The Blue Line Imperative is about creating value in every decision that is made. Value creation is “an evolutionary force of nature”, necessary for humanity to avoid extinction, and far from easy to sustain. According to the authors, many businesses, government agencies and non-profits pursue misguided definitions of value, and make decisions that destroy value rather than create it. To create value, you need to figure out how to give customers what they want at a reasonable price, and you need to earn a competitive return relative to the world’s other uses of the invested capital and resources.
The core of this book is about present value discounting. For many, the very nature of present value can be confusing. The Blue Line Imperative illustrates how to develop an unbiased forecast of the cash flow expected from an investment, as well as how to deduce the appropriate discount rate. Frequent examples and a well-presented case study help drive these points home.
The book also endeavours to demystify and celebrate finance. It describes how medieval Europe eventually gave way to an era where ever larger numbers of people were able to join the elite in the pursuit of life-style improvements and pleasures – in other words “happiness”. This pursuit was enabled by the evolution of an independent and unemotional financial market that provided the requisite investment capital.
An intriguing thread of business philosophy runs throughout the book. The authors describe “blue line” thinking – a focus on essentially intangible factors such as a culture of fairness, trust, and learning – that leads to value creating decisions on a sustained basis. They contrast this with “red line” thinking that is focused mainly on the delivery of tangible short-term metrics such as share price and growth targets, which ultimately destroy value through various distorting factors (including creating an environment where employees
tend to lie).
The authors offer excellent guideposts for how to move toward “blue line” decision-making and how to detect the encroachment of “red line” behaviours. They acknowledge how top-down “red line” demands can squelch blue-line practices lower in the organization – a relatively normal consequence of the constant external pressure for short-term performance.
Moreover, The Blue Line Imperative goes one step further – and touches on themes that could be used not only for surviving in this environment, but also for trying to convert the top team from red- to blue-line thinking. As a possible sequel, I myself would enjoy learning more about strategies and tactics for making blue-line thinking dominant, because – let’s face it – sometimes the forces of red don’t play fair.
Reviewed by David Nagel, executive vice-president of BP America
What Managing for Value Really Means
Kevin Kaiser and S David Young