensuring the successful implementation of knowledge management within law firms. The main objective of this paper is to establish and analyze the importance of knowledge management (KM) in today's law firms. Throughout this paper, the concepts of knowledge and KM will be explored in detail, with an emphasis on their roles within law firms. Knowledge and KM are increasingly important issues for human resources management, and they are particularly amplified in law firms compared to other industries.
Historically, many firms have made sourcing decisions--commonly known as make-or-buy decisions--based disproportionately on unit cost, with insufficient regard for strategic or technological issues. This cost-focused approach has led to competitive tragedy for many firms, indeed, entire industries. Managers need better tools for evaluating sourcing decisions--tools that can accommodate the long-term, strategic issues. This article presents such a tool, the strategic sourcing model, which augments the traditional cost analysis by considering strategic and technological factors. Using this framework, in conjunction with a cost analysis, can help companies make the sourcing decisions that will move them into the leagues of world-class manufacturing and position them for sustained competitive success in the future.
This paper proposes a performance and cost measurement system that integrates the Economic Value Added criteria (EVA) with Process Based Costing (PBC). The EVA-PBC methodology allows us to implement the EVA management logic non only at the firm level, but also at lower levels of the organization. We discuss the role of EVA-PBC methodology in bringing strategy back into financial performance measures.
In the management of human resources, knowledge workers have been considered as adding high value to their organizations and as being the cream of the workforce. The globalization process as well as the easier access to technology has changed this paradigm. Nowadays, the knowledge workers are found at almost all levels of the workforce, from low wages to high wages. In addition, the technological change is increasing the demand for skilled labor and has modified the relationship between employees and employers. The employees have traditionally expected a stable and lifelong employment, but in the knowledge-based economy they have to update their skills continuously. Effective knowledge management is about managing people and systems so to foster the use of information in the organizations. The information should be accessible to individuals and the employees should be encouraged to develop and use their knowledge to create value for their organizations. The efficient knowledge transfer within the firm plays a significant role on the ability of an organization to fully use its knowledge-based competitive advantage, and in the economic development of countries.
In times of uncertainty and crisis the performance measurement instruments should be reanalyzed. Thus, alongside the classic indicators of performance, in business financial analysis can be used modern indicators which offer a greater flexibility and efficiency. Such a measurement indicator for financial results closely correlated with the requirement of maximizing shareholder wealth is the Economic Value Added (EVA). The economic value added reflects the real economic profits of a company and it is an effective tool for financial managers. Despite some limits, taking into account the usefulness of EVA indicator, many companies have adopted it as a part of a comprehensive management and at the same time, an incentive system that governs the financial decision-making process.
IFAC's Management Accounting Practice Statement Number 1, revised in 1998, is concerned with management accounting practices. This research note describes an operationalization of its conception of the evolution of management accounting. The paper is informed by experience in developing and applying an IFAC-based model to survey the stage of evolution of the management accounting practices in a United Kingdom industry sector. The model is intrinsically interesting and has the potential for replication in other contexts and in comparative cross-national, inter-industry or longitudinal studies.
Procurement is playing an increasingly important role in helping major corporations achieve their savings and profitability objectives. What companies buy has been increasing in importance, size, and complexity, and thus, how companies buy has changed. Leading procurement organizations are exploiting several opportunities to leverage the corporate buy, optimize the supply base, minimize linked costs in the supply chain, and maximize the value of goods and services for the users. These opportunities can be described in a systematic framework of strategic sourcing that is applicable to services as well as materials. With the emphasis on shareholder value growth, industry leaders are turning to new business designs to capture and sustain profitable growth. Strategic sourcing can be taken to new levels and applied to the business designs that will shape corporate revenue realization as well as competitive cost position. By building sourcing process excellence and aligning capabilities with the requirements of the corporate buy, procurement can have a key role in the corporate quest for value growth.
