Four reasons why asset management must be this year’s obsession for CEOs

Add bookmark

John Woodhouse

In this first part of John Woodhouse's walk-through of the benefits of asset management, we take a look at four separate issues that could be solved by this emerging science.

CEOs are the agenda setters who decide what is important and what can wait. In the wake of the oil price descent, improving asset management should be a key addition to the top of the strategic agenda for industries both large and small.

The reason? Asset management can yield many benefits in terms of cost savings, operational efficiencies, investor confidence and business agility.

While it is nothing new, to ask everyone to squeeze out costs, asking them to think about how to manage assets in a more thorough and sophisticated way can have a much higher return.

The approach spurs creativity in how to think about assets, the value obtainable from them, and how to re-engineer processes to release that value.

The sad truth is that most industries have a large stock of assets of one kind or another that are neither well understood nor optimally employed.

In addition, technical and business knowledge about the assets is not being captured and tends to walk out the door as employees leave.

Companies seeking to increase return on their assets should be urgently exploring the science of asset management as a way to address the following challenges:

Towards a complete asset solution

Starting in 2008, the British Standard Institute’s PAS 55 began laying out the checklist for “optimal management of physical assets” – the foundations for asset management.

Almost a decade on, asset-heavy companies across the globe are employing this management science as good practice guide for success. While adoption is widespread, it is far from universal – there are four very good reasons why it should be:

Organisational silos persist

Many C-suite executives won’t admit this openly, but they are actually aiding and abetting a silo mentality by protecting their turf.

A silo mentality is also reinforced by the way we measure and record localised successes without considering secondary consequences.

Key performance indicators for different groups are often competing rather than collaborative: one part of a business advances at the expense of another, which further exacerbates the internal fighting rather than achieving real value.

Asset management enables a macro-analytic view that delivers optimisations that are hidden by siloed thinking. 

Short-termism reigns

Executive leadership often takes the “short-termist” view to look good or meet immediate priorities. But this often causes false economies and deferred pain.

Day-to-day decision-making must consider longer-term consequences and opportunities, even though future impacts carry greater uncertainty and postponed responsibilities. Big benefits come from looking at the combined picture, including the pricing of risk and uncertainty.

Assets are both singular and collective

On a day-to-day and practical level, assets are dealt with individually but their benefits are derived from working in combination – in functional systems.

New levels of optimisation can be achieved by looking at assets in their systems context, to be managed for total, sustained value for money.

Enthusiasm is fleeting

Good ideas become a temporary enthusiasm or just a flavour-of-the-month for several reasons. The first is the churn rate of leaders and managers. Each new manager introduces his or her own idea, wanting to make a mark while downgrading momentum on previous initiatives.

The second is that we like new things, but when they become part of our day job, enthusiasm wanes. The third factor is that we add tasks and responsibilities but never give anyone (including ourselves) permission to stop doing the old stuff.

To sustain real improvement in asset management, we have to fight these tendencies and persevere to the point where improved practices become the new normal.

The bottom line

Asset management is becoming a mature management science, one that can be used to transform an organisation. Major improvements are being achieved in many sectors all over the world. CEOs should invest time on asset management because it is a proven path to massive, tangible return on investment.