Wealth Creation: A Systems Mindset for Building and Investing in Businesses for the Long Term (Wiley Finance Series)

Overview

The competitive life-cycle framework—and its relationto stock valuation—is based on the premise that competitionand capital flows operate over the longer term to force a firm'seconomic returns toward the cost of capital. In short, the patternof a firm's economic returns and reinvestment rates reflects anunending struggle between managerial skill and competition overtime. The life-cycle framework, as explained in this book, providesan insightful and intuitive way to understand levels and changes instock prices ...

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Overview

The competitive life-cycle framework—and its relationto stock valuation—is based on the premise that competitionand capital flows operate over the longer term to force a firm'seconomic returns toward the cost of capital. In short, the patternof a firm's economic returns and reinvestment rates reflects anunending struggle between managerial skill and competition overtime. The life-cycle framework, as explained in this book, providesan insightful and intuitive way to understand levels and changes instock prices over time. It is widely used by institutional moneymanagers in order to make better investment decisions.

Throughout the book, the common thread is a systemsmindset for understanding societal attitudes and institutionsthat hinder or promote wealth creation and the complex activitiesof business firms in efficiently meeting customer needs. Such amindset focuses attention on the underlying processes and relatedincentives that drive the overall system results, and especially onthe importance of continual firm-wide learning to improve thoseprocesses.

The life-cycle framework provides a unique lens for seeingthrough a firm's short-term financial results to better gaugelikely long-term wealth creation or destruction. Company examplesshowcase the analytical usefulness of life-cycle track records andpresent a bottom-up view of how—in a free-marketeconomy—customers, employees, and shareholders have mutual,long-term interests.

Madden details opportunities for higher, sustainable economicgrowth through voluntary, private sector initiatives. As toimproved management, he analyzes both the difficulty in duplicatinglean principles pioneered by Toyota and the relatedpotential for sustained competitive advantage. As to improvedcorporate governance, he describes a novel approach forboards of directors to ensure that management follows a wealthcreation path.

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Product Details

  • ISBN-13: 9780470488683
  • Publisher: Wiley
  • Publication date: 3/8/2010
  • Series: Wiley Finance Series, #541
  • Edition number: 1
  • Pages: 178
  • Product dimensions: 6.30 (w) x 9.10 (h) x 0.90 (d)

Meet the Author

Bartley J. Madden is an independent researcher whose current focus is on market-based solutions to public policy issues, including FDA reform and corporate governance. In 1969, Madden cofounded Callard, Madden & Associates, where his research was instrumental in developing the CFROI (cash-flow-return-on-investment) valuation model that has become an integral part of the investment process for many large money management firms. He later managed portfolios for Harbor Capital Advisors. In the early 1990s, Madden joined HOLT Value Associates, a firm created to commercialize the CFROI valuation model worldwide. Madden retired in 2003 as a managing director of Credit Suisse, which acquired HOLT. He is the author of CFROI Valuation: A Total System Approach to Valuing the Firm.

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Table of Contents

Preface.

Acknowledgments.

Chapter 1 A Systems Mindset.

How We Know What We Think We Know.

The PAK (Perceiving-Acting-Knowing) Loop.

Purposes.

Perceptions.

Cause and Effect.

Actions and Consequences.

Feedback.

Knowledge Base.

Examples of Systems Thinking and Problem Solving.

High-Reliability Organizations.

Eli Goldratt, Business Theorist.

Colonel John Boyd, Military Theorist.

Correlation, Causality, and Control Systems.

Summary of Key Ideas.

Chapter 2 The Wealth-Creation System.

The Perception of Free-Market Capitalism.

The Housing and Credit Crisis of 2008-2009.

Government Regulation and Unknown Risks.

The Standard of Living.

Summary of Key Ideas.

Chapter 3 The Ideal Free-Market System.

Components of a Free-Market System.

Consumer Wealth, Producer Wealth, and Competition.

Efficiently Providing What Consumers Want.

Summary of Key Ideas.

Chapter 4 The Competitive Life-Cycle View of theFirm.

Competitive Life-Cycle Framework.

Firms’ Competitive Life Cycles and Dynamism.

Company Examples.

Eastman Kodak.

IBM.

Digital Equipment.

Apple.

Bethlehem Steel.

Nucor.

Kmart.

Medtronic.

Walgreen Company.

Donaldson Company.

Life-Cycle Observations.

Summary of Key Ideas.

Chapter 5 The Life-Cycle Valuation Model as a TotalSystem.

Efficient Markets versus Behavioral Finance.

Valuation Model Principles.

Measurement Units.

Forward-Looking, Market-Derived Discount Rates.

Problems with CAPM Cost of Capital.

Improving the Valuation Process.

Investor Expectations: The Wal-Mart Example.

Critical Accounting Issues.

Reply to Critics.

Summary of Key Ideas.

Chapter 6 Business Firms as Lean, Value-AddedSystems.

Lean Thinking and PAK Loop Components.

Knowledge Base.

Purposes.

Perceptions.

Cause and Effect.

Actions and Consequences.

Feedback.

A Lean Transformation Example: Danaher.

Summary of Key Ideas.

Chapter 7 Corporate Governance.

A Systems View for Corporate Governance.

Corporate Governance Needs Repair.

A Standard of Performance for Boards.

A Successful Cultural Transformation Example: Eisai Co.,Ltd.

Shareholder Value Review.

Valuation Model Selection.

Value-Relevant Track Records.

Business Unit Analyses.

Reply to SVR Objections.

SVR as an Evolutionary Process.

Summary of Key Ideas.

Chapter 8 Concluding Thoughts.

Benefits for Public Policy Makers.

Benefits for Business Managers.

Benefits for Investors.

Notes.

References.

About the Author.

Index.

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