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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

Shareholder Value Creation

Nanda Ramanujam
Monday, May 5, 2008
Nanda Ramanujam
To deliver real value to the business, C-level executives must make all investment decisions with the company's long-term goals in mind.

CIOs and CFOs may not always see eye-to-eye, but one topic is very dear to the hearts of both, and that's value. CIOs' aim is to create value through the efforts of their IT organization and the systems and technology the organization implements; CFOs seek to guarantee that the value is delivered enterprise wide. Unfortunately, value is one of those terms that everyone loves to throw into a conversation as evidence of the importance of his or her efforts, often without a clear, consistent meaning. The picture gets even murkier when you take into account all the metrics and methods out there that claim to capture this mysterious thing we call value: the ROI, net present value, the Balanced Scorecard, and the like as well as external indicators such as the stock price, market capitalization amongst others, all of which lead to a confusing mess.

How should value be defined? It all comes down to whether you've increased the wealth of the organization's shareholders. If you have, you've succeeded in creating value; if you haven't, you haven't created value; the bottom-line shareholder value is what it's all about.

What It Is, and Isn't
In simplistic terms, every for-profit organization's goal is to create consistent, profitable growth for the company and a return to the investors that is consistently above what they could earn somewhere else at a similar amount of risk. When you improve the return on investment, you're creating shareholder value. It is critical to remember that all investments an organization makes should create shareholder value; if they don't, then the money is better spent elsewhere.

The executive management's job is to find the right businesses, strategies, and investments that consistently grow the company's profitability over time. Conceptually this is not difficult to grasp, but there are several factors that make achieving that goal absolutely unclear.

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