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Value Creation Thinking
"In a world where short-term thinking has taken hold for too many managers and investors, Value Creation Thinking provides a much needed perspective on the key drivers of long-term value. Madden unites the fundamentals of financial valuation with a unique emphasis on corporate purpose, culture, and knowledge. Based on decades of research and practice, Value Creation Thinking sheds light on enduring sources of competitive advantage and exposes how traditional business thinking and accounting practices often distract managers and investors from sustained performance.By speaking the language of both shareholders and stakeholders, Madden provides an important contribution to our understanding of capitalism at a critical moment, and an illuminating roadmap for the future of business."— Dominic Barton, Global Managing Director, McKinsey & Co.
- GenresBusiness
264 pages, Kindle Edition
Published June 15, 2016
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103 people want to read
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Displaying 1 - 4 of 4 reviews
August 20, 2018
Most finance and investing books are easy to review. This one was not. Most books keep within a sub-genre where they recycle and mix the usual concepts within the area. This book forced me to think about the philosophy of the firm in ways I hadn’t before. The first sentence of the preface is “The ideas in this book reflect how my worldview evolved.” This text is the intellectual biography of Bartley Madden. In 1969 he co-founded a firm that would eventually lead to the HOLT framework used by Credit Suisse today. Madden’s research, thoughts and work effort is a huge part of the valuation framework and database that is today used by thousands of portfolio managers around the world.
Value Creation Thinking has three parts where the first sets the philosophical stage and the following two fill in practical details. As such the first part is more interesting. Madden starts with a defense of capitalism worthy of Milton Friedman. Then he presents his competitive life cycle view of the firm. Successful innovation initially creates high returns on invested capital but this will over time be competed away as other companies enter the profitable area. Next the author discusses the purpose of the firm and the tasks that managers must perform to fulfill this purpose. In short managers must 1) understand how value is created, 2) use resources efficiently and 3) create a knowledge-building corporate culture. From this they can set goals and execute on strategies. The second part of the book covers the third task above and the third part the first task. I broadly agree with these parts and have little to add. I will instead come back to the purpose of the firm.
At any point in time the society has a limited productive capacity. This capacity is in large part the sum of the tangible and intangible capital invested in corporations. These investments aim to, within the constraints of the available capital resources in the society, offer the most benefit to people in the form of products and services. The future stream of benefits net of the costs it takes to produce them
producing them. This net benefit to society equals the net present value of all future free cash flows of the firms. If a firm maximizes shareholder value it also maximizes the benefit to society expressed in this way. On this we both agree.
Madden doesn’t think that maximizing shareholder value is the purpose of the firm since it would be a purpose that employees and stakeholders couldn’t support. Hence, such a purpose would be self- contradictory, as the firm then couldn’t create any shareholder value. Instead the author advocates a purpose package of a) having an inspiring vision and high ethical standards, b) survival through efficiency and innovation, c) creating win-win relationships with stakeholders and d) caring for future generations through environmental sustainability. These input variables will lead to the output e) maximizing the benefit to society (as defined above) that equals maximizing f) the shareholder value. Now, instead of as Madden calling the input variables the purpose, I call the output the purpose. Is this just semantics?
Defining the input variables as the purpose has a more positive tone to it while the opposite easily can be seen as cynical and hurt the image of a firm even though the practical actions might be the same. However, putting the input variables on top means that the ability to optimize on the target of creating maximum “benefits to society” becomes impossible. Therefore, if the democratic society can handle the task of setting rules of the game that truly internalize all costs of business processes, it is my view that defining the output variables as the purpose of the firm will make all of society more prosperous. The daunting task in this is to make people realize that maximizing shareholder value equals maximizing the benefit to society.
Madden has written an intelligent and thoughtful book that many in the business community would benefit from reading. However, the abstraction level is high and the book doesn’t fit nicely into a genre so I’m not sure they will. It’s their loss.
