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Wealth Creation
A Systems Mindset for Building and Investing in Businesses for the Long Term
Bartley J. Madden (Author)
9780470488683, Wiley
Hardback, published 19 March 2010
208 pages, Charts: 24 B&W, 0 Color
23.6 x 16.3 x 1.8 cm, 0.39 kg
Wealth creation insights by the creator of the company life-cycle framework known as the CFROI valuation model. Investors searching for companies whose future profitability will far exceed that implied in current stock prices, those in business making decisions to improve company performance, and politicians crafting legislation-all use some form of a wealth creation framework. In this book, author Bartley Madden addresses how to think about the complex dynamics in generating wealth and the practical benefits to be gained from upgrading one's wealth creation framework. Throughout these pages, Madden shares six critical insights: Economic systems -- the rules and relationships that exist to create wealth by delivering value to customers -- are devilishly complex and therefore solving economic problems requires extensive knowledge. Seen in this light, knowledge growth and wealth creation are two sides of the same coin. These ideas have taken shape as a natural outgrowth of a commercial research program that began in 1969 at Callard, Madden & Associates focused on how to value business firms. It produced the CFROI (cash-flow-return-on-investment) metric and its related life-cycle valuation model. This work was further advanced at HOLT Value Associates, which was later acquired by Credit Suisse in 2002. Credit Suisse HOLT continues the research to improve the valuation tools and related global database that analyzes 20,000 companies in over 60 countries. This system is used by a large number of institutional money management firms worldwide in order to make better investment decisions.
Preface xi Acknowledgments xvii CHAPTER 1 A Systems Mindset 1 How We Know What We Think We Know 2 The PAK (Perceiving-Acting-Knowing) Loop 3 Purposes 3 Perceptions 4 Cause and Effect 6 Actions and Consequences 7 Feedback 8 Knowledge Base 9 Examples of Systems Thinking and Problem Solving 10 High-Reliability Organizations 10 Eli Goldratt, Business Theorist 12 Colonel John Boyd, Military Theorist 14 Correlation, Causality, and Control Systems 15 Summary of Key Ideas 17 CHAPTER 2 The Wealth-Creation System 19 The Perception of Free-Market Capitalism 20 The Housing and Credit Crisis of 2008–2009 21 Government Regulation and Unknown Risks 25 The Standard of Living 28 Summary of Key Ideas 33 CHAPTER 3 The Ideal Free-Market System 35 Components of a Free-Market System 36 Consumer Wealth, Producer Wealth, and Competition 39 Efficiently Providing What Consumers Want 41 Summary of Key Ideas 43 CHAPTER 4 The Competitive Life-Cycle View of the Firm 45 Competitive Life-Cycle Framework 45 Firms’ Competitive Life Cycles and Dynamism 47 Company Examples 51 Eastman Kodak 53 IBM 55 Digital Equipment 58 Apple 59 Bethlehem Steel 62 Nucor 63 Kmart 67 Medtronic 69 Walgreen Company 71 Donaldson Company 73 Life-Cycle Observations 75 Summary of Key Ideas 76 CHAPTER 5 The Life-Cycle Valuation Model as a Total System 79 Efficient Markets versus Behavioral Finance 80 Valuation Model Principles 81 Measurement Units 86 Forward-Looking, Market-Derived Discount Rates 89 Problems with CAPM Cost of Capital 91 Improving the Valuation Process 93 Investor Expectations: The Wal-Mart Example 96 Critical Accounting Issues 99 Reply to Critics 102 Summary of Key Ideas 104 CHAPTER 6 Business Firms as Lean, Value-Added Systems 107 Lean Thinking and PAK Loop Components 108 Knowledge Base 108 Purposes 111 Perceptions 113 Cause and Effect 114 Actions and Consequences 115 Feedback 116 A Lean Transformation Example: Danaher 118 Summary of Key Ideas 121 CHAPTER 7 Corporate Governance 123 A Systems View for Corporate Governance 123 Corporate Governance Needs Repair 124 A Standard of Performance for Boards 127 A Successful Cultural Transformation Example: Eisai Co., Ltd. 128 Shareholder Value Review 130 Valuation Model Selection 133 Value-Relevant Track Records 135 Business Unit Analyses 137 Reply to SVR Objections 138 SVR as an Evolutionary Process 140 Summary of Key Ideas 141 CHAPTER 8 Concluding Thoughts 143 Benefits for Public Policy Makers 144 Benefits for Business Managers 146 Benefits for Investors 148 Notes 153 References 159 About the Author 167 Index 169
Subject Areas: Finance & accounting [KF]
