Value

Abstract

To deliver sustainable shareholder value, management has to simultaneously manage operations in the short term while delivering on plans for the long term. Commitments in the short term include delivering on earnings and maintaining liquidity, while in the long term, they involve developing and executing on strategy and investments. The following framework discusses the metrics that encompass current and future performance.

Appendix: Modularity

The waves of innovation since the start of the industrial evolution have created an economic system that is increasingly sophisticated and complex. This economic system consists of objects that result from human intelligence and endeavours. These objects, or artefacts, include physical activities such as technologies and products, and intangible objects such as systems of law, organizations, strategies, science and designs.

Artefacts develop and evolve over time, as do the firms and markets that create and support these objects. These markets, technologies, products and firms evolve interactively to produce adaptive complex systems that ultimately become industries. An artefact is described by its design, and this designing of artefacts is a continuing process that accumulates at all levels to transform industries and economies.

Modularity is a theory of complex adaptive systems, design and industrial evolution that describes the creation of complex products and processes from smaller subsystems or modules that, although are independent in their design, nonetheless function together as a complete system. The modularity concept facilitates the management of complex systems by dividing them into smaller, more manageable components. This is achieved by creating a particular design structure with a set of design principles that separate the knowledge and tasks required for complex designs and artefacts.

The modularity concept has numerous applications, which include production scale and scope, mass customization and organization theory. An example can be found in computers, an artefact that has grown in complexity over the twentieth century. In the 1970s, the computer business evolved from a highly concentrated industry to modular clusters that manufactured components of larger computers systems. New designs created the opportunity for the emergence of new firms, which focused on manufacturing specialized components, or modules, that were linked by design rules for the creation of computer systems.

At the start of a modular design process, mandatory design rules are established for all stages of design and production. These design rules allow pieces of a modular system to be changed without the need to change the system as a whole. This capability creates the flexibility for the design to evolve at the module level, and therefore creates options for designers. These options provide opportunities for innovation and capabilities for firms to complete in today’s environment.

In the twenty-first century the dynamics of global commerce will continue. The new technologies, markets, products and competitors that emerge from this process present both risk and rewards. In this context, modularity can address three issues—it increases the ability to manage complexity, it facilitates various components of a design to be worked on simultaneously, and it accommodates uncertainty. Modularity therefore offers the capabilities to manage the complexities and uncertainties in this environment, and provides a framework for creating value, growth and innovation.