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Verifying Functionality: Maximizing Value of the Firm (MVF)

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Executive Decision Synthesis

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

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Abstract

Macro-economists cannot expect governments or central banks to use them as test objects for their theories. Likewise, we cannot expect firms to submit themselves as test subjects to verify the functionality of our prescriptive paradigm. Therefore we simulate with a surrogate of a real company. The surrogate is system dynamics model of ADI, a high technology electronics firm. The model has over 620 equations to represent ADI’s operational behavior of its functional areas and the firm’s interactions with its external environment. The model’s documentation covers over 400 pages. This chapter models the decision to Maximize the Value of Firm (MVF). The goal is to shield ADI from “vulture hunters”. High market value will make it costly to buy control of the firm. As such, MVF is directed at forces exterior of ADI. Best effort has been made to attach the data for the simulations as appendices and all the calculations are shown and illustrated.

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Notes

  1. 1.

    IC yield and manufacturing yield are used interchangeably.

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Appendices

Appendix 5.1 MVF(L81(34,23+1)) Experiment Data Under Uncertainty Regimes

1.1 Appendix 5.1.1 MVF(L81(34,23+1)) at t = 12

Table 44

1.2 Appendix 5.1.2 MVF(L81(34,23+1)) at t = 18

Table 45

1.3 Appendix 5.1.3 MVF(L81(34,23+1)) at t = 24

Table 46

Appendix 5.2 MVF(L81(34,23+1)) Controllable Variables Statistics

1.1 Appendix 5.2.1 MVF(L81(34,23+1)) Controllable Variables ANOVA and Residuals at t = 18

Analysis of Variance L81(34,23+1) MVF t = 18

Source

DF

Seq SS

Adj SS

Adj MS

F

P

r&d

2

10,036

10,036

5018

1154.58

0.000

yield

2

82,533

82,533

41,267

9494.95

0.000

cogs

2

88,669

88,669

44,334

10,200.80

0.000

price

2

275,285

275,285

137,643

31,669.83

0.000

yield*cogs

4

9422

9422

2356

541.99

0.000

yield*price

4

8085

8085

2021

465.04

0.000

cogs*price

4

6492

6492

1623

373.42

0.000

yield*cogs*price

8

2609

2609

326

75.04

0.000

Error

52

226

226

4

  

Total

80

483,357

    

S = 2.08475, R-Sq = 99.95%, R-Sq(adj) = 99.93%

figure a

1.2 Appendix 5.2.2 MVF(L81(34,23+1)) Controllable Variables ANOVA and Residuals at t = 24

Analysis of Variance L81(34,23+1) MVF t = 24

Source

DF

Seq SS

Adj SS

Adj MS

F

P

r&d

2

20,325

20,325

10,162

2078.86

0.000

yield

2

63,088

63,088

31,544

6452.87

0.000

cogs

2

66,048

66,048

33,024

6755.64

0.000

price

2

247,424

247,424

123,712

25,307.32

0.000

yield*cogs

4

25,979

25,979

6495

1328.58

0.000

yield*price

4

24,642

24,642

6161

1260.24

0.000

cogs*price

4

22,971

22,971

5743

1174.75

0.000

yield*cogs*price

8

8240

8240

1030

210.72

0.000

Error

52

254

254

5

  

Total

80

478,972

    

S = 2.21097, R-Sq = 99.95%, R-Sq(adj) = 99.92%

figure b

Appendix 5.3 MVF(L81(34,23+1)) Uncontrollable Variables Statistics

1.1 Appendix 5.3.1 Uncontrollable Variables ANOVA Table and Residuals at t = 18

Analysis of Variance for MVF t = 18

Source

DF

Seq SS

Adj SS

Adj MS

F

P

LT growth

1

12,879

12,879

12,879

60.17

0.001

ADI orders

1

171,615

171,615

171,615

801.84

0.000

Competitor

1

63,637

63,637

63,637

297.33

0.000

Error

4

856

856

214

  

Total

7

248,987

    

S = 14.6296, R-Sq = 99.66%, R-Sq(adj) = 99.40%

figure c

1.2 Appendix 5.3.2 Uncontrollable Variables ANOVA Table and Residuals at t = 24

Analysis of Variance MVF L81(34,23+1) t = 24 uncontrollable variables

Source

DF

Seq SS

Adj SS

Adj MS

F

P

LT growth

1

29,601

29,601

29,601

60.25

0.001

ADI orders

1

168,167

168,167

168,167

342.28

0.000

Competitor

1

89,059

89,059

89,059

181.27

0.000

Error

4

1965

1965

491

  

Total

7

288,792

    