Argues that, unless information technology managers pay attention to how people share information, advanced technological systems cannot achieve their full potential. Outlines how organizations can rebuild their information cultures, integrating human flexibility and disorder into information systems and changing employee behavior. (JOW)
What we use today to follow up a company's profitability and value creation is inconsistent with the capital market's mechanism, and what the market considers determines value--it is therefore imprecise and irrelevant. The accounting used will not any longer be a sufficient provider of financial information. Companies will experience a demand for more precise tools, both when it comes to metrics and the tool's ingredients (relevance) due to the increasing activity among shareholders/investors. The relevance in financial management must be dramatically improved. Companies must now identify the Value Based Management (VBM) concept that will best initiate a higher degree of Shareholder Value awareness in the company. A true VBM framework is consistent with the market's mechanism and our four factors that, according to the capital markets, determine value. The metric must be precise and relevant. Not random and irrelevant as accounting is today as a decision base. This paper deals with the two VBM frameworks Economic Value Added (EVA?) and Cash Value Added (CVA?). Many things are being said about the two frameworks. I will in this paper present the result from my research and thinking surrounding the differences and similarities between them. The Cash Value Added framework discussed in this paper refers to the concept developed by Erik Ottosson and Fredrik Weissenrieder. The Economic Value Added framework discussed in this paper refers to the concept developed by Bennett Stewart.
In a stable economic environment, the change may be slow, and the organization would have time to react and maintain its competitive advantages. In contrast in a knowledge-based economy, the economic environment changes rapidly and the response is not the best alternative; in order to succeed, the organizations must be proactive, to anticipate, to be directed towards learning and permanently development. The main resource of a knowledge-based company is the knowledge. This company is focused on knowledge creation, acquisition, learning, use, sharing, integration, exploitation and protection in order to achieve economic and social performance. From these considerations it is clear that the knowledge-based company is the learning organization that develops over time as the result of commitment and management processes applied and constantly pursued. Resources within the organization are directed toward learning. In the knowledge-based organizations are thus new opportunities for motivating employees to learn, by leaders, ways that in the traditional economy weren’t an option.
In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge. Yet, few managers understand the true nature of the knowledge-creating company-let alone know how to manage it. According to this 1991 article by Japanese organizational theorist Ikujiro Nonaka, the problem is that most Western managers define knowledge-and what companies must do to exploit it-too narrowly. They believe that the only useful knowledge is "hard" (read "quantifiable") data. And they see the company as a kind of machine for information processing. Nonaka shows us another way to think about knowledge and its role in business organizations. He uses vivid examples from highly successful Japanese companies such as Honda, Canon, NEC, and Sharp. Managers at these companies recognize that creating new knowledge is not simply a matter of mechanistically processing objective information. Rather, it depends on tapping the tacit and often highly subjective insights, intuitions, and ideals of employees. The tools for making use of such knowledge are often soft"-such as slogans, metaphors, and symbols-but they are indispensable for continuous innovation. The reasons Japanese companies are especially adept at this holistic kind of knowledge creation are complex. But the key lesson for managers is quite simple: Much as manufacturers worldwide have learned from Japanese manufacturing techniques, companies that want to compete on the knowledge playing field must also learn from Japanese techniques of knowledge creation.
The origins of the Economic Value Added comes from Hamilton (1877) and Marshall (1890), which showed that companies can create wealth if you manage to earn more than their own capital costs and liabilities. Economic Value Added is an indicator for measuring performance based on real economic profits of the company product, which allows measurement of its success or failure over a period of time is useful to investors who wish to determine how well the product has value to them and can be used for comparative analysis with rapid industrial similar.
Bending accounting rules has become so ingrained in our corporate culture that even ethical business leaders succumb to the temptation to “manage” their earnings in order to meet analysts' demands for smoothly rising results. The author of this article argues that such behavior reflects not a general decline in ethical standards so much as executives' growing sense that accounting itself has become “unhinged from value.” For example, clearly valuable expenditures on R&D, customer acquisition, and employee training are generally expensed immediately against earnings. And reported corporate income is often further reduced by provisions for losses that most companies never expect to incur, by “book” taxes they never expect to pay, and by depreciation charges on assets that are actually increasing in value. At the same time, the opportunity costs associated with employee stock options and the corporate use of equity capital are not reflected in the accountant's measure of profit.
Sumario: Management's new paradigms -- Strategy: the new certainties -- The change leader -- Information challenges -- Knowledge-worker productivity -- Managing oneself
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It is well-known that in the present the competitive advantage of an economy it isnot based only on products or services, natural resources or geographic particularities. Thecompetitive advantage it is obtained today through innovation and the extensive utilization ofknowledges. For this reason the present paper presents the results of an evaluation of theRomanian economy from the perspective of the knowledge based economy. The conclusion ofthe evalutation is that the Romanian economy it is still under the effect of the industrial andagricultural era which promotes products and services which are not very competitive on theinternational and even on the national market and because of this it is necessary thestimulation of the development of the knowledge based industries and the elimination of thegaps between Romania and the other European countries.