Aramco conference keynote address: New approaches through asset-based management

Asset-based supply chains promise to revolutionize service delivery, connecting the global community in overlapping spheres of influence. Even the employee’s home can be viewed as a node in the supply chain of resources and technology investment.

Limitations of Current Approaches

Despite advances in management, information and learning technologies, organizations have continued to operate within the same functionally-based business model. The orientation has been toward:

Accounting conventions, not economic valuation
Using tools appropriate for consumable materials, not non-consumable assets
Focusing on the supply chain as a buying issue, not as a series of service-driven relationships requiring collaborative system-wide management
Focusing on maximizing financial assets such as working capital and fixed assets at the time of acquisition, not on systematically managing operating assets at every stage of their life-cycles

The functionally-based business model worked well in a manufacturing era in which there was little difference between accounting conventions and economic valuation. In a knowledge-driven world, the interaction of operating assets creates an organization’s intellectual property and ultimate valuation. Today’s service businesses require a new asset-based business model and new tool set to optimize performance.

Asset-based Business Model

Despite record profitability within many global corporations, some have reached an era where nothing seems to work smoothly. After reengineering and downsizing, no one knows where to go to get answers and service is down as viewed by customers. This need not be the case.

Companies can take immediate action to better manage their total organizational system extending outward to suppliers, service providers, customers / consumers, and employees and family members. Through asset-based process mapping, all contributors to the service delivery process can be interconnected. A combined global and life-cycle perspective can thus be obtained for three operating asset categories: (1) people and intellectual property, (2) equipment, and (3) facilities.

Why is this important? Because process and underlying data management can be developed in powerful new ways to benefit cost structure, productivity and quality using commonly available information and learning technologies. Management complexity is reduced profoundly by relating existing processes to three fundamental asset categories within the organization and across the asset-based supply chain. The organization is thus run directly through operations, not indirectly through a host of functions, departments and projects.

For example, equipment manufacturing, repair and service organizations are drawn into the service delivery equation at the customer level through system-wide feedback loops about equipment and parts performance. Operating risk is managed system-wide based on prevention strategies, not warranties. The extent of engineering design and in-process inspection is tailor-made, cut to fit for the specific project under consideration. Users and manufacturers truly operate in an environment of partnership where risk is minimized and returns maximized for all parties.

Growing the Profit

In the current world of record-breaking profitability, few companies dare to consider all the profits being left on the table through embedded waste in their cost structure plus lost revenues.

Yet how much of today’s profitability is based on maximizing efficiency and effectiveness in service organizations? Or is it based on adding revenues and spreading overheads rather than on true performance breakthroughs in core profitability? Such manufacturing based metrics such as revenue per employee don’t get to true profitability in services.

Examples of today’s embedded waste include:

Regional rather global based in-house engineering, inspection, operating and maintenance practices
Dysfunctional or non-existent company-supplier relationships
Quality systems that are driven by written procedure and urbane policy rather than performance based indicators
Repackaging of proven Industry Standards to “internationalize”

Companies can grow their profit by actions taken to systematically mange their operating assets and operating risks in a building block fashion.

Global and Life-cycle Strategies

Much has changed over the past 20 years through value-added outsourcing and flexible staffing strategies. Static structures, however, need to give way further through an expanded business model that provides the framework for flexible, distributed systems.

Many organizations today are sub-optimizing performance by developing enterprise-wide “end-to-end” solutions that stay within the existing business model. Failure to develop process and data models that encompass the asset-based supply chain and reverse supply chain lie at the heart of current organizational inefficiencies and ineffectiveness. For example, equipment asset performance management is fundamentally different than traditional inventory and materials management, but companies still operate with the same tool set and metrics.

Global strategies involve complete environments and the entire supply chain. Meanwhile when asset movement and status is known across the supply chain through serialized bar code scanning, organizations are capturing data about the entire life-cycle of their assets.

Actions can thereby be taken through global and life-cycle strategies in some of these ways:

Assess Total Equipment Ownership Costs in terms of both global supply chain and life-cycle perspectives
Reorient cost structure in light of life-cycle cost management analysis. Increased investment in equipment and employee-related maintenance spending can drive down acquisition, on-line and replacement costs and lost revenues
Greater focus on system-wide metrics including service availability that identify major cost savings from newly implemented engineering, inspection, operating or maintenance practices. As an example, this could be as simple as upgrading existing shop testing requirements to avoid more costly on-line failure, resulting in significant loss in revenue streams
Utilizing remote diagnostics to supplement preventative maintenance and risk-based field inspections

There are numerous ways that existing process management can be streamlined and enhanced. Many generally accepted cost cutting and cost containment strategies are actually raising Total Equipment Ownership Costs and reducing revenue potential.

