TOTAL VALUE MANAGEMENT IN ENTERPRISES

TOTAL VALUE MANAGEMENT IN ENTERPRISES OF VALUE CREATING MODEL
NAIJING WANG
Shandong Economic University, 7366 Erhuan Road
Jinan, Shandong, China
E-mail:cappussino@163.com
LU JING
Department of Civil Engineering and Architecture, University of Jinan, 106 Jiwei Road
Jinan, Shan Dong, China
E-mail:babycappussinor@163.com
In the background of knowledge-based economy and economy globalization, comparing with the traditional manufacturing industry, the modern manufacturing industry takes basic changes in operation character and manufacturing technique. To realize the target of “Enterprises of Value Creating Model”, the value management of modern manufacturing industry should rise to higher level than the traditional VA——“Total Value Management”(TVM).
1. How to State Total Value Management
Experts in Rand Corporation spent more than twenty years tracking 500 companies all over the world, and they found that there is a common feature in successful companies. In addition to the profit, they also pursued social objectives. American Management Master Peter Drucker pointed out: "Business exists in society; business is not only a livelihood, but a life." A new generation of management Master Peter Senge in "The Fifth Discipline" is also emphasized the learning organization is the true meaning of "living out the meaning of life." Since the enterprise is a kind of life, and to live out the meaning of life, we must pursue the value of life. The value mentioned here is the total value (or the overall value), that is the enterprises in their production process, not only to consider its own interests, but also to consider many interests of stakeholders. Enterprises will be able to survive and develop as long as they continue to create total value. Therefore, since the 80's of the 20th century, whether to create the total value had became new standards for the valuation of businesses.
Japan 4th Management Consulting World Conference pointed out that enterprise must do "6S" in the 21st century, that is CS (Customer Satisfy); ES (Employee Satisfy); MS (Manager Satisfy); SS (Society Satisfy); IS (International Satisfy); NS (Nature Satisfy). In fact, total value theory embodied in the "6S" idea.
In October 1997, Social Accountability International (SAI), European-American transnational corporations and other international organizations developed the Social Accountability 8000 International Standard (SA8000), which was the first international standard in code of ethics in the world. It requires companies to take up the environment and the responsibility of stakeholders as they pursue their own interests.
In our opinions, it should be defined as a kind of managing pattern, which seeks maximum enterprise value creation, basing on enterprise product value management, by means of customer value creation, with ideas of upgrading enterprise society value and sustainable development and aiming at enterprises of value creating model. It’s obvious that “total value” contains enterprise product value (EPV), customer value (CV) and enterprise society value (ESV).
2. Basis of the Total Value of Management Theory
Value Management has been studied by many disciplines, and modern manufacturing management studied it with a view of the product value, customer value and social groups. Therefore, the research for them was more unilaterally, and for integrating these three aspects of the “Total Value Management” study was rare.
The research for product value original by monographs "Value Engineering - Value Analysis Technology", which written by Lawrenoe • D • Miles published in 1961. Since then, after the United States set up the value engineering organization in 1959 , Japan, the United Kingdom, Australia, South Korea, India, Kuwait have also set up organizations. Especially in China, major breakthroughs have been made in the theory and business since value engineering adopted in the mechanical industry in 1979. In 1985, Professor Porter stated "enterprise value chain" which is a analysis tool of competitive advantage, a variety of value management models based on value chain have emerged in the modern manufacturing industry, such as Porter Hines re-definite the value chain, and Jeffery F. Rayport and John J. Sviokla proposed virtual value chain. Among these, the most common research focused on the value analysis in production or manufacturing operations for a single product, a small number of scholars have put forth to conduct a comprehensive analysis of the product value for the entire "value chain".
Since the 1980s, theoretical and practical areas focused on the customer value. The current study focused on some areas such as the definition, nature description and driver factors, Gronroos, Parasuraman, Woodruff, Zeithaml, and Professor Bai Changhong of Nankai University and other scholars have done a lot for this work. They reached Consensus in the following three areas: Customer value is perceived value of customers, which is the trade-off between perceived benefits and perceived sacrifices; Customer value has three characters as follow: Sequential attribute, Dynamic attribute and Relationship attribute; relationship marketing could create a more value than pure transaction marketing.
Social responsibility is a hot topic at home and abroad over the past decade, especially in the social responsibility of modern manufacturing research. British scholar Oury Shelton proposed "Corporate Social Responsibility" concept first in 1923, from the 1950s so far, Keith Davis, Joseph W. McGuire, Edwin M. Epstein, Stephen P. Robbins, Archie B. Carroll have been studied social responsibility. In 1997, British-American non-governmental organizations - the Council of the priority areas of the economy (CEP) issued SA8000. Subsequently, Denmark, the Netherlands, France, the European Union have legislation to regulate the enterprise social responsibility. In recent years, legislation such as environment, population and resources on the domestic, as well as the "Scientific Outlook on Development" put forward, including on the norms of enterprise social responsibility from the micro-level understanding, at the same time, is also forcing companies to achieve social value with varieties ways.
3. Enterprises of Value Creating Model Framework in Modern Manufacturing Industry
The concept of “Enterprises of Value Creating Model” was put forward in the 33rd Value Engineering Annual Convention held by Japanese Value Engineering Society in Tokyo from October 24 to 25 in 2000. The idea of TVM in modern manufacturing industry shows the inner meaning of enterprises of value creating model clearly. On the basis of above analysis of TVM, combining the basic frame of enterprises of value creating model set forth in the convention, we construct the framework of “enterprises of value creating model in modern manufacturing industry” (As Figure 1).

