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Book Review: My Journey of Value Creation

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My Value Creation Journey: My Work Autobiography. Bartley J. Madden. ‎2023. Bartley J. Madden Foundation.

My Value Creation JourneyThe 2020: The … Value Creation Principleshas spent more than 30 years in the finance industry. His early work produced the Cash Flow Return on Investment (CFROI) metric, which is widely used in money management. Madden is now branching out into the world of philanthropy with the Bartley J. Madden Foundation.

The book begins with a look at Madden’s twists and turns that led him to business and finance, including a degree in mechanical engineering, a brief foray into boxing, and a lucky deployment to Salt Lake City instead of Vietnam. After completing his military service, Madden earned an MBA from the University of California, Berkeley, and began his financial career in 1969 in the investment research department of Continental Bank in Chicago, where he was introduced to securities analysts. Chuck CallardSix months later, he co-founded Callard, Madden & Associates, and the two developed the CFROI metric.

My Value Creation JourneyA central focus of The Knowledge-Building Loop is Madden’s quest for a deeper understanding of knowledge-building capabilities. According to Madden, the key to value creation is knowledge-building. Throughout the book, Madden emphasizes the role of systems thinking and the knowledge-building loop in helping to formulate economic/business problems and develop solutions. Madden illustrates the knowledge-building loop in the following circular diagram: Systems Thinking, Ask better questionsand language.

This approach allows users to think creatively about problems and devise better solutions than those that come from more widely accepted linear thinking. Language may seem like a strange part of knowledge construction, but Madden points out that language limits our perception. For example, he points out that the founders of Airbnb created a new industry by asking, “What is a hotel room?”

A large portion of the book is devoted to how CEOs can use systems thinking to improve business performance. But these concepts apply to every area of ​​life and business. For those in the investment business, it is helpful to recognize companies led by leaders who foster a culture of knowledge building. Ken Iverson Nucor stock could be rewarded with above-market returns.

To illustrate the importance of CFROI, Madden reformulated the traditional life cycle graph by linking the cost of capital with CFROI. The cycle begins like this: Highly innovative When a company successfully commercializes a product and its economic returns exceed its cost of capital. Competitive Fade Competitive decline occurs when competitors try to copy or improve upon the originator’s innovation. How quickly competitive decline begins depends on the competitive advantage of the innovator. After that, the company Maturity Stagethey simply earn their cost of capital. Business failure This occurs when a company is no longer able to earn its cost of capital. This pattern is inevitable unless management recognizes this pattern and seeks to reinvent itself.

To illustrate these concepts, Madden presents several case studies of companies that have come off years of growth in maturity and enjoyed value-enhancing returns. He begins with a brief history of farm machinery manufacturer John Deere from 1960 to 2018. Founded in 1837 by blacksmith John Deere, the company was in a period of maturity for nearly 40 years, from 1960 to 2000, when its CFROI indicated it was only earning its cost of capital.

Under the leadership of Robert Lane From 2000 to 2009 Samuel Allen Between 2010 and 2019, Deere embraced the digital world and transformed from a product-centric business focused on its own products to a platform-centric business that helps farmers increase yields and reduce costs. These changes have helped shareholders enjoy a 20x increase in the stock price since 2000.

Another case study is Cummins, a company that designs, sells, manufactures, and services diesel, electric, and hybrid powertrains and related components. Between 1997 and 2003, Cummins lost market share in the diesel engine market. However, in 2000, Tim Solso Since taking over as CEO, he has been successful in improving productivity and increasing research and development spending. These changes have enabled the company to produce innovative diesel engines that meet Environmental Protection Agency standards while maintaining fuel efficiency, giving the company a competitive advantage over its peers.

During Solso’s tenure as CEO, Cummins outperformed the S&P 500 index by about 10 times. Madden points out that naysayers believe Cummins will be overtaken by electric truck makers such as Tesla. But he says this conclusion stems from a flaw in linear thinking: Electric vehicles may be more environmentally friendly than diesel-powered vehicles, but this ignores the environmental costs of generating electricity, manufacturing batteries and producing solar panels.

One area where Madden hopes to apply his knowledge-building approach to society is reforming the Food and Drug Administration (FDA). Researchers at Florida Atlantic University’s Madden Center for Value Creation are working on a number of topics, including overhauling FDA procedures. In his book, Madden writes: Freedom of choice: better medicines at lower costs Here are some articles to promote some of these ideas:

He lays out a detailed approach to how the FDA could change procedures to allow potentially life-saving drugs to be administered to terminally ill patients — not just as a measure to provide compassionate care — but also to facilitate the collection of valuable information, allowing new drugs to receive full FDA approval more quickly and providing a better understanding of who would benefit most from treatment.

In summary, Madden has written a book that will force business leaders to think outside the box, systems-based. This is not a “how-to” book that offers a detailed recipe for success. Rather, it offers a framework for thinking about difficult problems. Business leaders and investment professionals who can apply some of the concepts to their decision-making will likely be rewarded. As the world continues to change, Madden’s insights on systems thinking and knowledge building will be valuable. My Value Creation Journey A trip worth taking.

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