Economic Value Added

Economic Value Add and Profit

by Unre Visagie

Personal EVA is similar to business Economic Value Add
Chapter 10
p.1
I often hear people in referring to “EVA”. At first I thought they were speaking of some electrical component. Now I suspect it has something to do with business success. Can you explain it to me?
We widely refer to Economic Value Add. EVA for short, is the most effective way of measuring business success.
EVA is the final measure of business value. It is what investors will pay for the business. The market usually looks at two aspects:
Results: Profit measured in Rands and Cents.
Expectations and confidence:
The market’s expectations of the company’s ability to sustain, repeat and grow the profit stream. (Usually reflected in the P/E rate.)
Personal EVA is similar in that it is measured in terms of what you are worth to the company, your actual results and your economic value added to the business. Here you create space for sustainable personal income.
Are you telling me that the value of the company is related to the margins that I made on my last deal?
But how does it all hang together and how can I improve my performance?
The following diagram explains what the Economic Value Add (EVA) of our business is all about.
If your employment does not translate into more profit, why should your relationship with the company continue?
You will have noticed that this book contains several diagrams which explain key aspects of business and the company. It will be worth your while studying these carefully. For instance The Order Cycle, Areas of Growth.
Using the same diagram from the previous page, I will explain how your individual EVA ties in with the EVA of the company. By following these guidelines, you should definitely be able to improve your contribution.
Let’s say this diagram represents two moments in time relating to you:
In order to raise your
individual EVA and
contribute towards
growing the EVA of
the company, you
have to improve two
factors which in
effect create a:
a) Increase the
customer Net
Value Potential.
b) Increase the
Customer’s
Customer Value
Potential.
Raising profit by
increasing the price without a
corresponding lift of
factors and would hardly make good business sense. Profits can be raised by increasing sales and/or expanding the market. This reduce expenses and drives cost down.
Well, I am beginning to understand EVA. I guess if one improves all the elements listed above, you must be able to make a contribution to the wealth of the company.
But what else can I do?
Let me add five key truths about increasing EVA:
Understand cost and value.
Measure and communicate value.
Optimize cost.
Increase value.
Increase market.
Remember the following fundamental concept:
Wealth = Sustained profit over time + Growth

Personal EVA is similar to business Economic Value Add

Chapter 10 p.1

w&t_question

I Ask

I often hear people in referring to “EVA”. At first I thought they were speaking of some electrical component. Now I suspect it has something to do with business success. Can you explain it to me?

w&t_exclamation

I Answer

We widely refer to Economic Value Add. EVA for short, is the most effective way of measuring business success.

EVA is the final measure of business value. It is what investors will pay for the business. The market usually looks at two aspects:

1. Results: Profit measured in Rands and Cents.

2. Expectations and confidence: The market’s expectations of the company’s ability to sustain, repeat and grow the profit stream. (Usually reflected in the P/E rate.)

Personal EVA is similar in that it is measured in terms of what you are worth to the company, your actual results and your economic value added to the business. Here you create space for sustainable personal income.

w&t_question

I Ask

Are you telling me that the value of the company is related to the margins that I made on my last deal?

But how does it all hang together and how can I improve my performance?

w&t_binoculars

I Explain

The following diagram explains what the Economic Value Add (EVA) of our business is all about.

w&t_ch10_a_understanding_profit_and_economic_value_add

w&t_elephant

I Advise

If your employment does not translate into more profit, why should your relationship with the company continue?

You will have noticed that this book contains several diagrams which explain key aspects of business and the company. It will be worth your while studying these carefully. For instance The Order Cycle, Areas of Growth.

w&t_ch10_b_understanding_profit_and_economic_value_add

w&t_binoculars

I Explain

Using the same diagram from above, I will explain how your individual EVA ties in with the EVA of the company. By following these guidelines, you should definitely be able to improve your contribution.

Let’s say this diagram represents two moments in time relating to you:

In order to raise your individual EVA and contribute towards growing the EVA of the company, you have to improve two factors:

1. Increase the customer Net Value Potential.

2. Increase the Customer’s Customer Value Potential.

Raising profit by increasing the price without a corresponding lift of factors and would hardly make good business sense. Profits can be raised by increasing sales and/or expanding the market. This reduce expenses and drives cost down.

w&t_question

I Ask

Well, I am beginning to understand EVA. I guess if one improves all the elements listed above, you must be able to make a contribution to the wealth of the company.