We can see from above frame that modern manufacturing industry is in the global and social environment. To survive and develop better, it must protect and respect the whole environment and keep the ideas of increasing ESV and sustainable development. It includes: to protect environment, to save energy, to protect basic human rights and interests and to standardize enterprise behavior with SA8000 criterion. The customer of modern manufacturing industry is a part of society public. They deal with modern manufacturing industry directly or indirectly. The successful transaction and the good relationship is the final approval of EPV. Therefore, the modern manufacturing industry must be committed to enhancing customer value and core customer value innovation with customer value creation and customer value chain analysis tool. The increase of EPV is the basis of achievement of maximum value for modern manufacturing industry. At the same time of seeking ESV and creating CV, modern manufacturing industry should analyze, evaluate and create systematically all the activities in the value chain to achieve rectification of high-cost economy, with enterprise value chain as managing tool and VA as managing method.
4. TVM in Enterprises of Value Creating
Dialectical unifies of EPV, CV and ESV in modern manufacturing industry. With reference to its essential, TVM in modern manufacturing industry is not confined to EPV, but the integration of EPV, CV and ESV. This is determined by the multi-target pursuit of value in modern manufacturing industry. EPV is the ratio of profit the enterprise gains to the expenses. It refers to the value of all the activities relative to product value creation in the enterprise value chain, like production operation, product price, delivery time and after-sale service. CV is the perceived value of customers about the whole operation of enterprise, that is, customers’ trade-off between perceived benefits and perceived sacrifice. It refers to the value of all the activities relative to CV creation in the customer value chain. ESV means in the process of creating value, modern manufacturing industry must give consideration to social accountability, lay emphasis on social effectiveness, such as vindication of man’s dignity, attention to environment protection and energy conservation. As far as their relationship, fundamentally speaking, they are consistent: only if CV is increased, customers can accept the enterprise, EPV can be realized, so the enterprise can develop thoroughly, increases ESV and consequently seeks higher CV; only if ESV is increased, society can accept the enterprise, so the enterprise can develop in more favorable circumstances, realizes and consolidates EPV.
4.1. EPV management
4.1.1. Value chain in modern manufacturing industry
Since Porter put forward “value chain”, the tool of analyzing enterprise competitive advantage, in his book Competitive Advantage, various management styles based on value chain have been coming up continually in modern manufacturing industry. The following is the value chain of modern manufacturing industry.



In fact, each part of chief and auxiliary business in the value chain of modern manufacturing industry can be subdivided into several concrete activities, that is unfolded form of enterprise value chain (as Table 1). The purpose of these classifications is to find the potential aspects in which enterprise can gain or create product value. According to this, the resources and capability that can increase EPV will be identified.

4.1.2. Method of EPV―Method of VA
4.1.2.1. Definition of EPV
Production value is generated by the features, characteristics, quality, variety and style of product. The formula is: Product + Service = product value, which is the center of the customer needs, and also the primary factor for customer purchasing products.

