Value-based management (VBM) burst onto the scene a decade ago with a revolutionary promise: a company that traded in traditional management approaches in favor of VBM could align its aspirations, mind-set, and management processes with everyday decisions that truly add shareholder value. Name the initiative—investing in a new project, say, or spinning off a subsidiary, or implementing new customer-service guidelines—and management could not only pinpoint better projects but also better understand the value they would create for shareholders. Indeed, well-implemented VBM programs typically deliver a 5 to 15 percent increase in bottom-line results.

Sadly, even as VBM has evolved, most programs are notable more for their implementation shortfalls than for their successes. In our ongoing work and discussions with executives, we have begun to identify a few common pitfalls that have repeatedly plagued underperforming VBM programs going back years as well as some newer wrinkles that stanch the benefits that VBM can deliver. We've also developed an anecdotal view of how the most successful practitioners push the principles of VBM to achieve its real promise for shareholders.

Simply put, ailing VBM programs typically settle for merely measuring value creation in business initiatives, while successful approaches push to link tightly the...