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The Dynamic Nature of the Governance Structure of Large Investments: Measurement and Modeling, Organizational Fit, and Earning Potential

TitleThe Dynamic Nature of the Governance Structure of Large Investments: Measurement and Modeling, Organizational Fit, and Earning Potential
Publication TypeWorking Paper
Year of Publication2014
KeywordsWorking Paper
Abstract

This white paper argues that governance of industrial investments should be connected to their actual and predicted states of operation in relation to the larger system where they operate. Our example system is a container ship that functions as part of an international logistics system. We investigate the measurement, analysis, and management of the ship’s performance. We focus on the actual dynamism of the physical system and how it can be predicted in a way that enables system governance to adapt and fit to changing conditions. This enables continuous discovery of sustainable ways to improve the financial performance of the system. We show that sensing and modeling technologies can increase the adaptability and flexibility of network governance and leadership at various phases of the life cycle.

With improved measurement, significant savings can be realized for each individual asset. Increased value for a ship could be up to US $1million annually through decreased fuel consumption, higher utilization, and minimized downtime . Over 90% of world trade is carried by ships using approximately 50,000 vessels. With increased ship performance, the overall system (ports, land transport, production planning in industry) can benefit. The combination of increased data through sensing, connected information that spans various functions, advanced analytics, and well organized human resources can change the earning potential and sustainability impacts associated with shipping. At its core, the basic benefit of this ‘industrial Internet’ is to turn data and information into actionable knowledge. 

We outline a framework that uses a values-based approach to assess the measurement needs of an investment and determine four different values: social, environmental, financial and functional value. Social value describes the overall benefits provided by the industry, i.e. the industries impact on society. Environmental value reflects the environmental footprint on both the industry and investment level. Our case study specifically focuses on financial value according to the Net Present Value (NPV) curve, and therefore moves toward a lifecycle analysis approach of individual investments. The functional value of an investment reflects its’ core function, and is a variable of the social and financial value. In the case of container ships, the functional value is the amount of transported containers, a variable of the revenues of a container ship, and the main part of the overall impact of the container shipping industry on society. Our case study also presents the multitude of actors and processes that impact the financial value of industrial investments during their operational phase. These actors are essential to consider when in predicting the physical outcome and system requirements to adapt to changing conditions.

URLhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511260