The Blue Line Imperative: What Managing for Value Really Means

“ The Blue Line Imperative is compelling, fun and provocative. It is a must–read!” —W. Chan Kim, bestselling author of Blue Ocean Strategy , The BCG Chair Professor of INSEAD and the Co–director of the INSEAD Blue Ocean Strategy Institute Today’s business leaders need to monitor the sources of their company’s value and understand the trends and changes that affect it. When superficial indicators of corporate value are allowed to obscure the actual value of the enterprise, the results can be disastrous, as recent history has far too often shown. True value—the “blue line”— is not easy to see, but it is the only proper aim of any organization wishing to sustain success and growth into the future. In The Blue Line Imperative , INSEAD professors Kevin Kaiser and S. David Young teach us how to truly grow any organization by uncovering the real drivers to value. They provide important lessons and cautionary tales including sources ranging from Daimler–Benz to the movie Die Hard II , Kaiser and Young demonstrate how to sustain competitive advantage over the long haul by focusing on value and creating a culture to support it. Every decision a company makes either creates value or destroys it. The Blue Line Imperative demonstrates with powerful clarity why the goal of any value–driven enterprise is to raise the blue line as high as possible, and shows us how to achieve it.

Preface vii Acknowledgements ix Chapter 1 What is Value? 1 Chapter 2 The Global Capital Markets 23 Chapter 3 The Opportunity Cost of Capital 45 Chapter 4 The Expected Future Free Cash Flows 71 Chapter 5 Blue–line Management 93 Chapter 6 Shifting to Blue 115 Chapter 7 The Hazard of Growth 135 Chapter 8 Creating a Blue–line Culture 159 Chapter 9 Trust and Hierarchy in Blue–line Management 195 Chapter 10 Value and Decision Making 219 Chapter 11 Getting Net Present Value Right 233 Chapter 12 Becoming a Blue–line Manager 269 Appendix Blue–line Questions 289 Index 297

Kevin Kaiser is Professor of Management Practice at INSEAD and Director of INSEAD’s Transition to General Management program as well as Director of the ABN Amro Managing for Value Research Fund at INSEAD. In addition to directing and teaching in many corporate client programs for INSEAD, he also teaches in numerous institutes and programs for private clients throughout Europe, Africa, the Middle East, and Asia. He was formerly Visiting Adjunct Professor of Finance at the Kellogg School of Management, Northwestern University, where he had previously earned his PhD in Finance. He was a member of the Corporate Finance and Strategy Practice of McKinsey & Company, where he led a variety of studies addressing value creation and corporate strategy. S. David Young is Professor of Accounting & Control at INSEAD, where he teaches in the MBA program and in a broad range of executive courses. He has served as an advisor to companies in the U.S., Europe and Asia on various aspects of value–based management and is also a frequent advisor on analyzing financial accounts. David holds a PhD from the University of Virginia and is also a Certified Public Accountant and Chartered Financial Analyst. He is the author of a wide variety of articles in academic and professional journals, and is the co–author of many books, including EVA and Value–based Management: A Practical Guide to Implementation (2001), Profits You Can Trust: Spotting Surviving Accounting Landmines (2003), Attracting Investors: A Marketing Approach to Finding Funds for Your Business (Wiley, 2004), and Corporate Financial Reporting and Analysis (Wiley, 2013).