When global supply chain and life-cycle perspectives are added, cost impacts and revenue losses that are normally spread out among multiple functions and organizations are made visible and actionable. Cumulative impacts across the organization and industry and across time can be recognized for the waste that they are.

Although challenging at first, companies will find that a total systems approach through new forms of asset management makes total sense. Their goal becomes to eliminate waste and optimize asset-utilization across varying life-cycles driving up full utilization of people and intellectual property, equipment and facilities. Beside assessing human and organizational efficiency and effectiveness in new systemic ways, the benefits of infrastructure investment becomes directly measurable.

Keynote address originally delivered, copyrighted 1997 by System Change, Inc. and by Aramco Services Company as part of conference proceedings:

Carlson, John G. (1997, October) New Approaches through Asset-based Management. Speech delivered at “Methods, Strategies and Technologies to Reduce Total Equipment Ownership Costs” conference, Aramco Services Company, Houston, TX.

John G. Carlson is Founder and CEO of System Change, Inc., a methods-based consulting firm featuring assessment services. He can be reached at jcarlson@systemchange.com or through his firm's website: www.systemchange.com.

		Aramco conference keynote address: New Approaches through Asset-based Management by John G. Carlson, System Change, Inc. How many companies are confident they are maximizing the benefits of their infrastructure investments? Getting a handle on Return on Investment and Return on Assets can be difficult in most organizations? Much of the problem lies in a matter of perspective. Organizations remain rooted in a functionally-based business model which obscures the returns achieved on operating assets. Although services represent the bulk of today’s businesses, the majority of companies continue to operate with a tool set and metrics developed in a manufacturing world long ago. The greatest untapped performance opportunity lies in moving to an asset-based business model focused on three primary operating assets: (1) people and intellectual property, (2) equipment and (3) facilities, developed through company-supplier partnerships. Why is an Asset-based Approach Now Possible? Organizations have loaded up on technology and other infrastructure investment but it has been generally used to automate existing functions. Enterprise-wide solutions have made the existing business model more efficient, but the greater business leverage for service businesses lies elsewhere: Intranet networks and the Internet now allow cost effective connection of multiple users in an expanded asset-based business model. Customers, suppliers and employees and their family members can be directly connected to the organization. Action can now be cost effectively applied to assets themselves to enhance their performance. Self-management tools for equipment and human assets drive remote diagnostics and prevention in new ways. Information and learning technologies are now coming into office’s and people’s homes through Broadband technologies. Asset-based supply chains promise to revolutionize service delivery, connecting the global community in overlapping spheres of influence. Even the employee’s home can be viewed as a node in the supply chain of resources and technology investment. Limitations of Current Approaches Despite advances in management, information and learning technologies, organizations have continued to operate within the same functionally-based business model. The orientation has been toward: Accounting conventions, not economic valuation Using tools appropriate for consumable materials, not non-consumable assets Focusing on the supply chain as a buying issue, not as a series of service-driven relationships requiring collaborative system-wide management Focusing on maximizing financial assets such as working capital and fixed assets at the time of acquisition, not on systematically managing operating assets at every stage of their life-cycles The functionally-based business model worked well in a manufacturing era in which there was little difference between accounting conventions and economic valuation. In a knowledge-driven world, the interaction of operating assets creates an organization’s intellectual property and ultimate valuation. Today’s service businesses require a new asset-based business model and new tool set to optimize performance. Asset-based Business Model Despite record profitability within many global corporations, some have reached an era where nothing seems to work smoothly. After reengineering and downsizing, no one knows where to go to get answers and service is down as viewed by customers. This need not be the case. Companies can take immediate action to better manage their total organizational system extending outward to suppliers, service providers, customers / consumers, and employees and family members. Through asset-based process mapping, all contributors to the service delivery process can be interconnected. A combined global and life-cycle perspective can thus be obtained for three operating asset categories: (1) people and intellectual property, (2) equipment, and (3) facilities. Why is this important? Because process and underlying data management can be developed in powerful new ways to benefit cost structure, productivity and quality using commonly available information and learning technologies. Management complexity is reduced