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Management article
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Reference no. 86204
Authors: Robert S Kaplan
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1986
Length: 9 pages

Abstract

The apparent inability of traditional modes of financial analysis like discounted cash flow to justify investments in computer-integrated manufacturing has led many managers to turn to criteria that seem more closely connected with strategy. Actually, there is no conflict between the financial and the strategic justification of CIM. There is no unbreachable gulf between the logic of DCF and the nature of CIM. All that are needed are new ways to apply DCF to CIM investment proposals. DCF usually fails to work right when companies set arbitrarily high hurdle rates for evaluating new investment projects. Despite the costs that introducing CIM entails, for many companies there is no real alternative to investment in CIM.

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Abstract

The apparent inability of traditional modes of financial analysis like discounted cash flow to justify investments in computer-integrated manufacturing has led many managers to turn to criteria that seem more closely connected with strategy. Actually, there is no conflict between the financial and the strategic justification of CIM. There is no unbreachable gulf between the logic of DCF and the nature of CIM. All that are needed are new ways to apply DCF to CIM investment proposals. DCF usually fails to work right when companies set arbitrarily high hurdle rates for evaluating new investment projects. Despite the costs that introducing CIM entails, for many companies there is no real alternative to investment in CIM.

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