Manufacturing As A Center For The Creation Of Shareholder Value

Abstract

A sample of the best manufacturing firms from Industrial Week’s Annual Survey of Manufacturers (2008-2009) is analyzed within the context of a value driver matrix and free cash flow regime that link manufacturing to important determinants of shareholder value. The framework for analysis developed in association with this analysis relies on the format advocated by Rappaport (1998), whereby a manufacturing value driver map is derived that isolates those variables generally accepted as determinant with respect to manufacturing performance. This map is subsequently used to identify that subset of variables that have the greatest impact on value and, in turn, to focus on those micro-value drivers over which operations management has a meaningful level of control. If superior performance measured in terms of the micro-value drivers is an avenue to manufacturing excellence and the creation of shareholder value, one would expect to see statistically significant relationships between these predictor variables (micro-value drivers) and market value. Here this proposition is tested by way of a simultaneous reverse entry multiple regression analysis where market capitalization (V₀) is treated as a function of a set of manufacturing related micro-value drivers.