profoundly by relating existing processes to three fundamental asset categories within the organization and across the asset-based supply chain. The organization is thus run directly through operations, not indirectly through a host of functions, departments and projects. For example, equipment manufacturing, repair and service organizations are drawn into the service delivery equation at the customer level through system-wide feedback loops about equipment and parts performance. Operating risk is managed system-wide based on prevention strategies, not warranties. The extent of engineering design and in-process inspection is tailor-made, cut to fit for the specific project under consideration. Users and manufacturers truly operate in an environment of partnership where risk is minimized and returns maximized for all parties. Growing the Profit In the current world of record-breaking profitability, few companies dare to consider all the profits being left on the table through embedded waste in their cost structure plus lost revenues. Yet how much of today’s profitability is based on maximizing efficiency and effectiveness in service organizations? Or is it based on adding revenues and spreading overheads rather than on true performance breakthroughs in core profitability? Such manufacturing based metrics such as revenue per employee don’t get to true profitability in services. Examples of today’s embedded waste include: Regional rather global based in-house engineering, inspection, operating and maintenance practices Dysfunctional or non-existent company-supplier relationships Quality systems that are driven by written procedure and urbane policy rather than performance based indicators Repackaging of proven Industry Standards to “internationalize” Companies can grow their profit by actions taken to systematically mange their operating assets and operating risks in a building block fashion. Global and Life-cycle Strategies Much has changed over the past 20 years through value-added outsourcing and flexible staffing strategies. Static structures, however, need to give way further through an expanded business model that provides the framework for flexible, distributed systems. Many organizations today are sub-optimizing performance by developing enterprise-wide “end-to-end” solutions that stay within the existing business model. Failure to develop process and data models that encompass the asset-based supply chain and reverse supply chain lie at the heart of current organizational inefficiencies and ineffectiveness. For example, equipment asset performance management is fundamentally different than traditional inventory and materials management, but companies still operate with the same tool set and metrics. Global strategies involve complete environments and the entire supply chain. Meanwhile when asset movement and status is known across the supply chain through serialized bar code scanning, organizations are capturing data about the entire life-cycle of their assets. Actions can thereby be taken through global and life-cycle strategies in some of these ways: Assess Total Equipment Ownership Costs in terms of both global supply chain and life-cycle perspectives Reorient cost structure in light of life-cycle cost management analysis. Increased investment in equipment and employee-related maintenance spending can drive down acquisition, on-line and replacement costs and lost revenues Greater focus on system-wide metrics including service availability that identify major cost savings from newly implemented engineering, inspection, operating or maintenance practices. As an example, this could be as simple as upgrading existing shop testing requirements to avoid more costly on-line failure, resulting in significant loss in revenue streams Utilizing remote diagnostics to supplement preventative maintenance and risk-based field inspections There are numerous ways that existing process management can be streamlined and enhanced. Many generally accepted cost cutting and cost containment strategies are actually raising Total Equipment Ownership Costs and reducing revenue potential. When global supply chain and life-cycle perspectives are added, cost impacts and revenue losses that are normally spread out among multiple functions and organizations are made visible and actionable. Cumulative impacts across the organization and industry and across time can be recognized for the waste that they are. Although challenging at first, companies will find that a total systems approach through new forms of asset management makes total sense. Their goal becomes to eliminate waste and optimize asset-utilization across varying life-cycles driving up full utilization of people and intellectual property, equipment and facilities. Beside assessing human and organizational efficiency and effectiveness in new systemic ways, the benefits of infrastructure investment becomes directly measurable. Keynote address originally delivered, copyrighted 1997 by System Change, Inc. and by Aramco Services Company as part of conference proceedings: Carlson, John G. (1997, October) New Approaches through Asset-based Management. Speech delivered at “Methods, Strategies and Technologies to Reduce Total Equipment Ownership Costs” conference, Aramco Services Company, Houston, TX. John G. Carlson is Founder and CEO of System Change, Inc., a methods-based consulting firm featuring assessment services. He can be reached at jcarlson@systemchange.com or through his firm's website: www.systemchange.com.
		Copyright 1997 by John G. Carlson, System Change, Inc. All rights reserved.