But what else can I do?

w&t_exclamation

I Answer

Let me add five key truths about increasing EVA:

  1. Understand cost and value.
  2. Measure and communicate value.
  3. Optimize cost.
  4. Increase value.
  5. Increase market.
w&t_elephant

I Advise

Remember the following fundamental concept:

Wealth = Sustained profit over time + Growth

Value to Customer

by Unre Visagie

Maximize your value contribution to the customer
Chapter 3
p.2
The idea of an “overlap” of interests has been mentioned several times. What does it all mean, and where do I fit into this concept?
At the heart of any business there is a tri-partite alliance between the individual, the company and the customer. The contribution you make lies in the area of overlap – Contribution Zone – of interests of the three role players. Your contribution is known as your Economic Value Added (EVA , for short).
I will explain this step-by-step. Let’s start by illustrating this concept in a diagram.
Let’s explore the concept of “Growing Contribution” and capacity which is the key to understanding the VENN diagram above.
As you grow your skills by following the Walk & Talk process, you are able to contribute to the effectiveness of the company as well as the manner in which the company addresses its customers’ needs.
As your experience, skills and knowledge grow, so do the areas of overlap (the Contribution Zone) between yourself and the company on the one hand; and between yourself and the customer on the other. Growth in contribution is directly linked to the growth in the added value the customer receives from doing business with the company, and is known as Economic Value Added (EVA).
In other words, as the area of overlap (EVA) grows, the“alignment” between yourself, the company and the customer increases.
This progression in alignment results in growth of the company through increased products and services as well as effective business processes which optimally address the needs and expectations of the customer. The progression of alignment depends exclusively on the growth of the individuals within the company, and the contribution they make to the company’s ability to effectively address the needs and expectations of the customer.
By understanding your customer well, you will be able to identify opportunities to develop new areas of customer needs and to increase the value the customer receives.
This will enable you to determine the growth of the company within your chosen customer base, and to increase the value-added to the company, which in turn, results in wealth for the customer the company and the individual.
Align yourself with your company and customer needs in order to maximize your contribution and create wealth for yourself, the customer and the company.

Maximize your value contribution to the customer

Chapter 3 p.2

w&t_question

I Ask

The idea of an “overlap” of interests has been mentioned several times. What does it all mean, and where do I fit into this concept?

w&t_exclamation

I Answer

At the heart of any business there is a tri-partite alliance between the individual, the company and the customer. The contribution you make lies in the area of overlap – Contribution Zone – of interests of the three role players. Your contribution is known as your Economic Value Add (EVA , for short).

I will explain this step-by-step. Let’s start by illustrating this concept in a diagram.

w&t_ch3_b_venn

Let’s explore the concept of “Growing Contribution” and capacity which is the key to understanding the VENN diagram above.

As you grow your skills by following the Walk & Talk process, you are able to contribute to the effectiveness of the company as well as the manner in which the company addresses its customers’ needs.

As your experience, skills and knowledge grow, so do the areas of overlap (the Contribution Zone) between yourself and the company on the one hand; and between yourself and the customer on the other. Growth in contribution is directly linked to the growth in the added value the customer receives from doing business with the company, and is known as Economic Value Add (EVA).

In other words, as the area of overlap (EVA) grows, the“alignment” between yourself, the company and the customer increases.

w&t_binoculars

I Explain

This progression in alignment results in growth of the company through increased products and services as well as effective business processes which optimally address the needs and expectations of the customer. The progression of alignment depends exclusively on the growth of the individuals within the company and the contribution they make to the company’s ability to effectively address the needs and expectations of the customer.

By understanding your customer well, you will be able to identify opportunities to develop new areas of customer needs and to increase the value the customer receives.

This will enable you to determine the growth of the company within your chosen customer base and to increase the value-added to the company, which in turn, results in wealth for the customer, the company and the individual.

w&t_elephant

I Advise

Align yourself with your company and customer needs in order to maximize your contribution and create wealth for yourself, the customer and the company.