4.1.2.2. Analysis of EPV
As a carrier of brands and enterprises, product is the intangible value. It makes value competition among commodities, and form into the corporate culture competitive in the final. We can evaluate EPV in particular from the following aspects.
Functional (F): customer needs. Customer needs products with core function and product quality, that is the core layer, which reflects a key part of customer needs, the specific performance is product structure and composition of elements which determinate the function and quality.
Product Additional Interests (U): availability. This is additional part of the products or additional products, a variety of services associated with product supply. Product additional interests meet the customers needs better, and usually is different part. Its can attract customers, establish a good corporate image, increase the rate of repeat purchase.
Shape (A): seductive packaging. The value of production is mainly composed of two parts: one is using value, which can be percept only after using it; the other is the brand value which conveyed through the packaging design, which is products physical characteristics layer. There are different physical characteristics layers in same core layer, and able to meet the preferences of different customer needs.
We must also consider the product cost C in addition to the above factors: transfer value in physical work, live and create the value of labor cost to the dominant part of the individual workers, labor protection costs, downtime losses, etc. The formula is as follows:
(1)
In formula 1, EPV is value; F is core layer which is function, can be seen as the demand for products; U is product additional interests, which is availability, can be decomposed into after-sales service SE, product safety SA, product' environmental G; A is shape, a brand factor,; C is the cost.
If design-manufacturing cost is Cm; sales-service cost is Cs; transaction cost is Cd; the use-maintenance cost is Cu, the total cost is as follows:
TC= Cm + Cs + Cd + Cu (2)
In formula 2, design-manufacturing cost and sales-service cost component of the total cost of vendor Cj:
Cj = Cm + Cs (3)
Formula 1can be written as:
(4)
4.2. CV Management
CV is in fact customer perceived value (CPV), whose core is the trade-off between perceived benefits and perceived sacrifices. Perceived benefits is a series of benefits the customers can perceive from certain product or service; Perceived sacrifices is a series of cost the customers pay out in evaluating, obtaining and using certain product or service. CV can be expressed with this formula:
CV＝CPV＝ (5)
Customer value chain is an integration of CPV formed in transaction process and relationship process. Its structure should give full expression to the core idea and basic character of CV (Just as Figure3).

In fact, as each part of chief and auxiliary business in enterprise value chain can be subdivided into several concrete activities, the eleven steps of trade value and four parts of relationship value in customer value chain (we call them “a-class factor”) can be also subdivided into several concrete CPV, including perceived benefits and perceived sacrifices (we call them “second-class variation”). As Table 2:
Management of CV also shows the idea of VA. The structure and unfolded form of customer value chain provides a quantum basis for our research of CV management. For each second-class variation, we can set customers’ perceived weight and perceived score so as to measure CV effectively and discover core customer value. According to this, we start CV creation.


4.3. ESV Management
People has put the goal from the pursuit profit maximization to enhance the social value with the development of society, that is concerning on business-to-staff, the environment, the community.
Norsk Hydro story "four circles" described the connotations of ESV. In "Four Circle" story, the business stakeholders are the customers, employees, government, local communities, public institutions and powers. Founded in the early stage, enterprise focused only on the products, then enterprises begin to pay attention to the working environment of employees, as well as the protection of the environment to the community with the passage of time, and ultimately, enterprise developed through their own performance, such as respect for local culture, respect for human rights, as well as the product sustainable products. Thus, we can understand the social value as "modern enterprise strike a balance between social responsibility in production and management process, such as people-oriented, pay attention to environmental protection, energy-saving society, participate in charity, etc." and "four circles" theory summarized enterprise social values as follows:
ESV= Attention Employees+ Attention Environment + Attention Society (6)
Designing Indicators of ESV management system should attach importance to the value of resources and environmental protection, economic growing value, society stability and harmonious development value, and we can try to establish a ESV evaluation system, which is combined of personality indicators and common indicators, qualitative indicators and quantitative indicators, the basic indicators and amendment indicators, process indicators and outcome indicators, as shown in table 3.


(7)
（8）
In formula 7 and formula 8, WBi and Wcij are the weight for Bi and Cij.
5. " Soft Value Chain of the Reasonable Quality" based on TVM
"Reasonable quality" means a scientific, systematic, comprehensive and long-term planning for operation of the quality and future development built on grasp customer needs and exceeds customer demand dynamically, based on the economic of quality cost and technical state of practice. Product quality determines the degree of customer satisfaction. But at the same time, products quality impacts of life-cycle, and affects the products sales. In the pressure of demand and supply flexibility, it restricts enterprise to achieve the goal of profit maximization, which affects product value in turn.
In addition, the level of product quality affects the level of environmental pollution further so as to determine the social value. So, how to restrict the products quality within reasonable limits, and reached the balance of EPV, ECV and ESV, then obtains the enterprises integrated value maximization? Measure of reasonable quality provide new depth thinking for the total value management in modern manufacturing industry. "Soft Value Chain of the Reasonable Quality" can be seen as Figure 4.

"Soft Value Chain of the Reasonable Quality" reflects the relationship between enterprise profits and EPV, ECV, ESV. In short terms, EPV is a dominant factor, the upgrade of EPV, ECV, ESV makes decline in business profits, but in long terms, ECV and ESV will enhance profit greatly.
How to develop enterprises of Value Creating in modern manufacturing industry? Total value management (TVM) has provided a new management paradigm and the development space, it also develops brand-new thoughts worthy of reference for enterprise circles to discuss and research this subject and build up management concept that can make enterprises alive forever. Sustainable development for both enterprises and society, the win-win for enterprise development and social interests will be the principal means for enterprise enhancing competitiveness.

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