Value Creation Thinking has three parts where the first sets the philosophical stage and the following two fill in practical details. As such the first part is more interesting. Madden starts with a defense of capitalism worthy of Milton Friedman. Then he presents his competitive life cycle view of the firm. Successful innovation initially creates high returns on invested capital but this will over time be competed away as other companies enter the profitable area. Next the author discusses the purpose of the firm and the tasks that managers must perform to fulfill this purpose. In short managers must 1) understand how value is created, 2) use resources efficiently and 3) create a knowledge-building corporate culture. From this they can set goals and execute on strategies. The second part of the book covers the third task above and the third part the first task. I broadly agree with these parts and have little to add. I will instead come back to the purpose of the firm.
At any point in time the society has a limited productive capacity. This capacity is in large part the sum of the tangible and intangible capital invested in corporations. These investments aim to, within the constraints of the available capital resources in the society, offer the most benefit to people in the form of products and services. The future stream of benefits net of the costs it takes to produce them
producing them. This net benefit to society equals the net present value of all future free cash flows of the firms. If a firm maximizes shareholder value it also maximizes the benefit to society expressed in this way. On this we both agree.
Madden doesn’t think that maximizing shareholder value is the purpose of the firm since it would be a purpose that employees and stakeholders couldn’t support. Hence, such a purpose would be self- contradictory, as the firm then couldn’t create any shareholder value. Instead the author advocates a purpose package of a) having an inspiring vision and high ethical standards, b) survival through efficiency and innovation, c) creating win-win relationships with stakeholders and d) caring for future generations through environmental sustainability. These input variables will lead to the output e) maximizing the benefit to society (as defined above) that equals maximizing f) the shareholder value. Now, instead of as Madden calling the input variables the purpose, I call the output the purpose. Is this just semantics?
Defining the input variables as the purpose has a more positive tone to it while the opposite easily can be seen as cynical and hurt the image of a firm even though the practical actions might be the same. However, putting the input variables on top means that the ability to optimize on the target of creating maximum “benefits to society” becomes impossible. Therefore, if the democratic society can handle the task of setting rules of the game that truly internalize all costs of business processes, it is my view that defining the output variables as the purpose of the firm will make all of society more prosperous. The daunting task in this is to make people realize that maximizing shareholder value equals maximizing the benefit to society.
Madden has written an intelligent and thoughtful book that many in the business community would benefit from reading. However, the abstraction level is high and the book doesn’t fit nicely into a genre so I’m not sure they will. It’s their loss.
March 19, 2017
This is NOT a traditional "how to" investing book, so if one is looking for a cookie cutter approach to investing, look elsewhere. But it is an important book that should be on the shelves of those who want to think deeply about the evolution of value creation over the lifetime of a firm.
The author was one of the developers of the Holt valuation methodology, a somewhat complicated software framework now owned by Credit Suisse, that considers the dynamics of competition in assessing valuation of a firm
Innovative firms with fresh new approaches earn high returns on capital but as competitors catch on, this profitability can fade unless the innovator continues to find new places to invest capital in a similar manner. A great example of this is Amazon, which tore apart the book retailing industry and continued to find new mountains to conquer, some of which were not retailing at all. By way of contrast, Eastman Kodak and Xerox chose not to conquer these mountains, despite having developed technologies but in both cases, choosing not to dedicate their ample capital to grow, but rather to defend existing technologies.
Rather than crystallize valuation to a single number or a range such as "intrinsic value", this framework is more open, and views valuation as "warranted" valuation. It forces you to re-think your assumptions continually through the life cycle of a business.
The book begins with a philosophical look at enterprise and value creation before it delves into more practical explanations and examples. The creation of value is approached, not only from the standpoint of the investor but also by the managers of the firm in order to create a knowledge-building corporate culture. The capital of the firm includes not only the financial resources but broadens out, using a much wider lens. It instructs managers that "major wins only come from bathing yourself in and swimming with the customer."
Madden believes that innovation is not only a driver of growth but an important element in the betterment of society. I certainly agree.
One of the more memorable highlights for me: “ Moreover, management at Toyota and Koch Industries realize that their relentless emphasis on continual improvement will make it difficult for competitors to match a bar that it is always rising.” The notion of an every-rising competitive bar is a great way to think of a business such as Amazon or someone like BlackRock. Companies like this are forever endorsing continuous improvement.