S = 22.1655, R-Sq = 99.32%, R-Sq(adj) = 98.81%

figure d

Appendix 5.4 MVF(L27(34−1,23+1)) Experiment Data Under Uncertainty Regimes

1.1 Appendix 5.4.1 MVF(L27(34−1,23+1)) at t = 12

Table 51

1.2 Appendix 5.4.2 MVF(L27(34−1,23+1)) at t = 18

Table 52

1.3 Appendix 5.4.3 MVF(L27(34−1,23+1)) at t = 24

Table 53

Appendix 5.5 MVF(L27(34−1,23+1)) Controllable Variables Statistics

1.1 Appendix 5.5.1 Controllable Variables ANOVA and Residuals at t = 18

Analysis of Variance for firm value

Source

DF

Seq SS

Adj SS

Adj MS

F

P

r&d

2

4557

4557

2279

5.17

0.019

yield

2

28,165

28,165

14,082

31.95

0.000

cogs

2

29,211

29,211

14,605

33.14

0.000

price

2

92,834

92,834

46,417

105.32

0.000

yield*cogs

2

1743

1743

871

1.98

0.171

Error

16

7051

7051

441

  

Total

26

163,561

    

S = 20.9931, R-Sq = 95.69%, R-Sq(adj) = 92.99%

figure e

1.2 Appendix 5.5.2 Controllable Variables ANOVA and Residuals at t = 24

Analysis of Variance for firm value MVF(L27) t = 24

Source

DF

Seq SS

Adj SS

Adj MS

F

P

r&d

2

9199

9199

4599

3.26

0.065

yield

2

20,765

20,765

10,383

7.37

0.005

cogs

2

22,106

22,106

11,053

7.85

0.004

price

2

82,669

82,669

41,335

29.34

0.000

yield*cogs

2

4803

4803

2402

1.70

0.213

Error

16

22,542

22,542

1409

  

Total

26

162,085

    

S = 37.5350, R-Sq = 86.09%, R-Sq(adj) = 77.40%

figure f

Appendix 5.6 MVF(L27(34−1,23+1)) Uncontrollable Variables Statistics

1.1 Appendix 5.6.1 Uncontrollable Variables: Table and Residuals Graph at t = 18

Analysis of Variance for MVF(L27) t = 18

Source

DF

Seq SS

Adj SS

Adj MS

F

P

LT growth

1

12,831

12,831

12,831

60.02

0.001

ADI orders

1

171,516

171,516

171,516

802.31

0.000

Competitor

1

63,468

63,468

63,468

296.89

0.000

Error

4

855

855

214

  

Total

7

248,670

    

S = 14.6211, R-Sq = 99.66%, R-Sq(adj) = 99.40%

figure g

1.2 Appendix 5.6.2 Uncontrollable Variables: Table and Residuals Graph at t = 24

Analysis of Variance for MVF(L27) t = 24

Source

DF

Seq SS

Adj SS

Adj MS

F

P

LT growth

1

29,440

29,440

29,440

60.77

0.001

ADI orders

1

168,536

168,536

168,536

347.87

0.000

Competitor

1

89,094

89,094

89,094

183.89

0.000

Error

4

1938

1938

484

  

Total

7

289,008

    

S = 22.0111, R-Sq = 99.33%, R-Sq(adj) = 98.83%

figure h

Appendix 5.7 MVF(L27(34−1,23+1)) Experiment Responses: Means and Standard Deviations

1.1 Appendix 5.7.1 Response Tables MVF(L27(34−1,23+1)) at t = 18

Response Table for Means

Level

r&d

yield

cogs

price

1

863.0

805.1

884.1

767.9

2

843.0

848.4

849.7

860.2

3

831.5

884.1

803.8

909.4

Delta

31.5

79.0

80.3

141.5

Rank

4

3

2

1

Response Table for Standard Deviations

Level

r&d

yield

cogs

price

1

185.6

181.2

178.7

179.5

2

180.3

181.2

181.0

179.9

3

174.9

178.4

181.1

181.4

Delta

10.7

2.8

2.4

1.9

Rank

1

2

3

4

1.2 Appendix 5.7.2 Response Tables MVF(L27(34−1,23+1)) at t = 24

Response Table for Means

Level

r&d

yield

cogs

price

1

759.8

698.3

765.6

659.8

2

729.8

741.4

742.7

754.0

3

715.5

765.4

696.8

791.3

Delta

44.3

67.0

68.8

131.5

Rank

4

3

2

1

Response Table for Standard Deviations

Level

r&d

yield

cogs

price

1

208.9

204.6

189.1

205.2

2

196.6

198.3

198.4

196.6

3

187.8

190.3

205.7

191.4

Delta

21.1

14.3

16.5

13.8

Rank

1

3

2

4

Appendix 5.8 MVF(L27(34−1,23+1)) Plots: Means and Std. Dev.

