Measuring Long‐term Performance for Advanced Manufacturing Technology: An International Perspective

Abstract

New developments in the manufacturing industries require reexamining both the performance evaluation techniques and the concept of performance itself. As to evaluation, the return on investment model (ROI), popular during the 1950s throughout the 1970s, has faced much criticism that in the 1980s and the 1990s new financial and nonfinancial performance evaluation methods gained popularity. On a world‐wide basis, the increasing adoption of automation and the trend toward more centralization have changed the concept of performance. No longer based on motivating and directing the labor force, performance now aims to obtain the best results out of robotic assets and flexible manufacturing systems (FMS), which require new managerial attention and attitude. These factors have made the concept of performance more vague and difficult to define and measure. After comparing and contrasting how multinational and domestic companies evalu‐ate corporate performance, the study reconstructs the concept of performance, bringing forth fundamental propositions (axioms) of the long‐run dimension of measurement and utilization as the core of performance. Developing utilization as a dynamic concept with constantly changing components, a long‐term discounted‐cash‐flow return on investment (DCF‐ROI) model is developed and exhibited as a comprehensive measure of utilization. The DCF‐ROI model fits harmoniously into the mechanisms of the new cost reduction techniques of target and kaizen costing. Kaizen, a Japanese term, is translated into English as “improvement,” i.e., a continuous accumulation of betterment activities over the long run. Target and Kaizen costing are conditioned by top management's target profit which can take the form of a DCF‐ROI objective. This kaizen‐oriented DCF‐ROI is demonstrated as a moving average ratio that captures the dynamic utilization through its progression over ten years. Limitations of the model and recommendations for further research are also presented.

Citation

Bayou, M.E. and Reinstein, A. (1995), "Measuring Long‐term Performance for Advanced Manufacturing Technology: An International Perspective", Managerial Finance, Vol. 21 No. 9, pp. 3-24. https://doi.org/10.1108/eb018530