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also with a value-added view of manufacturing directly. ERP systems basically perpetuate the
philosophy of top-down, build-to-stock, and supply-driven mass-producing manufacturing
strategy. The value-added view of manufacturing is in line with the increasing emphasis on
◾
Demand pull reflected in order changes
◾
Flow manufacturing entailing fast changeovers
Like the Corporate Performance Monitor (CPM) discussed later, it is possible to envisage a
Manufacturing Performance Monitor (MPM) that monitors in real-time manufacturing processes
in terms of the various technical and economic value drivers.
15.4.1 Time Value of Customers and Shareholder Value
As suggested in Chapter 1, a company's market valuation or shareholder value is the sum total
of the envisaged lifetime values (LTVs) of its current and future customers, that is, its customer
capital. Customer capital is like a miner's canary—the bird whose death signals dangerous condi-
tions in mines. It is the most accurate (if grisly) leading indicator of the enterprise's competitive
advantage as well as that of its partners and competitors.
In this framework, the total value of the company, its market capitalization, is equal to the
present value of the total predictable lifetime value (LTV) of its current and future customers,
discounted for risk. Figure 15.1
shows the CLTV curve: a graph of Customers-Projected Lifetime
Value against Time. The earlier quarters are more accurate as they are based on information on
the sales pipelines, work-in-process, and backlog orders that contribute in making these earlier
numbers more reliable. But further out on the curve, the envisaged numbers are based more on
extrapolations of investments and trends. With the increasing risks associated with the progressive
forecasts into the future, the present value placed on them progressively decreases to zero.
he area
under the curve represents the customer's market capitalization.
The objective of any management
team to increase the shareholder value then translates into increasing the area under this curve.
As evident from looking at the CLTV Curve in Figure 15.2, this is achievable in the following
two ways:
Market
capitalization
Time
Figure 15.1
Market capitalization in terms of Customer Life time Value (CLtV).