1.1 Appendix 5.8.1 Plots: Means and Standard Deviations at t = 18

figure i
figure j

1.2 Appendix 5.8.2 Plots: Means and Standard Deviations at t = 24

figure k
figure l

Appendix 5.9 MVF(L9(34−1,23+1)) Experiment Data Under Uncertainty Regimes

1.1 Appendix 5.9.1 MVF(L9(34−1,23+1)) at t = 12

Table 60

1.2 Appendix 5.9.2 MVF(L9(34−1,23+1)) at t = 18

Table 61

1.3 Appendix 5.9.3 MVF(L9(34−1,23+1)) at t = 24

Table 62

Appendix 5.10 MVF(L9(34,23+1)) Controllable Variables Statistics

1.1 Appendix 5.10.1 Controllable Variables ANOVA Table and Residuals at t = 18

Source

DF

Seq SS

Adj SS

Adj MS

F

P

r&d

2

3276.7

3775.4

1887.7

18.13

0.052

yield

2

5835.3

6479.2

3239.6

31.12

0.031

cogs

2

9537.0

13,094.5

6547.2

62.89

0.016

price

2

31,861.2

31,861.2

15,930.6

153.02

0.006

Error

2

208.2

208.2

104.1

  

Total

10

50,718.4

    

S = 10.2033, R-Sq = 99.59%, R-Sq(adj) = 97.95%

figure m

1.2 Appendix 5.10.2 Controllable Variables ANOVA Table and Residuals at t = 24

Analysis of Variance for firm value 24

Source

DF

Seq SS

Adj SS

Adj MS

F

P

r&d

2

8536.5

9182.5

4591.2

12.29

0.075

yield

2

3895.9

4370.6

2185.3

5.85

0.146

cogs

2

10,892.8

14,255.3

7127.6

19.09

0.050

price

2

27,518.3

27,518.3

13,759.1

36.84

0.026

Error

2

746.9

746.9

373.5

  

Total

10

51,590.4

    

S = 19.3251, R-Sq = 98.55%, R-Sq(adj) = 92.76%

figure n

Appendix 5.11 ANOVA L9(34−2,23+1) Uncontrollable Variables Statistics

1.1 Appendix 5.11.1 Uncontrollable Variables ANOVA and Residuals at t = 18

Analysis of Variance for MVF t = 18, using Adjusted SS for Tests

Source

DF

Seq SS

Adj SS

Adj MS

F

P

LT growth

1

13,177

13,177

13,177

57.34

0.002

ADI orders

1

171,735

171,735

171,735

747.27

0.000

Competitor

1

63,271

63,271

63,271

275.31

0.000

Error

4

919

919

230

  

Total

7

249,102

    

S = 15.1597, R-Sq = 99.63%, R-Sq(adj) = 99.35%

figure o

1.2 Appendix 5.11.2 Uncontrollable Variables ANOVA and Residuals at t = 24

Analysis of Variance for MVF

Source

DF

Seq SS

Adj SS

Adj MS

F

P

LT growth

1

30,330

30,330

30,330

57.35

0.002

ADI orders

1

169,396

169,396

169,396

320.31

0.000

Competitor

1

89,062

89,062

89,062

168.41

0.000

Error

4

2115

2115

529

  

Total

7

290,904

    

S = 22.9966, R-Sq = 99.27%, R-Sq(adj) = 98.73%

figure p

Appendix 5.12 MVF(L9(34−1,23+1)) Response Means and Standard Deviations

1.1 Appendix 5.12.1 Tables: Means and Standard Deviations at t = 18

Response Table for Means

Level

r&d

yield

cogs

price

1

868.1

811.5

878.7

771.4

2

835.2

838.8

855.3

846.2

3

823.2

876.1

792.5

908.9

Delta

44.9

64.6

86.2

137.5

Rank

4

3

2

1

Response Table for Standard Deviations

Level

r&d

yield

cogs

price

1

187.9

182.9

178.8

181.2

2

179.4

178.1

182.8

178.2

3

174.2

180.6

180.0

182.2

Delta

13.7

4.8

4.0

4.0

Rank

1

2

4

3

1.2 Appendix 5.12.2 Tables: Means and Standard Deviations at t = 24

Response Table for Means

Level

r&d

yield

cogs

price

1

772.8

709.6

760.5

669.2

2

720.6

724.0

758.1

733.9

3

704.5

764.4

679.4

794.8

Delta

68.3

54.8

81.1

125.5

Rank

3

4

2

1

Response Table for Standard Deviations

Level

r&d

yield

cogs

price

1

210.2

207.1

192.9

208.9

2

196.7

196.0

197.0

195.6

3

189.0

192.8

206.0

191.5

Delta

21.2

14.3

13.2

17.4

Rank

1

3

4

2

1.3 Appendix 5.12.3 Graphs: Means and Standard Deviations at t = 18

figure q
figure r

1.4 Appendix 5.12.4 Graphs: Means and Standard Deviations at t = 24

figure s
figure t

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Tang, V., Otto, K., Seering, W. (2018). Verifying Functionality: Maximizing Value of the Firm (MVF). In: Executive Decision Synthesis. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-319-63026-7_5

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