It does represent a thoughtful addition to my library and worthwhile fresh perspective to how value is created and how it must be monitored.
The author was one of the developers of the Holt valuation methodology, a somewhat complicated software framework now owned by Credit Suisse, that considers the dynamics of competition in assessing valuation of a firm
Innovative firms with fresh new approaches earn high returns on capital but as competitors catch on, this profitability can fade unless the innovator continues to find new places to invest capital in a similar manner. A great example of this is Amazon, which tore apart the book retailing industry and continued to find new mountains to conquer, some of which were not retailing at all. By way of contrast, Eastman Kodak and Xerox chose not to conquer these mountains, despite having developed technologies but in both cases, choosing not to dedicate their ample capital to grow, but rather to defend existing technologies.
Rather than crystallize valuation to a single number or a range such as "intrinsic value", this framework is more open, and views valuation as "warranted" valuation. It forces you to re-think your assumptions continually through the life cycle of a business.
The book begins with a philosophical look at enterprise and value creation before it delves into more practical explanations and examples. The creation of value is approached, not only from the standpoint of the investor but also by the managers of the firm in order to create a knowledge-building corporate culture. The capital of the firm includes not only the financial resources but broadens out, using a much wider lens. It instructs managers that "major wins only come from bathing yourself in and swimming with the customer."
Madden believes that innovation is not only a driver of growth but an important element in the betterment of society. I certainly agree.
One of the more memorable highlights for me: “ Moreover, management at Toyota and Koch Industries realize that their relentless emphasis on continual improvement will make it difficult for competitors to match a bar that it is always rising.” The notion of an every-rising competitive bar is a great way to think of a business such as Amazon or someone like BlackRock. Companies like this are forever endorsing continuous improvement.
It does represent a thoughtful addition to my library and worthwhile fresh perspective to how value is created and how it must be monitored.
January 9, 2026
Value Creation Thinking offers a disciplined and much needed corrective to the short termism that dominates modern management and investing. Bartley J. Madden makes a compelling case that sustainable value creation cannot be understood through financial metrics alone, but must be grounded in a deeper appreciation of corporate purpose, culture, knowledge, and adaptive capability.
What distinguishes this book is its successful integration of valuation theory with organizational reality. Madden bridges a gap that many business texts fail to cross: he speaks fluently to both shareholders and stakeholders without diluting rigor. By exposing how traditional accounting practices often obscure long-term value drivers, the book challenges readers to rethink how performance is measured, managed, and communicated.
The framework presented is neither abstract nor ideological. Instead, it reflects decades of research and real world experience, offering managers and investors a coherent lens for understanding competitive advantage over time. Particularly valuable is the emphasis on learning, decision making processes, and culture as assets that compound or decay depending on leadership behavior.
In a business environment obsessed with quarterly results, Value Creation Thinking stands out as a serious, intellectually grounded roadmap for leaders committed to enduring performance. It is a thoughtful and timely contribution to the evolving conversation about the future of capitalism and responsible enterprise.
What distinguishes this book is its successful integration of valuation theory with organizational reality. Madden bridges a gap that many business texts fail to cross: he speaks fluently to both shareholders and stakeholders without diluting rigor. By exposing how traditional accounting practices often obscure long-term value drivers, the book challenges readers to rethink how performance is measured, managed, and communicated.
The framework presented is neither abstract nor ideological. Instead, it reflects decades of research and real world experience, offering managers and investors a coherent lens for understanding competitive advantage over time. Particularly valuable is the emphasis on learning, decision making processes, and culture as assets that compound or decay depending on leadership behavior.
In a business environment obsessed with quarterly results, Value Creation Thinking stands out as a serious, intellectually grounded roadmap for leaders committed to enduring performance. It is a thoughtful and timely contribution to the evolving conversation about the future of capitalism and responsible enterprise.
October 30, 2017
Excellent Read
This is an excellent resource for anyone who wants to understand wealth creation and it's implications for business. Good work by Bartley Madden.
This is an excellent resource for anyone who wants to understand wealth creation and it's implications for business. Good work by Bartley Madden.
Displaying 1 - 4 of 4 reviews