Cockpit
Statements
The Metric Wars
The metric wars refer to the general debate on the relative merits of various categories of value measures. These include: traditional stock market performance measures like earnings per share (EPS); other market-based metrics like market value added (MVA), total shareholder return (TSR) and future growth value (FGV); cash flow measures like cash flow return on investment (CFROI); and residual profit metrics like economic value added (EVA).
The metric wars also refer specifically to competition within the most popular of these categories, residual profit metrics, and versus the leading metric within that category: EVA. Economic Value Added is a registered trademark of the consulting firm Stern Stewart, although EVA as an abbreviation of economic value added is by definition not protected. Various other consulting firms have created and promoted competing metrics for similar marketing purposes. These include most notably Economic Profit (EP) at McKinsey &Company, and Cash Value Added (CVA) at Holt Associates (now part of Credit Suisse). (CFROI is used by Boston Consulting Group and the consultancies of some Big Four accounting firms.)
However, the EVA metric has been known in finance literature for more than 100 years simply as residual profit. Because there is no significant conceptual difference between these terms, management author and Obermatt CEO Hermann J. Stern coined the umbrella term xVA to stands for EVA and its variants, including MVA, CVA, EP, and residual profit.
Again, Obermatt’s method of indexing operating performance can be applied equally well to any of these competing metrics its clients choose to use.
Click here for the next section explaining EVA in detail.
Click here for the following section on EVA sub-metrics: the Value Driver Tree.
Click here for the final VBM section on value-based incentive compensation.
Recommended Readings: EVA by Stephen F. O'Byrne, Competitive Value Management by Hermann J. Stern